Fair trade?

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    Europe needs to find a responsible way out of its climate-regulation impasse.

    Is the worst financial storm in nearly 80 years having a deleterious effect on climate policy? It seemed that way last week, when European Union (EU) leaders failed to agree on a new set of market-based tools to cut the bloc's greenhouse-gas emissions by at least 20% from 1990 levels by 2020. Proponents could not overcome resistance from a group of countries, led by Poland, that argued that the plan would harm their national economies — an argument apparently given extra weight by the near-collapse of worldwide financial markets and the prospect of a deep economic downturn.

    At issue was a set of amendments to the EU's mandatory carbon emissions trading system. In the first phase of this scheme, implemented in 2005, emissions allowances were given to industry for free — and, in retrospect, in far too great an abundance. The resulting oversupply led to a very low price, and a corresponding failure to deliver the desired emissions reductions. The proposed amendments would require large facilities to bid for 100% of their emissions allowances at auction.

    Countries such as Poland, whose industries and energy systems are heavily based on coal, worry that this would put them at a serious competitive disadvantage. The proposed reforms do require nations such as Britain and Germany to contribute substantially more to the overall reduction target than economically less powerful countries. Nonetheless, Poland has threatened to block the amendments unless its energy-intensive heavy industries, such as cement and steel, can continue to use the free allowances.

    The French government, which currently holds the EU presidency, is trying to broker a compromise before its term expires at the end of the year. But meeting that deadline will be difficult. Some concessions to eastern member countries may be inevitable, and even justifiable. Their overall emissions are comparatively low, so the system as a whole would not be greatly compromised by a temporary respite. But for the scheme to work in the long run, special provisions must be limited to industry sectors that would otherwise face intolerable competitive disadvantages. Moreover, those sectors should be identified by a thorough, data-driven analysis of their competitive situation, energy intensity and emissions-reduction potential — not on the basis of which country has the most political clout. And, perhaps most importantly, free allowances must be granted for only a limited time, and their allocation phased out quickly. Otherwise the worst polluters could be granted a free pass indefinitely.

    Striking the right deal may take longer than the two months left to the French presidency. But a well-weighed set of rules is far preferable to a rushed political compromise that would substantially water down the EU's ambitious climate plan.

    Meanwhile, the current economic turbulence cannot be allowed to serve as a pretext for lessening climate-protection efforts. And there are signs that governments are getting that message, both in Europe and elsewhere. The British commitment, announced last week, to cut domestic greenhouse-gas emissions by 80% of 1990 levels by 2050, is a courageous example. If the British plan sets the tone for the upcoming negotiations, then the EU's ambitious climate goals are not at risk, even if some eastern member states cannot quite keep pace. And if the next US administration puts into action what both leading presidential candidates are promising in terms of climate policies, this economically woeful time could mark the move into a greener future.

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    Fair trade?. Nature 455, 1008 (2008) doi:10.1038/4551008a

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