European Union Views on International Greenhouse Gas Emissions Trading

David Leonard Downie and Pamela Chasek
Kevin Baumert, Sean Clark, Joshua Tosteson,
Les Bissell, Johanna Hjerthen, Balachandar Jayaraman,
Elizabeth Karkus, John Leahy, Gerald Mulder

Columbia University School of International and Public Affairs

Columbia International Affairs Online

May 1998

Table of Contents

   Executive Summary

1. Introduction

2. European Union
   2.1 Eu Positions On Emissions Trading
   2.2 Formulation Of Eu Climate Ciiange Policy
   2.3 Business And Industry Sector
   2.4 Nongovernmental Sector
   2.5 Summary

3. United Kingdom Of Great Britain And Northern Ireland
   3.1 Government Positions On Emissions Trading
   3.2 Business And Industry Sector
   3.3 Nongovernmental Sector
   3.4 Summary

4. The Netherlands
   4.1 Government Positions On Emissions Trading
   4.2 Business And Industry Sector
   4.3 Nongovernmental Sector
   4.4 Summary

5. Germany
   5.1 Government Positions On Emissions Trading
   5.2 Business And Industry Sector
   5.3 Nongovernmental Sector
   5.4 Summary

6. France
   6.1 Government Positions On Emissions Trading
   6.2 Business And Industry Sector
   6.3 Nongovernmental Sector
   6.4 Summary

7. Conclusions And Recommendations
   7.1 Country And Eu Positions
   7.2 Cross-Cutting Themes
   7.3 Kyoto To Buenos Aires And Beyond
   7.4 Policy Recommendations

Glossary Of Terms

Acronyms

Executive Summary

In December 1997, the Third Conference of the Parties (COP-3) to the United Nations Framework Convention on Climate Change (UNFCCC) met in Kyoto, Japan to negotiate a protocol to limit greenhouse gas (GHG) emissions. Two of the main features of the Kyoto Protocol are (1) legally binding requirements for Annex I countries to reduce collectively their emissions of six greenhouse gases by at least 5.2% below 1990 levels between 2008 and 2012; and (2) flexibility measures, including joint implementation (Article 6), a Clean Development Mechanism (Article 12) and emissions trading (Article 17, which appeared as Article 16bis in the draft Protocol text adopted in Kyoto) to encourage countries to meet their obligations at the lowest cost. Although emissions trading (ET) provisions were included in the Kyoto Protocol, the Parties did not establish rules and guidelines for the trading system. Instead, Governments have been asked to address these issues at COP-4, to be held in Buenos Aires, Argentina on 2-13 November 1998.

The European Union (EU), as a negotiating bloc, has voiced strong concerns against emissions trading. Because of the significant role that the EU plays in the international climate debate, proponents of emissions trading must understand EU and member states' views toward ET if a viable trading system is to be developed. Three questions are of particular relevance:

• Which countries have the most influence on EU policy, and what are their positions on emissions trading?
• Who are the governmental and nongovernmental institutions within these countries that most influence climate policymaking and what are their views regarding emissions trading?
• What is the post-Kyoto dynamic? How have the views of the EU and its member states changed since Kyoto and how might these changes influence COP-4 and future policy deliberations on emissions trading?

This report addresses these questions. We find that the European Union as an institution, the United Kingdom, the Netherlands, Germany, and France all play key roles in the emissions trading debate.

European Union

The rules for emissions trading require unanimous agreement by the EU Council of Ministers. Thus, proponents of emissions trading must understand how the EU is attempting to build a unified position on the issue, as well as the roles of key actors, institutions and member states in that process.

Per Article 4 of the Kyoto Protocol, the countries of the EU are allowed to act jointly to fulfill their Article 3 GHG emissions reduction commitments, an arrangement known as the EU "bubble." Prior to Kyoto, the EU supported an emissions reduction target of 15% for three gases. The 5.2% emissions reduction target for six gases established at COP-3 (8% for the EU as a whole) requires the EU to redefine each member state's requirements within the bubble. Because potentially serious economic implications will result from the final burden sharing determinations, this issue is the highest priority for EU climate policy before COP-4.

As the results from the 23 March 1998 meeting of EU Environment Ministers indicate, the EU is attempting to begin forming a consensus on an ET system among Annex I countries. The Ministers' decision to sign the Kyoto Protocol at that meeting indicates their general support for the agreements made in Kyoto. However, it appears that the EU is envisioning greenhouse gas emissions trading as a means but not the primary means for complying with the Article 3 reduction requirements. The EU advocates that a ceiling be placed on the amount of GHG emissions reductions that can be achieved through emissions trading, and continues to restate its demand that industrialized countries achieve their GHG reductions mainly through domestic action. The EU has expressed great concern that flexibility measures in general, and emissions trading in particular, can open "loopholes" that would prevent real emissions reductions.

United Kingdom The United Kingdom supports emissions trading and has been an active player in the international debate on ET. The UK is the third largest economy in the Union, and currently occupies the Presidency of the Council of Ministers of the European Union (from January to June 1998). High-level Government officials have indicated that climate change is a high priority for the United Kingdom EU Presidency, and have voiced strong support for flexible market-based policies, including emissions trading. The UK has committed itself to a goal of reducing its GHG emissions by 20%.

Each of the influential units of the UK Government - the Deputy Prime Minister, the Department of the Environment, Transport, and the Regions, Her Majesty's Treasury, and the Department of Trade and Industry - has voiced support for the principle of international GHG emissions trading. However, the UK support for emissions trading is not without qualification. In particular, Government bodies have expressed concern over the issue of "hot air." Under the Kyoto Protocol, Russia and the Ukraine are not required to reduce their GHG emissions below 1990 levels. Yet, because of economic stagnation and the retirement of inefficient plants, GHG emissions in these nations have been decreasing steadily since 1990. The UK fears that Russia and Ukraine will be able to sell the unneeded allowances that they may accrue for these reductions (as they exceed their obligations under the Protocol), and sell this "hot air" to the United States and Japan. Related to this concern is the UK's view that nations should meet a large percentage (50%) of their Article 3 commitments through strong domestic measures, and that a limit should be placed on the extent to which flexibility mechanisms can be used.

Netherlands

The Netherlands often utilizes progressive environmental policy instruments that are often followed by other EU member states, making the Netherlands a key player in EU environmental policymaking. However, with its economy currently growing at 3% per year, some believe the Netherlands could find it difficult to meet its climate change policy goals -- to which it is strongly committed -- without sacrificing this rate of economic growth. As a result, the Dutch Government has expressed a strong interest in alternative policy instruments, such as ET, joint implementation, and the Clean Development Mechanism, that may enable the Netherlands to meet its climate policy goals at least cost. The Dutch interest in flexible measures, emissions trading among them, may have a significant impact on other EU countries.

The concept of ET has been discussed quite extensively in the Netherlands and most Dutch experts agree that it would constitute a welcome addition to current domestic policy instruments such as voluntary agreements with industry (known as covenants) and taxation. However, from the point of view of the Netherlands, many issues need to be resolved before agreement on the modalities of an international CO₂ trading scheme can be reached in Buenos Aires. Most importantly, the Netherlands may want a system where at least 50% of a nation's required emissions reductions must be achieved domestically. Additional reductions can be achieved abroad through flexible measures. Those reductions, however, must be "real" (i.e., the purchase of "hot air" will not be condoned). Industry in the Netherlands is opposed to ET, largely because it does not want an emissions cap on industry sectors. Industry prefers voluntary agreements and self regulation, with which industry and Government have experience. The Dutch Government, however, has a commitment under the Kyoto Protocol to reduce GHG emissions, and it is likely that at some point the Government will have to allocate binding reductions among different sectors. If this occurs, industry will most likely start embracing emissions trading. For now, both Government and industry remain in favor of utilizing sinks and joint implementation, rather than ET, as the chief flexibility measures.

Germany

Understanding German views on emissions trading is central to any EU analysis. Germany's economic strength makes it a key player in EU and global politics. German CO₂ emissions have been quite large compared to the other EU nations. Germany will be a member of the EU troika that will be in place during COP-4, which suggests that it might play a more active role in the climate negotiations than it did in Kyoto. Finally, Germany has demonstrated its national commitment to climate protection through an ambitious domestic CO₂ emissions reduction target of 25%, and through its initial success in achieving emissions reductions in the 1990s.

Germany believes that climate protection policy must be based on domestic emissions reductions. The official climate protection position reflects Germany's traditional reliance on fiscal measures, advocating emissions and energy consumption taxes as well as improved energy efficiency. Additionally, Germany intends to meet its ambitious domestic climate policy goals through voluntary agreements with industry, rather than through regulatory measures. Germany could be open to a system of emissions trading if it prevented "hot air" loopholes and supplemented a primary strategy of domestic emissions reductions, but will still likely want to include a cap on the amount of emissions reductions that a nation can achieve through trading. Industry could become a proponent of emissions trading should the Government replace voluntary agreements with legally-binding domestic CO₂ emissions caps, in which case the flexibility of a trading system would become economically advantageous. However, the feasibility of implementing a domestic emissions trading system in the absence of binding caps is questionable. This may limit Germany's support of emissions trading.

