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Governments form coalition on CO2 trading

The UK, Germany, Portugal, France, the Netherlands, some US states and Canadian provinces, New Zealand and Norway yesterday agreed to form a coalition that lead to a global emissions trading system.

The embryonic partnership, announced yesterday at a meeting in Lisbon, Portugal, could eventual result in an international system for buying and trading CO2 emissions. Such a system would add to the costs processors and other manufacturers are increasingly having to pay to reduce their impact the environment. However a wider global market could also ensure a more stable system for trading CO2 permits, which have been damage by price fluctuations.

The agreement was signed by US and Canadian members of the Western Climate Initiative, northeastern US members of the Regional Greenhouse Gas Initiative, as well as the UK, Germany, Portugal, France, the Netherlands, and the European Commission. New Zealand and Norway joined the new International Carbon Action Partnership on behalf of their emissions trading programs. The new ICAP is being set up as an international forum for governments and public authorities to share best practices in the design of emissions trading schemes.

„This cooperation will ensure that the programs are more compatible and are able to work together as the foundation of a global carbon market,” the coalition stated. „Such a market will boost demand for low-carbon products and services, promote innovation, and allow cost effective reductions so as to allow swift and ambitious global reductions in global warming emissions.” In a statement the group said that by working together to establish similar design principles, the member countries are ensuring that future market systems, in conjunction with regulation in the form of enforceable caps, will boost worldwide demand for low-carbon products and services.

The group will set up to system as a means of accurately monitoring, reporting and verifying emissions. By establishing common approaches, the members hope to eventually link together to expand the global carbon market. The market would also create a „clear price incentive to innovate, develop and use clean technologies”, the group stated. Stavros Dimas, the European Commission’s member responsible for environment said the partnership is a „powerful message” to the world ahead of the UN climate summit in Bali, being held 3-14 December. The EU pioneered the Emissions Trading Scheme (ETS) for the bloc, creating a billion euro market for CO2 permits.

The EU’s carbon market in the second phase creates an economic asset that is worth at current market prices about €40 billion, based on an annual cap of 2.08 billion tons and an allowance price of about €20. „One of the lessons we have learned in Europe is that the most important decision the designer of a carbon market has to make is to set the overall number of allowances, the cap as it is called in technical jargon,” he said. „For a variety of reasons Europe’s cap in the first period of operation was not stringent enough. This has resulted in a low price for emission reductions and created limited incentives to change daily business decisions.”

Many companies in the food and beverage sectors are participants in the EU’s ETS scheme, especially manufacturers of dairy products. Others have voluntary agreed to reduce greenhouse gas emissions even further than is required. Earlier this year Cadbury pledged a 50% reduction of net absolute carbon emissions from its manufacturing sites by 2020. The aim is to reduce not just the „relative” energy used in its global operations but also what it calls „absolute” carbon emissions. An absolute cut commits the business to reduce not only the emissions per ton but also overall output despite any growth.

Todd Stitzer, Cadbury Schweppes’ chief executive officer, then said the company would work with its supply chain partners to reduce emissions. He outlined a number of previous changes Cadbury had made to its operations in a bid to cut down on the company’s environmental impact. In 2005 Cadbury Schweppes switched from coal-fired boilers to natural gas boilers in Bournville, UK. The project reduced the company’s global emissions of greenhouse gasses by 1%, he sated. The company has also invested in new technologies, such as a combined heat and power plant in Nagoya, Japan. In India, the company’s Induri plant uses „bagasse” or sugar cane, a renewable fuel to provide steam for manufacturing.

The EU’s „cap-and-trade” emissions trading scheme took effect from January 2005, setting limits on each manufacturer’s CO2 outputs. Companies can then to buy and sell CO2 emissions rights according to need on specially constructed Internet sites. Plants that emit more CO2 than their allocation need to buy allowances to cover the extra emissions. Companies that emit less than their allocations are able to sell the allowances to companies that need them. Last week the European Commission sets total CO2 allowances for the bloc at 2.08 billion tons for the 2008 to 2012 trading period, a 10% cut from the amounts requested by the bloc’s governments.

The cuts means processors and others participating in the ETS face further pressure to reduce greenhouse gases produced by their operations - or spend more to buy credits. The food processing industry is an energy consumer and discharger of greenhouse gas through its reliance on cooking, refrigeration, freezing and air compressor systems. ETS is mandatory for food and drink companies operating combustion installations with a rated thermal input exceeding 20 MW.

The importance of the scheme for the food and drink sector is reflected in the fact that, for instance, in France 13.6% of all ETS installations are food and drink sites. In the UK the food and drink industry make up 3.1% of the estimated allocations. Currently Hungary, Latvia, Malta and Lithuania, Poland and the Czech Republic are taking the Commission to court over the reductions to their allocations. The countries claim that the allocations will harm their industrial sectors. (Source)