Cap and Trade Rules
U.S. Gives Cap and Trade Boost for Climate Treaty

By Gerard Wynn
March 1, 2009

President Barack Obama's support on Thursday for a U.S. cap
and trade scheme boosted expectations of a global carbon market under a new
climate treaty, to be agreed this year to replace the Kyoto Protocol.

But crashing European carbon prices have underlined the volatility of market
approaches and hardened concerns that these may drive a stop-start fight against
climate change.

Trading approaches penalize carbon emissions and fight climate change by forcing
energy companies, for example, to buy an allowance or permit for every ton of
carbon emissions.

Obama backed a "market-based cap on carbon" and his budget detailed plans to
raise $80 billion annually from selling carbon allowances from 2012. Europe's
four-year-old scheme had a traded value of $90 billion last year.

A linked U.S.-European Union carbon market is the grand vision of EU regulators
who want to create a broad, low-cost carbon regime for business.

That could be a big plank of a new international climate treaty to replace the
Kyoto Protocol after 2012, which faces a tight deadline for agreement in
Copenhagen in December.

"That kind of linkage is actually emerging as the potential de facto post-Kyoto
architecture," said Harvard University's Robert Stavins, referring to links
between possible cap and trade schemes in Australia, Canada, Japan and the
United States.

Systems could link through globally traded carbon offsets which allow companies
to meet domestic carbon caps by paying for emissions-cutting projects in
developing countries.

Obama's support has added momentum for a global carbon market but a U.S. cap and
trade scheme is not guaranteed.

By forcing companies to buy carbon permits, such schemes impose extra costs on
industry and swell fuel bills. Republican opponents compare them to a tax which
they say the U.S. economy and households cannot bear.


Obama's backing for a market approach adds to that of the United Nations, which
wants to use carbon offset schemes to raise cash for climate action in
developing countries.

But the U.N.'s climate chief Yvo de Boer said developing countries increasingly
wanted public money, too.

"Carbon markets will continue to play an essential role but the key to
Copenhagen is significant public money on the table," he told Reuters.
"Otherwise they (developing countries) will not commit," to their own national
emissions cuts, he said.

Given the scale of the climate threat, the initial carbon caps which both the
United States and Europe had proposed for Copenhagen were too weak, cutting
greenhouse gases by about 15 percent below current levels by 2020, de Boer


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