France

The Government of France has been an outspoken opponent of emissions trading, most notably during the COP-3 negotiations. Strong criticism emerged from different sectors within the Government against what they saw as the "minimalist and insufficient" character of US proposals at Kyoto.

Two features have characterized the French debate on emissions trading. First, most Government actors and institutions expressed skepticism towards the Kyoto Protocol's flexibility measures, arguing that they allow large polluters to elude national GHG reductions. Second, France insists that a significant percentage of a nation's required GHG emissions reductions must be achieved through domestic initiatives. However, some disagreement among Government agencies in France emerged during 1997. During the last phase of the preparations for Kyoto, some Ministries that had expressed opposition to emissions trading apparently began to reconsider the merits of ET - with certain qualifications. In particular the Ministry of the Environment, the leading agency against emissions trading, suggested it could consider emissions trading if an international mechanism of control were put in place, emissions allowances were exchanged through a stock market, and equitable initial endowments were ensured. This shift, and subsequent studies of emissions trading undertaken by French Government agencies, suggests that France has accepted the reality of emissions trading and is now focused on more specific design aspects of an ET system.

Conclusions

Five common themes emerge from analysis of EU and member state views toward emissions trading. First, it is clear that the EU's opposition to ET during Kyoto was based primarily on suspicions that the mechanism will be used by the United States as a means to avoid undertaking domestic emissions reductions. A related concern is the "hot air" issue, with fears that the US will purchase emissions allowances from Russia and the Ukraine that have been generated by economic stagnation and retiring of inefficient plants. Second, interviews with EU and member state officials indicate frustration with the perceived over-optimism with which proponents of emissions trading have promoted ET. They are concerned that ET proponents have not adequately addressed the potential problems of an emissions trading regime, including the environmental implications of issues such as hot air. These suspicions and frustrations have been compounded by (third) the EU's traditional reliance on fiscal policy measures, and (fourth) a lack of understanding of and experience with trading at high levels of government. Finally, both the member states and the EU as a bloc believe that emissions trading (and other flexibility measures such as joint implementation and the Clean Development Mechanism) should only complement domestic actions as a means of meeting obligations under the UNFCCC and Kyoto Protocol.

These factors may play an important role in shaping the emissions trading debate prior to and beyond COP-4. It seems likely that caution and incremental steps will characterize the EU's discussions on ET before Buenos Aires. The EU will attempt to limit the scope of ET, casting it as only one of several secondary means for emissions reductions. It is doubtful that the EU will accept a plan for emissions trading that would enable a nation to meet less than 40% of its Article 3 obligations through domestic means. Looking past COP-4, a number of factors may constrain the form of implementation of emissions trading in the EU. Among these, the absence of binding caps on industry -- a prominent feature of climate policy in the UK, Netherlands and Germany, as well as at the EU level -- may limit private sector involvement in an emissions trading system. This suggests that some countries may limit their involvement in ET to government-to-government trades, although this limitation is not a significant factor behind the member states' support for -- or opposition to -- emissions trading.

However, the most contentious climate-related debate in the EU concerns burden sharing. The 8% emissions reduction requirement of six gases in the Kyoto Protocol has reopened negotiations on the EU bubble, and several countries are using this as an opportunity to reduce their share of the burden. As countries position themselves in this debate, there are indications that nations supportive of ET (such as the UK) may link their preference for flexibility measures to their support of any proposed changes in burden sharing arrangements. Regardless of how this debate is resolved, the EU is unlikely to develop a more detailed position on emissions trading until internal negotiations on the "bubble" are completed.

1. Introduction

In December 1997, the Third Conference of the Parties (COP-3) to the United Nations Framework Convention on Climate Change (UNFCCC) met in Kyoto, Japan to negotiate a protocol to limit greenhouse gas (GHG) emissions. Two of the main features of the Kyoto Protocol are (1) legally binding requirements for Annex I countries to reduce collectively their emissions of six greenhouse gases by at least 5.2% below 1990 levels between 2008 and 2012; and (2) flexibility measures, including joint implementation (Article 6), a Clean Development Mechanism (Article 12) and emissions trading (Article 17, which appeared as Article 16bis in the draft Protocol text adopted in Kyoto) to encourage countries to meet their obligations at the lowest cost. Although emissions trading provisions were included in the Kyoto Protocol, "the relevant principles, modalities, rules and guidelines" for trading have not been agreed upon. ₁ Governments have been asked to address these issues at COP-4 to be held in Buenos Aires, Argentina on 2-13 November 1998.

The European Union (EU), as a negotiating bloc, has voiced strong concerns against emissions trading. Because of the significant role that the EU plays in the international climate debate, it is essential for proponents of emissions trading to understand the EU and its member states' views toward ET so that a viable trading system may be developed. Three questions are of particular relevance:

• Which countries have the most influence on EU policy, and what are their positions on emissions trading?
• Who are the governmental and nongovernmental institutions within these countries that most influence climate policymaking and what are their views regarding emissions trading?
• What is the post-Kyoto dynamic? How have the views of the EU and its member states changed since Kyoto and how might these changes influence COP-4 and future policy deliberations on emissions trading?

This report addresses these questions, and analyzes the views of the EU and key member states regarding the development of an international GHG emissions trading system. This introduction provides a short overview of the international negotiations on climate change, presents the study's research methods, and details the structure of the report.

1.1 Emissions Trading and the Kyoto Protocol

In response to mounting scientific evidence and urgent calls to address the problem of climate change, 154 states adopted the United Nations Framework Convention of Climate Change on 9 May 1992. The ultimate aim of the Convention is to "stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system." The Convention, which entered into force on 21 March 1994, established a process through which its signatories meet regularly to review the adequacy of the Convention's measures in light of new scientific evidence.

The first meeting of the Conference of the Parties to the UNFCCC took place in Berlin from 28 March to 7 April 1995. Delegates reached agreement on what many believed to be the central issue before COP-1 - the adequacy of commitments. The result was the "Berlin Mandate" and the establishment of an open-ended Ad Hoc Group on the Berlin Mandate (AGBM) that enabled states to take appropriate action for the period beyond 2000, including the strengthening of the commitments of Annex I Parties through the adoption of a protocol or another legal instrument. ₂

The AGBM met eight times between August 1995 and COP-3 in December 1997. During the first three sessions, delegates focused on analyzing and assessing possible policies and measures for the strengthening of the commitments of Annex I Parties, how Annex I countries might distribute or share new commitments, and whether commitments should take the form of an amendment or protocol. ₃ Emissions trading was one of the possible policies and measures under consideration. ₄

AGBM-4, which coincided with COP-2 in Geneva in July 1996, completed its in-depth analyses of the likely elements of a protocol and states appeared ready to prepare a negotiating text. At AGBM-5, delegates recognized the need to decide whether or not to allow mechanisms that would provide Annex I Parties with flexibility in meeting quantified emission limitation and reduction objectives (QELROs). Emissions trading, cumulative or aggregate targets covering a number of years, multiple-year rolling average targets, emissions banking, and joint implementation were mentioned as options for providing flexibility. ₅

As the protocol was drafted during the sixth and seventh sessions of the AGBM, the Parties continued to examine emissions trading as a means by which Annex I countries could meet their commitments. Despite continuing concerns over emissions trading among a number of countries, the draft text of the protocol presented at AGBM-8 in October 1997 contained Article 5, which stated that "any Party included in Annex I or acting under Article 10 that is in compliance with its obligations under this Protocol may transfer to, or acquire from, any other Party included in Annex I or acting under Article 10, any of its emissions allowed for the purpose of meeting its commitments under Article 3." ₆

In Kyoto, EU and developing country reticence delayed agreement on the subject of emissions trading. In the final stages of the negotiations, the UK successfully proposed an amendment specifying that emissions trading would not be allowed until appropriate rules and guidelines had been agreed upon. ₇ The final text of the Kyoto Protocol includes Article 17, which effectively postponed further discussions of specific modalities for an emissions trading system until COP-4. Article 4 of the Kyoto Protocol allows Annex I Parties to act "together with a regional economic integration organization" in fulfilling their emissions reduction commitments. ₈ Article 4 also established the EU "bubble," whereby EU member states will collectively meet their 8% emissions reduction goal.

1.2 Research Design

This report examines attitudes within the EU towards emissions trading as a possible GHG reduction mechanism. Under an emissions trading system, countries that have committed to binding emissions reductions would be required to hold GHG "allowances" equivalent to their emissions targets. Emissions trading refers to the exchange of such "allowances" between participants, and should be distinguished from mechanisms such as joint implementation that earn emissions reduction "credits." ₉

The report examines four of the 15 EU member states: the United Kingdom, the Netherlands, Germany, and France. The European Union itself is also analyzed as a discrete unit due to its importance as a governing and negotiating body, as well its collective representation of EU member state opinion. The United Kingdom, Germany and France are the three largest economies in the Union and wield considerable influence among member states on a variety of policy issues. Because of its progressive environmental policies, the Netherlands is also treated in this study.

