Europe is moving toward making significant changes to its emissions-trading system that could force large polluters to pay for most, if not all, permits to produce climate-changing gases, European officials said Monday.
Although the European carbon-trading arrangement is considered to be among the world's most functional, the countries that administer it acknowledged in a meeting during the weekend in Essen, Germany, that the system had flaws, including a government credit allocation plan that allows companies to profit by lobbying for additional pollution permits.
According to a statement, the governments of the European Union plan to ask the European Commission to propose modifying the current framework, known as cap and trade, by including auction and benchmarking components that would reduce corporate influence over pollution permits after 2012, when a crucial period of the present system expires.
"Though it has been a success, we have undergone a steep learning curve, and we have seen some windfall profits being made by power companies," said Barbara Helfferich, a spokeswoman for the European environment commissioner, Stavros Dimas.
"We are considering auctioning up to 100 percent of credits," she said, and would seek to determine whether there should be a mandatory level of auctioning. The commission is to complete its review this year.
The post-2012 changes might give the European Commission greater power to impose overall caps on national governments. At present it must approve the allocations that each member country makes for its biggest polluters.
The acknowledgment of a shift comes before a visit by President Bush this week to the Group of 8 summit meeting in the German resort of Heiligendamm, where leaders are expected to debate the systems that nations and businesses should adopt to combat climate change.
Mr. Bush said last week that he would resist adopting a European-style system of allotting and trading pollution permits, a setup framed by the Kyoto climate treaty that aimed to cap the total amount of carbon dioxide released by companies.
But several countries have adopted similar systems, and some big American companies have urged a European-style solution. Additionally, a group of chief executives from large companies in the energy sector called Monday for establishing a global carbon market.
Europeans took an early lead in efforts to curb global warming by championing the Kyoto Protocol and then by establishing the largest carbon management system in the world to meet its requirements. The two-year-old system involves complicated quotas that cap carbon dioxide emissions from thousands of factories across the trade bloc.
Defenders of the European system say that it still is in its infancy.
"What's important is Europe's experimental approach," Tom Wilbanks, a climate scientist at Oak Ridge National Laboratory in Tennessee, said. "Aspects of the European system that work will be exported widely," he said, adding that European boldness will "help people avoid repeating the same mistakes."
Others, including Lawrence Summers, the former president of Harvard, argue that Europe has embarked on a project that needs a major overhaul. So far, progress in Europe has been modest when compared with international commitments.
In the 15 European countries that signed up to common Kyoto targets, the overall decline in emissions was about 2 percent by 2005 compared with 1990 levels, said Andreas Barkman, the project manager for greenhouse gases at the European Environment Agency. The Kyoto goal is 8 percent.
Last year, Europe was forced to cut the number of credits it hands out after companies successfully lobbied governments, flooding the market. Certain sectors like steel benefited from over-allocations by selling excess credits.
Electricity producers like E.On and RWE in Germany and Vattenfall, the Swedish energy company, also benefited from free allowances, by passing on costs to their customers, according to Jos Sijm, a senior economist at the Energy Research Center of the Netherlands, who tracks the issue.
"The first phase definitely did not deliver reductions in emissions," said Mahi Sideridou, the European Union climate policy director for Greenpeace in Brussels.
In the United States, General Motors, Duke Energy and others have lined up in favor of European-style quotas, leading many environmentalists and experts to question whether these companies would be required to do enough to change their business practices in ways that create an effective transition to a cleaner environment.
"The concern in the United States is that the caps would be set too low, and in that case companies would get off easy," Peter Haas, a professor of political science at the University of Massachusetts, Amherst, said.
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