Country and EU-level research took place in two stages. Preliminary research included a review of academic studies, press releases, news articles, official documents and position papers on emissions trading and climate policy. This was followed by interviews with officials from the EU and member state governments, business and industry, research institutions, and nongovernmental organizations. These interviews took place in person, through phone conversations, and in electronic mail correspondence. Many of the government officials as well as industry and NGO representatives requested that they not be specifically identified as sources in our research. Information gathered through confidential interviews is present in these findings, although the respective officials and representatives are not always recognized by name.

1.3 Report Structure

The report consists of a European Union chapter (2), four country chapters (3-6), and a concluding chapter that synthesizes research findings and presents conclusions and recommendations (Chapter 7). The country chapters are organized in order of decreasing support for emissions trading. The most supportive state - the United Kingdom - is examined first in Chapter 3, followed by the Netherlands, Germany and finally France, which has been the most reluctant to accept the concept of emissions trading.

The European Union chapter discusses the structure of EU climate policy formulation, analyzes how member state views feed into the policy process via that structure, and details how the EU emissions trading debate is proceeding within the EU through its climate policy formulation procedures. Each country chapter is divided into four sections. The first section covers government positions on emissions trading in light of domestic climate policy goals, strategies and the policymaking process. This section also includes a discussion of the major units within Government that are influential in climate policymaking, and their concerns about emissions trading. These groups - which include relevant Ministries, working groups, cabinet committees and political parties - are addressed order of their importance in the climate debate. The second section within each chapter addresses business and industry views on climate policy and emissions trading as a whole, and then details the emissions trading attitudes of important institutions (including business coalitions, industry associations and private sector companies). The third section addresses the attitudes of the nongovernmental sector (relevant non-profit, civil society-based and research and educational institutions) towards emissions trading and their role in the climate policy formulation process. A summary concludes each country chapter.

2. European Union

Analysis of the EU position on emissions trading - and its relationship to those of the member states - is of primary importance to the present study, as the policy positions the EU advocates directly impact the member states. ₁₀ The EU is the "only regional economic integration organization that is a Party to the [UNFCCC], as are all its 15 member states separately." ₁₁ Per Article 4 of the Kyoto Protocol, the countries of the EU are allowed to act jointly within their regional economic integration organization to fulfill Article 3 commitments. ₁₂ The Article 4 arrangement is known as the "EU bubble," and makes the EU a separate player in the context of the Kyoto Protocol. ₁₃

The Single European Act of 1987 (SEA), to which all member states agreed to and abide by, gave the institutions of the European Union increased jurisdiction over member states in issue areas that are better addressed at the EU level. In becoming EU members, the 15 states relinquished a degree of their sovereignty on specified issue areas. On trade issues negotiated at the international level, for example, the EU makes binding decisions on behalf of its member states. However, the EU and member states share competency on environmental issues. ₁₄ This means that certain areas within a given environmental issue are addressed at the EU level by consensus of the member states, and certain areas are addressed by the national governments of the member states. Climate change policy decisions represent both the collective EU interests and the interests of the individual member states.

2.1 EU positions on emissions trading

During the AGBM negotiations, the EU proposed a 15% reduction in emissions of three greenhouse gases (CO₂, CH4 and N2O), with burden sharing among its member states to meet this target. The inclusion of flexible mechanisms was a point of contention between the US and EU. The EU delegation was opposed to emissions trading and skeptical about joint implementation. In the end, the EU agreed to an 8% reduction of six GHGs for the European Union as a whole, and conceded to the inclusion of Article 17 on emissions trading, with the details to be determined at COP-4. ₁₅ According to sources close to the policymaking process, the EU wanted to use the time between COP-3 and COP-4 to gain a better understanding of all of the flexible mechanisms included in the Protocol and the implications these mechanisms would have for the EU, working within the bubble.

However, consideration of Article 17 has been overshadowed by the Kyoto Protocol's new EU targets. The 8% emissions reduction requirement of six gases is equivalent to a 12.5% reduction of the three GHGs in the original EU proposal. ₁₆ The new target and additional gases have required the EU to redefine the terms of burden sharing for each nation within the EU bubble. ₁₇ Sources close to the policymaking process state that the new Kyoto targets give member states the opportunity to re-negotiate their responsibilities within the bubble. Paragraph 4 in Article 4 of the Protocol states that if the member states cannot agree to a burden sharing arrangement which results in an aggregate reduction of 8%, each country will be responsible for reducing GHG emissions by 8% on an individual basis. ₁₈ This has significant economic implications for the majority of member states. Thus, EU policymaking institutions are focused on resolution of this issue. Sources close to the policymaking process state that a common EU position on all the flexible mechanisms of the Protocol will not be determined until the bubble issues are first resolved.

EU resistance to global emissions trading stems from perceived economic and practical advantage that the US has, as it is familiar with trading mechanisms. According to sources familiar with EU policymaking, the EU was against ET at Kyoto because of the fear that it could dilute the unique advantage of the EU bubble. Through the burden sharing arrangement, reductions for the EU in aggregate represent less of an economic challenge. ₁₉ Because EU economic growth in the 1990s was slower than the US and because member state and EU-wide industry activities promoting energy efficiency have already reduced emissions, the EU wants to ensure that flexible measures do not give Annex I countries, the US in particular, the means to exploit cost-effective options that would give them an economic advantage over the EU (or at least erase the EU's perceived advantage under the bubble).

The conclusion of the 23 March 1998 Council of Environmental Ministers meeting indicated that the EU is not completely opposed to emissions trading as an option for Annex I nations to meet Kyoto obligations. However, the Council of Ministers expressed its concern that the US and Japan will buy their way out of real emissions reductions, and recommended that a ceiling be placed on the use of flexible mechanisms. ₂₀ This concern may have been mitigated by the recent Group of Seven plus Russia (G-8) environment ministers meeting in Kent, England, in which the G-8 members agreed "not to use emissions trading to evade painful domestic reductions in greenhouse gas emissions." ₂₁ G-8 environmental ministers stated that flexible mechanisms should be "supplemental to domestic action," echoing the views expressed at the 23 March EU Council meeting. ₂₂

The EU continues to stress the need to determine the rules for the ET regime, which were not resolved at the G-8 meeting. Preliminary technical recommendations are being formulated by the EU's Ad Hoc Working Group on Climate Change, which will identify the criteria the EU would want to see included in a global regime.

2.2 Formulation of EU climate change policy

The Government of the EU is divided into three primary institutions: the Council of Ministers, the European Commission and the European Parliament, all of which are involved in the climate policymaking process. Because issues related to climate change address different areas of competence of these institutions, the European Commission has taken the lead on developing some climate-related policies, while the Council of Ministers is taking the lead on most. ₂₃ Sub-units of the Council of Ministers and the European Commission work together to formulate climate policy in the EU, with input from a number of other sources. The Commission, for example, receives input from the Parliament, industry and nongovernmental interests, while the Council must consult with the Parliament before deciding on the final EU position.

The entire policymaking process proceeds through consensus-building. The various EU institutions and member states present policy recommendations, voice their interests, argue, debate and attempt to reconcile positions to achieve a common EU position. This process has been characterized as the "push-pull" methodology, in which all interested parties' positions are fed into the consensus-making process, and the final policy position results from compromise and agreement at the Council of Ministers level. ₂₄

The principal EU institutions and interests involved in the policymaking process (see Figure 2.1) are the Council of Environmental Ministers, the EU Presidency, the Ad Hoc Working Group on Climate Change, the European Commission, Directorate-General XI for the Environment (DGXI), and the European Parliament. Much of the background preparation and initial debate takes place within the Ad Hoc Working Group on Climate Change (within the Council of Ministers). The DGXI, a sub-unit of the European Commission, also prepares policy recommendations that are fed into the Ad Hoc Group. When consensus on a given policy recommendation is reached within the Ad Hoc Group, it is presented to the Committee of Permanent Representatives (COREPER), which then places it on the agenda for the Council of Environmental Ministers. This recommendation is also forwarded to the European Parliament. Prior to and during the debate process at the Council level, Parliament reviews and consults with the Council before an EU unified policy is presented by Council decision. During the consultation process, member states, NGOs and industry lobby Council and Parliament representatives.

According to sources familiar with EU policymaking, the above-mentioned method is the way in which the EU position for COP-3 was devised and the way in which policy for COP-4 is being developed. The complicated nature of the process is necessary for consensus building, which is essential for policy implementation on the member state level. For example, if burden sharing is determined by majority vote in the Council, the states who did not agree to the terms of the arrangement will stall the implementation of the terms at the national level, thereby nullifying the arrangement. Therefore, the decisions made by the Council reflect the least common denominator of the positions of all member states in order to guarantee the viability of a given EU policy.

At the international level, individual member state representation and privileges in international environmental negotiations are specified in Title VII (Environment) of the Single European Act. Article 130r of the SEA addresses the preservation of member states' rights in environmental matters, and limits the decisionmaking capabilities of EU institutions in international agreements unless the EU as a bloc has clear competence to decide on the given issue. ₂₅ The intent was to limit the competency of the EU and maintain a measure of member state control over decisions made at the international level. In practice, however, since 1987 the member state positions and policies have increasingly conformed to the EU-level position. ₂₆ Therefore, although member states do have leeway to negotiate on their own, they often converge toward the common EU position.

Figure 2.1 Schematic of European Union climate policy formulation

2.2.1 Council of Ministers.

The Council of Ministers is the final decision-making body of the EU and determines EU political objectives on international and Union-wide concerns through the consensus-building political process. ₂₇ It is the most important EU institution in the climate change policy formulation process. ₂₈ However, a great deal of preparation is completed by the sub-groups of the Council and other EU institutions before a recommendation appears on the Council's agenda. The Council of Ministers works closely with the European Commission (the executive branch) and must approve all Commission-recommended legislation and positions. ₂₉ The Council consists of ministerial-level representatives from the 15 member states, which allows for the input of national interests at the highest EU institutional level. Issue-specific Council meetings are attended by the respective ministers from the member countries. ₃₀ The Council of Environment Ministers, which meets four times per year, is responsible for reviewing, amending, accepting or rejecting Commission recommendations on climate policy and for initiating the EU position on international climate issues.

According to the Maastrich Treaty on European Union, EU activities are divided into three "pillars" which determine whether the Council of Ministers decisions are made by qualified majority or unanimity. Environmental issues fall into Pillar One, which begins with a Commission proposal and must be approved by a qualified majority vote. ₃₁ In a weighted voting arrangement, sixty-two of the 87 total votes are required in order for a proposal to be approved by the Council, and 10 member states must cast votes. ₃₂ Pillar Two addresses foreign and security policy. This Pillar requires unanimous approval by the Council. Additionally, the Council has the added liberty to initiate policy recommendations at this level, a right traditionally reserved for the European Commission. Pillar Three addresses cooperation in Justice and "Home Affairs." ₃₃

Pillars One and Two are the most relevant to climate change issues. The different decision-making procedures of the two Pillars is significant in analyzing the EU's stance on climate change. The EU is focused on redefining the division of emissions allocations within the EU bubble, which would traditionally fall into the Pillar One category. Sources involved in the policymaking process, however, stated that unanimity on the burden-share is necessary due to the implications the allocations have for member states. Emissions trading per Article 17 is also included in the Pillar Two grouping, as it is a common foreign policy concern and requires a unanimous Council vote. According to sources close to the policymaking process, Council members representing countries that favor flexible mechanisms (such as the UK) may link their preferences for such mechanisms to their support for countries that want lower emissions reduction requirements under a revised burden sharing arrangement (such as France). This linkage may represent a means by which the Council will reach unanimous approval for a position on emissions trading.

The Council of Environment Ministers met on 23 March 1998 to assess the implications of the Kyoto Conference and to discuss the EU's next steps in preparation for COP-4. ₃₄ This meeting was focused on the need to settle the burden sharing arrangements, with the Council planning to reach final agreement on the bubble at its next meeting on 18 June. Emissions trading and other flexible mechanisms were noted as needing additional technical analysis, with the Council stressing the need for "satisfactory progress" on these outstanding issues, such that these flexible mechanisms "do not create loopholes" which will undermine the Protocol's aims. ₃₅ These statements articulate continued EU concern that Japan and the US will use the flexible mechanisms, rather than domestic measures, as principal instruments to meet the Protocol's Article 3 obligations. There is no indication that Council agreement on a position covering these mechanisms will be reached before final preparations for COP-4.

2.2.2 The EU Presidency and the troika.

The Presidency of the EU is an important element of the Council of Ministers' institutional structure, providing the country holding the office with an opportunity to exert concentrated levels of influence on EU policy.

The Presidency of the Council rotates between the 15 member states every six months. Representatives of the country holding the Presidency chair the Council meetings. The responsibilities of the President include: arranging and presiding over all Council meetings; elaborating acceptable compromises and finding solutions to Council disputes; and ensuring consistency in EU decision-making. Officially, the country holding the Presidency acts as an intermediary between the member states and attempts to facilitate compromises at the ministerial level. ₃₆ In practice, decisions made at the ministerial level can reflect the national policy objectives of the country holding the office at the time, depending on the country's relative political strength. According to sources close to the policymaking process, the UK has exerted its influence on climate-related issues during its Presidency by directing the work of the Ad Hoc Group.

The UK, which is the member state most open to emissions trading, currently holds the Presidency and will hold this position through June 1998. However, the UK realizes that reaching EU consensus on definitions of flexible mechanisms for emissions reductions, such as emissions trading, cannot be addressed until the EU can come to agreement on redefining internal burden sharing (see Chapter 3).

Austria will assume the Presidency in July 1998, and has indicated that climate change will be one of its top environmental priorities as EU President. ₃₇ Sources in the Austrian Government indicate that although Austria accepted the inclusion of emissions trading in the Kyoto Protocol, it has reservations about the ability of market-based mechanisms to achieve real emissions reductions. Austria concurs with the EU's call for detailed rules and regulations to be developed before emissions trading is formalized. ₃₈ Although Austria expressed reservations towards emissions trading, its views are not expected to compromise its consensus-building role as the EU President. As President, Austria intends to work with other countries to create a common ground on views acceptable to most countries in the EU. ₃₉ Austria plans to focus its efforts on reallocating the burden sharing arrangements, and hopes to relax its current national commitment to reduce emissions by 25% by 2010. ₄₀

EU observers indicate that since this is Austria's first time as EU President, the role of the EU troika is likely to increase during the Buenos Aires negotiations in November, where Austria will be joined by the relatively strong UK and Germany. The EU troika is composed of the country holding the past EU Presidency, the current President, and the future EU President. By definition, the troika "represents the Union in external relations coming under the common foreign and security policy" of the Union. ₄₁ However, the actual role of the troika depends on the country holding the Presidency. According to one source, the troika has been a mere formality during the UK's Presidency because of the strong influence of the UK relative to other members of the troika at present (Luxembourg and Austria). These sources stated the troika is likely to play a more significant role during Austria's Presidency because Austria is not as powerful as the other current troika members, the UK and Germany. According to EU observers, Austria may further the positions of the UK or remain silent and allow the UK to continue its active leadership role within the troika.

2.2.3 Ad Hoc Working Group on Climate Change.

The Ad Hoc Working Group consists of climate change expert representatives from the member states and from the DGXI Climate Unit. In essence, the Ad Hoc Group is an EU-level interministerial working group, acting in an advisory capacity to the Council. ₄₂ It has the ability to exert significant influence on the Council through its recommendations. This group prepared the EU position during the AGBM process. The composition of the Group facilitates the steady inclusion of member state interests and preferences, as member states can send expert representatives directly from their capitals. The environment ministry of the country holding the EU Presidency, currently the UK, chairs the group meetings and sets its day-to-day working agenda.

The Group meets in closed sessions, with the European Commission (represented by DGXI officials) generally presenting the issue to be debated and the member state experts evaluating and amending the original position. Additionally, the informal nature of the Group allows for member state representatives to initiate proposals for the group to review. However, according to sources familiar with the internal workings of the Group, the Commission recommendations are generally used as the starting point of negotiations because they attempt to represent the most country-neutral options.

As a follow-up to the Kyoto analysis and the re-definition of the EU bubble, the Council recommended that the Ad Hoc Group take into account economic considerations and taxation in developing the "common and coordinated policies and measures" the EU intends to use to meet Kyoto obligations. ₄₃ The Ad Hoc Group has been asked to identify the rules necessary to create an emissions trading system that is "transparent, accessible and, functions in a non-discriminatory manner and does not lead to distortions of competition." ₄₄ There are no indications that the Group has formulated a unified view on ET, and it is unlikely that it will have one before it completes prescriptions for the bubble. The Ad Hoc Group's recommendations will be passed on for evaluation at the ambassadorial level, and then used at the June Environment Council meeting to enable the Council to reach a decision. ₄₅

2.2.4 European Commission.

The European Commission is the EU's executive body responsible for initiating proposals for review and acceptance by the Council and ensuring that international treaty obligations are implemented. The Commission works in the interests of the European Union as a whole, attempting to take into account all interested parties during the policy formulation process. ₄₆ Upon assuming office, members of the Commission pledge to not take instruction from their national capitals. ₄₇ However, there are no mechanisms to penalize Commissioners who advocate national interests within the Commission. According to EU political analysts, Commission officials' links to national governments provide valuable input for the Commission's ability to identify proposals that will be acceptable to the Council.

The Commission has the highest level of autonomy on policies governing trade of goods and services, and can make decisions without submitting proposals to the Council of Ministers. ₄₈ However, the Commission cannot exercise its autonomy on emissions trading issues because ET is not a trade of goods or services. ₄₉ There are 20 Commissioners, each responsible for one or more of 26 the issue area-specific Directorate-Generals (DGs). Environment falls within DGXI, with Ritt Bjerregaard, Commissioner of Environment and Nuclear Safety, supervising its activities. Despite Commissioner Bjerregaard's high visibility, her level of influence on climate policymaking has been limited by her inability to build consensus at the Commissioner level. According to sources close to the Commission, Bjerregaard's inability to garner the support of the internal units of the Commission has diminished the institution's traditional role in climate policymaking. The role of the Ad Hoc Group has increased as a result.

2.2.5 DGXI (Environment). Historically, the DGXI completed the background work on climate issues and presented its recommended positions to the Commissioner. The Commissioner would then present the recommendation to all 20 Commissioners for approval. Upon approval, the proposal is passed to the COREPER and then to the Council for final vote. During the preparation process, all interested parties including members of industry, NGOs and members of the European Parliament, are able to give their opinions and voice objections. The Commission is required to take Parliament's recommendations under advisement. The Council of Ministers then makes the final decisions. ₅₀

Despite the internal politics at the Commissioner-level, DGXI remains an active participant in the policymaking process within the Ad Hoc Working Group on Climate Policy. Independent of its role within the Group, the DGXI continues to work on unresolved climate change issues. According to sources familiar with EU policymaking, DGXI is conducting research and formulating draft policy recommendations parallel to the work within the Ad Hoc Group. These "working documents" will be presented to the Ad Hoc Group expedite the Group's progress, which is often protracted by the conflicting national interests of the participants.

The DGXI's proposals are based on technical input from EU-wide sources. Sources familiar with the policymaking process state the DGXI is not consulting with business and industry or the NGO sector for input on its on-going climate analysis due to the complicated nature of the topics it is addressing. Among these DGXI projects is a "strategy document on emissions trading" to be published in May 1998. ₅₁

2.2.6 European Parliament. The European Parliament is directly elected by the peoples of the European Union and is the EU institution most responsive to public opinion. The revised EU negotiating position will be presented to the Parliament for its comments and recommendations. ₅₂ In most cases, Parliamentary review is a formality. However, if Parliamentary opposition to an EU position is particularly strong, the policy is revised.

The Parliament's Committee on the Environment, Public Health and Consumer Protection (Environment Committee) is chaired by Member of the European Parliament (MEP) Kenneth D. Collins of the UK. MEPs Tom Spencer (UK), Anita Jean Pollack (UK) and Rolf Linkohr (Germany) represented the Environment Committee at the Kyoto negotiations. While the Parliament's Environmental Committee has been characterized as one of the most effective committees of Parliament, it has not issued an official position regarding global emissions trading. ₅₃

2.3 Business and Industry Sector

The EU's business and industry sector is nervous about the outcome of the new EU bubble, as a new arrangement may mean added costs to the sector. However, some institutions in the sector have explored ET as a means of mitigating costs.

Believing that emissions trading may alleviate some of the economic burdens industry is expected to face, the Union of Industrial and Employers' Confederations of Europe (UNICE) has stressed the need to make flexible instruments available as options for meeting emissions reductions requirements. ₅₄ UNICE has expressed strong support for emissions trading, describing it as "potentially [one of the] most efficient instruments to handle greenhouse gas emissions." ₅₅ UNICE emphasizes the need for a well-defined system to govern the trading regime, a view that is consistent with the Council's current position. ₅₆ However, UNICE is waiting for publication of the DGXI report, which will outline strategies for emissions trading, before developing a more detailed position.

Eurelectric, the electric industry association of the EU, has made no indication that that the electricity sector is considering emissions trading or other flexible mechanisms to meet voluntary emissions reduction requirements proposed for its sector. Rather, Eurelectric is concentrating on identifying ways to increase energy efficiency to meet sector-wide emissions reductions requirements. The association will present the European Commission with a proposal addressing greater efficiency of electricity use by consumers. ₅₇ Eurelectric plans to conduct further studies concentrating on increasing efficiency and incorporating new technologies to reduce carbon dioxide emissions within the electricity sector.

2.4 Nongovernmental Sector

The nongovernmental sector in the EU has been focused on how to influence the current rule-making process before COP-4, but is not planning to attack the flexible mechanisms of the Kyoto Protocol. ₅₈ In fact, Liam Salter of Climate Action Europe expressed strong support of UNICE's demand for "rigorous" rules to govern global emissions trading. ₅₉

2.5 Summary

The EU is currently preoccupied with defining the EU bubble, which represents a significant challenge for the institutions of the EU. Already countries have indicated they want to bear less of the burden than they agreed to in the pre-Kyoto EU bubble allocations. ₆₀ There are real economic implications for each of the individual member states that will result from the final burden sharing determinations. As COP-4 approaches, opportunities to link emissions trading and other flexible mechanisms to the bubble allocations may arise. As one analyst stated, countries interested in the flexible mechanisms, such as the UK and the Netherlands, may give concessions to countries wanting reductions in their burden, such as France, in exchange for support of more flexible measures to meet obligations. The conclusion of the 18 June 1998 Council meeting will offer the first opportunity to see if this will indeed be the case.

While resolving the burden sharing arrangement is the top priority of the EU, ET has not fallen off the policy agenda. EU policymaking institutions are giving ET attention as one of the flexible mechanisms included in the Kyoto Protocol necessitating additional evaluation. However, according to sources involved in the policymaking process, a formal EU position on ET should not be expected until October. The 18 June 1998 Council meeting may at best achieve redefinition of the burden sharing issue. Member states supportive of ET are likely to take advantage of the time between the conclusion of the 18 June meeting and finalization of the EU's preparation for COP-4 to lobby at all EU levels to build consensus for their positions.

3. United Kingdom of Great Britain and Northern Ireland

The United Kingdom is a strong supporter of emissions trading, and has been an active player in the international debate on ET. ₆₁ Deputy Prime Minister John Prescott and other top Government officials have indicated that climate change is a top priority for the United Kingdom's EU Presidency, and have voiced strong support for flexible market-based policies, including emissions trading. ₆₂ The UK is the third largest economy in the Union, and currently occupies the Presidency of the Council of Ministers of the European Union (from January to June 1998). The UK played an important mediating role in Kyoto by proposing the amendment stipulating that trading would not be allowed until appropriate rules and guidelines are agreed upon. ₆₃ The influential presence in Kyoto can be attributed to the UK's EU-level standing, position in the troika, traditionally strong diplomatic core, close relations with the United States and domestic support for ambitious climate change policies.

The information presented in this chapter indicates that the UK favors, in principle, an international emissions trading system. Instead of questioning the desirability of emissions trading, the debate in the UK has shifted toward identifying and agreeing on specific modalities of an ET system. Among the countries in our study, the United Kingdom is the most open to flexible economic instruments and the most convinced of the desirability of emissions trading. Support has come from a variety of Government bodies as well as industry. This support however, is not without qualification, as the UK Government has voiced concerns on several ET-related issues.

3.1 Government Positions on Emissions Trading

Since climate change came to the fore of the international political landscape in the early 1990s, the UK has been extremely active and strongly committed to GHG emissions reductions. ₆₄ Key climate change policies and measures implemented by the UK Government include taxes on road fuels, regulatory standards, information dissemination, creation of an Energy Saving Trust and voluntary agreements with industry. The latter includes a Government-forged agreement with the Chemical Industry Association requiring this sector to curb its energy consumption 20% by 2005. ₆₅ These voluntary regulatory approaches will be the primary means of achieving the UK's ambitious domestic 20% GHG reduction target by 2010. ₆₆

In addition to voluntary agreements, energy market liberalization will play a large role in meeting the 20% target by 2010. The radical restructuring of the energy sector, which began in the early 1980s, has shifted fossil fuel preferences away from coal in favor of more efficient, lower-carbon natural gas. According to the UNFCCC Secretariat, despite other strong domestic measures, energy market liberalization and privatization have driven the UK's actual CO₂ reductions in the last decade. ₆₇

Conspicuously absent from the United Kingdom's suite of climate-related policies is a carbon/energy tax, which the Government decided is not necessary to meet its national pre-Kyoto targets. ₆₈ This harmonized energy/carbon tax has often been discussed as "the main pillar" of EU strategies to limit CO₂ emissions. The UK has been the most vocal opponent of such a harmonized tax and has prevented EU-wide implementation. Although an emissions trading system does not necessarily preclude a harmonized EU tax, they are commonly seen as competing policy prescriptions, and the UK's rejection of such a harmonized tax augurs well for a potential emissions trading regime.

In addition, there is a possibility that domestic GHG trading will eventually be explored. According to informed Government sources, the "continuation of existing climate policies will be insufficient" to meet the post-Kyoto goals and the Government will be investigating other policy options, including domestic carbon/energy taxes and emissions trading. Consultations with industry groups to explore other policy options will begin in summer 1998.

Figure 3.1 Schematic of UK climate policy formulation

Four units within the UK Government contribute to forge climate change policy: the Cabinet Committee on the Environment (chaired by Deputy Prime Minister John Prescott); the Department of Environment, Transport and the Regions (DETR); Her Majesty's Treasury (HMT); and the Department of Trade and Industry (DTI).

Compared to the US and other EU nations in the present study, the actual process by which policy is made is less transparent in the UK. ₆₉ Final decisions on climate policy take place at high levels within the Cabinet Committee on the Environment. ₇₀ The Cabinet Committee contains Ministers from the DETR, HMT and the DTI. According to an informed Treasury source, "the outcome reflects the distribution of political clout within the Cabinet plus the result of lobbying plus the extent of prior political commitments." Also, according to a Government source some policy decisions are taken more directly by working groups within the DETR because the Deputy Prime Minister is also the head of this Department. The process is therefore highly politicized. Industry and NGO actors play a relevant, but less influential, role in Government policymaking. Industry actors include the Confederation of British Industry, the Advisory Committee on Business and the Environment, British Petroleum and the coal lobby. Within the NGO sector, the Royal Institute of International Affairs is extremely active in the debate and has a modest influence on Government decision making.

3.1.1 Deputy Prime Minister (DPM) John Prescott

John Prescott, the UK's top negotiator in Kyoto, holds the post of Deputy Prime Minister and Secretary of State for the Environment, Transport and the Regions. He is second in command in the Cabinet (behind Prime Minister Tony Blair) and chairs the Cabinet Committee on the Environment, where final decisions are made on environmental policy. Prescott is instrumental in setting the environmental agenda and initiating work programs in specific areas. He has the most power to influence other Ministers and shape final UK policy positions on environmental issues.

DPM Prescott has made numerous public statements supporting, in principle, the concept of emissions trading, and has shifted the debate toward developing rules for an international trading system. ₇₁ At the EU level, Prescott has declared three main objectives: First, the EU must reach agreement on how to share the 8% legally-binding target amongst member states. Second, EU-wide policies and measures must be identified to complement the national-level measures of member states. Third, the EU common position for Buenos Aires and the June preparatory meeting in Bonn must be agreed upon. ₇₂ The current focus is on the first objective - renegotiating the EU burden sharing agreement, as member states are now second guessing their contributions to the EU bubble agreement brokered before Kyoto. In preparation for June Ministerial meetings, Prescott and Environment Minister Michael Meacher are visiting EU capitals trying to achieve consensus on the contentious burden sharing issue. ₇₃

3.1.2 Department of the Environment, Transport and the Regions. ₇₄

The DETR is the intellectual focal point within Government on emissions trading and the Ministry most involved with climate change issues. ₇₅ The 27-person British delegation in Kyoto included 17 staff members from the DETR, including Environment Minister Michael Meacher. In addition to holding the post of Deputy Prime Minister, John Prescott also heads the DETR, giving this department added influence in the policymaking process. Most members of the DETR that are active on the subject are within the Global Atmosphere Division (GAD), which takes the lead on climate policy and coordinates related activities with other federal agencies, including the Department of Trade and Industry.

Support for the concept of emissions trading within the DETR has been vigorous, and Minister Meacher has publicly announced his support for such a system. ₇₆ Meacher has made it clear that emissions trading is an important part of the UK Presidency workplan, stating that there is broad agreement among EU Ministers that "in light of the outcome of the Kyoto conference...more work needed to be done urgently in a number of areas, including sinks, the Clean Development Mechanism and emissions trading...this will be a priority during the UK Presidency." ₇₇

Three key concerns have been voiced by the DETR regarding the rules of a proposed international emissions trading system. One concern is the institutional configuration that will govern an international trading system. According to Meacher, "[w]e need a new kind of body." He and many European officials envision an agency with the capacity to spot spurious trades and the clout to settle trading disputes. This runs contrary to the US desire to have the system driven primarily by private markets and a trade verification and reporting system among nations. ₇₈ The second concern is the contentious issue of Russian and Ukrainian "hot air," which would prevent actual CO₂ emissions reductions in the short term. One source within the department believes that the UK will not directly address the issue of "hot air," and will instead attempt to close this "loophole" by attacking the Russian and Ukrainian targets as inadequate at COP-4. ₇₉ The third, related, issue is the importance of domestic reductions. Meacher, who chaired the 23 March 1998 EU Environment Council meeting, and other EU Environment Ministers believe that "at least 50%" of targets should be reached through domestic measures. ₈₀ However, according to the provisional agenda of the UK Presidency / Environment Council, a common EU position on such "appropriate rules" for emissions trading is not expected before the end of the UK Presidency. ₈₁

3.1.3 Her Majesty's Treasury.

HMT is the Government department responsible for formulating and putting into effect the UK Government's financial and economic policy (including tax policy), with the aim of promoting economic growth and higher standards of living. Reliable observers have affirmed that the Treasury has a high level of influence within the Cabinet, particularly on economic and fiscal issues. ₈₂

HMT is the department driving the UK opposition to the EU harmonized carbon tax, although it is now investigating a domestic carbon/energy tax. ₈₃ Taxation has been the subject of intra-Government quarreling, as the DETR has criticized the HMT's Chancellor of the Exchequer (HMT's chief Minister) Gordon Brown for not incorporating enough environmental considerations into tax policy. ₈₄ Last July HMT released a "Statement of Intent on Environmental Taxation" that many in Government feel has not been successfully transformed into reality.

The HMT supports the use of economic instruments for climate policy, including flexibility mechanisms such as ET. ₈₅ Its support should be considered only lukewarm, for several reasons. First, unlike the DETR, HMT support for emissions trading is not a function of the virtues of a potential trading system, but rather other economic and political factors. In fact the Treasury has not done any analysis on emissions trading or made public statements on the issue. HMT is most concerned with increases in public spending and changes in the tax burden. ₈₆ Second, HMT appears to be in favor of a wide range of flexible instruments, and views emissions trading as no more important than joint implementation, the Clean Development Mechanism, sinks or domestic voluntary agreements. ₈₇ Support for "market mechanisms" simply seems unqualified, and not based on a solid understanding of the complexities of an international trading system.

3.1.4 Department of Trade and Industry.

The DTI's responsibilities include trade, energy, science and industrial policy. The Department works in partnership with the business (and scientific) community to promote competitive markets, generate quality employment and increase wealth. Like the Treasury, the DTI's influence and involvement on emissions trading is largely a function of domestic political and economic factors. International competitiveness is a major DTI concern, as increases in the tax burden coupled with the already strong British pound would further damage the competitiveness of British goods and services. ₈₈ Thus when emissions trading is positioned as an alternative to carbon taxes and onerous regulations, support for an emissions trading system is particularly robust in the DTI.

In June 1997, the department launched "Competitiveness UK," a major new cooperative partnership initiative with industry. ₈₉ This approach is indicative of the Government's voluntary approach to GHG mitigation. A secondary focus of the department is energy market liberalization and privatization, which the DTI has been leading since the 1980s. This process is evolving toward consumer choice for electricity, and the DTI is now investigating trading arrangements within the electricity market. ₉₀ Although the process is only in its infant stages, it may eventually create a market structure that is particularly conducive for emissions trading. According to Dean Anderson of London's Royal Institute of International Affairs, this trading of "electrons" is creating a natural set-up for emissions trading in the energy sector. ₉₁ Potential trading systems (not necessarily pursuant to the UNFCCC), he claims, should develop fastest in the electricity market.

At the EU level, the DTI has a wider range of interests and responsibilities than any other UK Ministry. ₉₂ Minister for Science, Energy and Industry (within the DTI) John Battle will chair the Energy Council, which convenes on 11 May 1998. According to the DTI, a "major part of the Energy Council" will be devoted to energy and the environment, including climate change issues. Energy liberalization themes within the Single Market, also germane to the climate change debate, will be a theme of the Council. The emissions trading strategy of the DTI within the Energy Council is either undetermined or undisclosed at this juncture. However, given the DTI's proclivity toward energy liberalization (within the UK and the single market) and electricity trading, there is potential for the UK to influence the EU overall position on emissions trading through the Energy Council.

3.2 Business and Industry

Our study identifies four key industry actors in the United Kingdom. Two industry groups - the Confederation of British Industry (CBI) and the Advisory Committee on Business and the Environment (ACBE) - have direct access to decision makers within the Government. Two other industry actors - the British Petroleum Group (BP) and the "coal lobby" also have informed and strong positions on the issue of emissions trading. In general, compared to the US, the relationship between industry and government is much less adversarial and more cooperative. When Government is considering major policy changes, Ministries or ad hoc Government working groups hold consultations with industry organizations. In the case of climate policy, the CBI and the ACBE express their interests to Government through direct consultations. ₉₃ According to Government sources, the DETR will hold consultations with industry groups, including the CBI, in the summer of 1998 to discuss additional domestic climate policy options.

3.2.1 Confederation of British Industry (CBI). The CBI is an independent, party-neutral political organization that represents the interests of all industry sectors in the UK. The Confederation wields considerable influence, and meets frequently with UK Ministers and members of Parliament. At the EU level, the CBI works through UNICE to lobby European Union institutions. ₉₄

The CBI recognizes threats posed by climate change and supports the UK Government's ambitious policy approach. The CBI is in favor of "soundly based principles of environmental taxation" and supports the use of market mechanisms such as emissions trading. However, the CBI has echoed Government concerns regarding emissions trading. ₉₅ According to Jenny Barker of the CBI, industry is interested in trading but it is essential that the system is subject to rules and guidelines. ₉₆

3.2.2 Advisory Committee on Business and the Environment (ACBE). The ACBE consists of prominent members of the UK business community appointed jointly by the Deputy Prime Minister and the President of the Board of Trade (within the DTI). Members of the Committee - which is now under the Chairmanship of David Davies (Chairman and CEO of Johnson Matthey plc.) - serve in a personal capacity. The ACBE issued a report on 3 April 1998 that Prime Minister Tony Blair called "a major contribution in the campaign to meet the climate change challenge." ₉₇ The report's "principal recommendations" state:

Flexible international mechanisms such as trading should be established as soon as possible on a business to business basis. The UK should take an active role, in establishing these mechanisms...The structural arrangements necessary to enable trading to take place and to ensure a strong business input into the design of trading arrangements should be the subject of a further ACBE report for consultation within 12 months.

The report also proposes a system of Integrated Pollution Prevention and Control that includes the option of domestic and international "carbon trading." ₉₈

3.2.3 British Petroleum Group Inc (BP).

The London-based British Petroleum Group, Inc. is arguably the most forward-thinking large energy company in the world with respect to climate change policy. BP recognizes that the outcomes of intergovernmental negotiations will increasingly constrain fossil fuel energy choices and that the company will be better positioned if it takes early action and involvement in the issue.

Noting the inexperience in implementing emissions trading in the UK and EU, BP is developing an internal trading system among 10 of its 90 units worldwide. ₉₉ BP units are now being nominated for the program and the level of interest is extremely high. Internal discussions are now focusing on modalities of the system - deciding on gases to include and targets to set. The trading program, which will be highly transparent, will be periodically evaluated and possibly expanded over time to include all corporate units.

BP's involvement in the climate change debate mainly takes place through public statements by CEO John Browne. These statements have affirmed the UNFCCC process and lauded market-based approaches to climate change policy. ₁₀₀ BP is not exerting heavy influence on Government decision making, however. The most important role played by BP is its influence on other fossil-fuel intensive companies and industry organizations. ₁₀₁

3.2.4 The Coal Lobby.

The "coal lobby" refers to the collective activities of several transnational actors within the UK coal sector, most notably the International Energy Agency (IEA) Coal Research and the World Coal Institute (WCI). As a consequence of energy market liberalization in the UK, the coal sector stands in peril, as natural gas is increasingly eroding the market share of coal. ₁₀₂ The coal sector views emissions trading as a mechanism that can potentially lessen the impact that GHG reductions will have on coal use. ₁₀₃ Coal has the highest carbon content of any primary fuel, and should, in theory, be the most adversely affected by any carbon abatement policy. Thus there is some concern, given the coal sector's interest in emissions trading, that if this lobby becomes influential, there is the potential danger of governments using emissions trading as a means of subsidizing coal-based energy. ₁₀₄

IEA Coal Research, a collaborative project among IEA/OECD countries, released a briefing paper after COP-3 that explains the principles of emissions trading and articulates how trading can potentially benefit the coal sector. ₁₀₅ The IEA Coal Research's Executive Committee, which includes members from Ministries throughout OECD countries, provides pathways for the coal lobby to influence EU governments.

The World Coal Institute works on behalf of coal producers worldwide to provide a voice in the policy debates on energy and environmental issues. WCI is attending international meetings on the subject of emissions trading and is poised for potential involvement in pilot trading programs. ₁₀₆ At this juncture, however, the coal lobby does not appear to be particularly influential at the UK or EU level. However, it is extremely active disseminating information and ensuring that coal receives equitable treatment vis-à-vis other fuels, indicating that potential future lobbying efforts could be strong.

3.3 Nongovernmental Sector

Although the nongovernmental sector is extremely active on environmental issues in the UK, they are not believed to be particularly influential. The lone exception is the London-based Royal Institute of International Affairs, which participates in the Government-industry consultation process.

3.3.1 Royal Institute of International Affairs (RIIA). The RIIA has emerged as the most influential and involved NGO actor on emissions trading. Emissions Trading and the Control of Greenhouse Gases (authored by Dr. Michael Grubb, Dean Anderson and Duncan Brack) and Proceedings of the International Conference on Controlling Carbon and Sulphur, International Investment and Trading Initiatives (eds. Michael Grubb and Dean Anderson) were published by the RIIA in 1997.

Although the Institute itself does not have a stated position on emissions trading, several members of the staff are dedicated almost expressly to emissions trading issues. Dr. Michael Grubb is one of the world's leading analysts of the "hot air" issue. He considers Russian and Ukrainian targets "outrageous," noting that they "can't get back up to zero if they tried...[and, because of emissions trading, Russian and Ukrainian targets are] a backhanded way of giving weaker targets to the US and Japan." ₁₀₇ Grubb and Dean Anderson have been regular attendees of international emissions trading meetings and fora and the RIIA hosted a conference on 5-6 February 1998, "Climate After Kyoto: Implications for Energy," that was attended by members of the UK Government, industry representatives and other international GHG trading experts. ₁₀₈ Anderson also participates in an informal "Government-industry" brainstorming group on the subject. ₁₀₉

3.3.2 Other NGOs.

There are several small nongovernmental organizations that play minor roles, but nonetheless deserve mention. Friends of the Earth-UK and other NGOs worldwide operate under the umbrella of the Climate Action Network. These environmental organizations view emissions trading as an escape clause, which would allow the US and other industrialized countries to "buy their way out of trouble." The International Cogeneration Alliance, is strongly in favor of an emissions trading system, which would radically boost the international demand for cogeneration services. Based on its current activities, the International Institute for Environment and Development (IIED) favors emissions trading, and is promoting market-based economic instruments. An IIED project in India is attempting to devise a system of emission trading within Tata Iron and Steel Company Ltd. based on the "bubble" concept.

3.4 Summary3.4 Summary Each of the influential units of the UK Government - the Deputy Prime Minister, DETR, HMT and the DTI - has voiced support for the principle of international GHG emissions trading. What we do not find in the UK is an objection to the principle of emissions trading or any ideological opposition. In short, no one seems to doubt the potential efficacy of emissions trading.

However, the UK support for emissions trading is not without qualification. Two common concerns expressed by Government bodies include the Russian and Ukrainian "hot air" issue and the necessity for strong domestic commitments (i.e. placing a limit on the extent to which flexibility mechanisms can be used). Also, at this juncture the UK is not planning to implement a domestic GHG trading program, although this may change after industry consultations in summer 1998. More broadly, the UK has a general predisposition toward market-based and voluntary regulatory measures. Among these mechanisms, emissions trading does not seem to occupy a special or preferred position - it is simply another viable means of achieving reductions. Also, contextual economic factors such as international competitiveness and fiscal issues play a strong role in the UK and boost the attractiveness of an emissions trading system.

At the EU level, it is evident that the UK wants to lead the way in developing an emissions trading strategy for COP-4. However, according to several sources, "the Government does not know what it is going to do" and is a long way from formulating decisions on key issues relating to emissions trading, such as treatment of sinks, different gases and monitoring. More importantly, domestic and EU burden sharing have emerged as the highest priority issues in the EU climate policy debate, and therefore overshadow emissions trading.

4. The Netherlands

The Netherlands, like Germany and Denmark, utilizes progressive environmental policy instruments that are often followed by other EU member states. ₁₁₀ This making the Netherlands one of the key players in EU environmental policymaking. ₁₁₁ The Netherlands is currently experiencing a period of robust economic growth at approximately 3% per year, and one of the Government's primary goals is to maintain this level of growth. However, it appears that the Netherlands will not be able to meet its climate change policy goals, to which it is also strongly committed, if the economy continues to grow at this rate. ₁₁₂ As a result, the Dutch Government has expressed a strong interest in alternative policy instruments, such as ET, joint implementation, and the Clean Development Mechanism, that may enable the Netherlands to meet its climate policy goals at least cost. ₁₁₃ This interest in flexible measures may have a significant impact on other EU countries.

The Dutch Government has only recently begun to study the modalities of a system of ET as an instrument to implement the Kyoto Protocol. Most of the concerns expressed so far have dealt with general design issues and "hot air." Due to a lack of experience with trading internationally, Government officials have privately expressed preference to start with a system where one gas can be traded per industry sector. The Netherlands has more experience with joint implementation and the use of sinks, and is thus more focused on these measures than emissions trading.

4.1 Government positions on emissions trading

The Netherlands' intermediate climate change policy goal is to achieve a 3% reduction in CO₂ emissions by the year 2000, using the base year 1990. ₁₁₄ Government officials admit that this goal cannot be achieved with the current policy instruments. The longer range goal is based on the Kyoto Protocol and is consistent with the EU's required 8% reduction between 2008-2012. ₁₁₅

Climate change policy in the Netherlands is largely determined through an Inter-departmental Working Group on Climate Change, which is similar to several other EU member states such as Germany and the United Kingdom. The following ministries are represented here:

• Ministerie van Huisvesting, Planning en Milieu (Ministry of Housing, Planning and Environment - VROM)
• Ministerie van Economische Zaken (Ministry of Economic Affairs)
• Ministerie van Landbouw, Natuurbeheer en Visserij (Ministry of Agriculture, Forestry and Fisheries - LNV)
• Ministerie van Financien (Ministry of Finance)
• Ministerie van Verkeer en Waterstaat (Ministry of Traffic and Water)
• Ministerie van Buitenlandse Zaken (Ministry of Foreign Affairs)

VROM manages the agenda and the current Minister of VROM, Margreet de Boer, presents the results of the Working Group to the cabinet. The composition of the Working Group depends on the agenda topic. With regard to ET, VROM and the Ministry of Economic Affairs dominate the Working Group. In addition, the Ministry of Agriculture, Forestry and Fisheries can offer expertise when sinks are being discussed. The Ministry of Foreign Affairs does not make substantial decisions but coordinates Dutch environmental policy in international negotiations.

Figure 4.1: Schematic of Dutch climate policy formulation

The Dutch Government has invoked the following rationale in favor of emissions trading:

(F)or an open economy like the Dutch, the competitive position of Dutch industry should not be undermined with additional costs in achieving CO₂ reductions. Particularly energy-intensive industry which exports many goods, cannot pass on their costs to the consumer because prices are determined on the international market. A system of cost-equalization could be helpful in this respect, and emissions trading could achieve this. ₁₁₆

Since the mid-1990s, there has been a discussion in the Netherlands about the pros and cons of emissions trading, involving representatives from all sectors of society. Experts on environment are generally supportive. In the beginning of 1996 Professor H. Verbruggen, an economist commissioned by the Dutch Government, presented a report on whether economic growth and environmental protection could go hand in hand. He essentially proposed a "property rights" approach, where the Government sets environmental standards but the market is allowed to meet them at least cost.

The Dutch Government feels strongly "that countries which caused the problem of global warming and climate change in the first place should carry primary responsibility for reducing emissions. This view is also reflected in the EU position, and from the Dutch perspective partly explains EU opposition towards emissions trading in Kyoto." ₁₁₇ In particular, the possibility that countries can buy their way out of their responsibilities through buying Russian and Ukrainian "hot air" is viewed as a major obstacle. Consequently, the Netherlands will insist that any system of ET, joint implementation or the Clean Development Mechanism complement rather than replace domestic reductions. The Netherlands is an advocate of an explicit domestic/flexible-measures ratio where at least 50% of the reductions are achieved domestically. ₁₁₈

The Netherlands has some experience with trading permits, most notably in fish, milk and manure quotas. ₁₁₉ However, the scope of these trading schemes is relatively small, and it appears that the evaluations of these systems have had a minor effect on CO₂ emissions trading as currently debated. They merely seem to confirm that there is a positive economic dynamic to emissions trading, but this experience does not clarify major questions associated with trading CO₂ emissions reductions internationally.

From the point of view of the Dutch Government and industry representatives, many issues need to be resolved before agreement on ET can be reached in Buenos Aires. Industry is vehemently against an emissions cap (which may be necessary for trading), and favors voluntary measures and self regulation. Dutch Government officials have merely expressed general concerns, such as "the quality of the trade must be guaranteed," "a system of trading CO₂ emissions must be transparent and enforceable" and "adequate controls must take place." With respect to the level of controls and enforcement (i.e., to what extent a CO₂ emissions trading scheme should be regulated), the Netherlands' position is "somewhere in between stringent and few controls." ₁₂₀

4.1.1 Ministry of Housing, Planning and Environment (VROM). The mission of VROM is "to promote the sustainable use of the environment." ₁₂₁ Within the Ministry, two directorates are most involved in the climate change policy debate: Directoraat Internationaal Milieubeleid (Directorate for International Environmental Affairs), and the Directoraat Lucht en Energie (Directorate for Air and Energy). The mission of the Directorate for International Environmental Affairs is "to take international initiatives, develop international environmental policy, conduct international negotiations and coordinate the input of other Directorates in international negotiations." ₁₂₂ The mission of the Directorate for Air and Energy is to "initiat(e) realistic measures to promote the quality of air." ₁₂₃

The Minister of VROM, Margreet de Boer, who headed the Dutch delegation to Kyoto, is positive about the principle of emissions trading. ₁₂₄ According to one senior policy advisor,

VROM is very interested in using the "flexible measures" to implement the Kyoto Protocol, and that interest extends to emissions trading according to Article 17 of the Kyoto Protocol. However, the Netherlands has no experience with trading CO₂ emissions rights, and the debate on emissions trading is very new.

Besides generic design concerns, officials have expressed their concern about "the potential negative impact on the national economy if companies with affiliates in the Netherlands do not invest to reduce their own emissions here, but rather buy credits from abroad." ₁₂₅ Additionally, VROM fears that if more credits are bought than sold that investments in energy efficiency will not take place in the Netherlands, but in other countries. This situation might occur in intra-firm trading, such as in the system favored by British Petroleum, as well as when firms trade across borders in general.

VROM, in cooperation with industry, has more experience with joint implementation and sinks than with ET, and "it is expected that agreement on rules and procedures governing joint implementation will be reached in Buenos Aires before any other of the flexible instruments. Joint implementation is more easily enforceable because verification can be done on a project-by-project basis." ₁₂₆ The Netherlands already has an institute that certifies joint implementation projects, and currently has a pilot project in Romania where it negotiated the first emissions purchase agreement. ₁₂₇ In addition, the Dutch cabinet approved on 3 April 1998 a HFL500m (US $260m) package of funding for climate change measures. HFL100 of this is earmarked for joint implementation projects to reduce emissions of methane, nitrous oxide and fluorocarbons in central and eastern European countries. ₁₂₈ The discussion on the modalities of the future Clean Development Mechanism has not been given any consideration at all in the Netherlands. The focus is on joint implementation and sinks first, and ET second. ₁₂₉

4.1.2 Ministry of Economic Affairs. The main task of the Ministry of Economic Affairs is "to ensure an efficient Dutch economy with a strong and dynamic private sector capable of competing with the rest of Europe." ₁₃₀ The Ministry of Economic Affairs serves the needs of the private sector (i.e. business and industry), and considers an efficiently operating market as one of the main prerequisites for economic growth. The Directoraat Generaal voor Energie (Directorate General for Energy) within the Ministry of Economic Affairs appears to be most involved in the climate change debate. The Ministry of Economic Affairs "is concerned that industry will be adversely affected if too much burden is placed on this sector." ₁₃₁ However, it is not fully clear whether GHG emissions reductions will be beneficial or harmful to the Dutch economy. On one hand, certain industries will be adversely affected if CO₂ emissions need to be reduced. However, the Netherlands is also a major natural gas producer; as natural gas is less carbon-intensive than coal, limitations on CO₂ emissions will also increase the demand for gas.

The Ministry of Economic Affairs aims to achieve climate change policy goals mainly by promoting energy efficiency through voluntary measures by industry. The Netherlands, in a manner similar to that in Germany and the United Kingdom, often negotiates voluntary agreements to achieve policy goals. These voluntary agreements, or covenants, are not legally binding and can be renegotiated. Under one such covenant, for example, the Government and metal and chemical industry representatives have agreed to a 20% improvement in energy efficiency by the year 2000, using 1989 as the base year. This efficiency will increase to 33% by the year 2020. ₁₃₂ However, there is currently no covenant that deals with allocating CO₂ emissions reductions across industry. In 1993, the Government and industry did begin negotiations on a CO₂ covenant, but the negotiations were delayed indefinitely because of the restructuring of the electricity sector. ₁₃₃

The Ministry of Economic Affairs does not appear to hold strong views on ET and has not studied ET extensively. Officials from the Ministry have expressed similar concerns as VROM officials regarding the design of an ET system, and appear to favor joint implementation over ET as well. Moreover, "even with the most energy efficient methods, the Netherlands will not achieve more than 25% of its climate policy goals with energy efficiency alone. Therefore, ET and joint implementation are absolutely necessary for the Netherlands to achieve its goals." ₁₃₄

4.1.3 Ministry of Agriculture, Forestry and Fisheries.

The Ministry of Agriculture, Forestry and Fisheries is an active, albeit not a particularly influential, player in the climate change debate. It is represented in the Inter-Departmental Working Group on Climate Change, and is called upon mainly for its expertise in carbon "sinks." With respect to sinks, the Netherlands has some experience through the work of the Face (Forest Absorbing Carbon dioxide Emission) Foundation, on whose board of directors Ministry member Mr. W.J. Kooy serves (see section 4.3.2).

4.1.4 Political Parties.

The current coalition Government in the Netherlands consists of, in order of number of parliamentary seats, Partij van de Arbeid (Labor Party, PvdA), Volkspartij voor Vrijheid en Democratie (Conservative, VVD) and the Democraten '66 (Liberal, D'66). Parliamentary elections are scheduled for 6 May 1998. The VVD and the PvdA are the largest two coalition partners, and will most likely continue the coalition with or without D'66 which is set to lose dramatically. The Christen Democratisch Appel (Christian Democrats, CDA) are not included in the ruling coalition, but are traditionally a very powerful political force in the Netherlands. Coalition partner VVD and opposition party CDA both have the concept of ET mentioned explicitly in the party program. The PvdA is interested, but finds that the concept needs more study. However, the Minister of VROM Margreet de Boer, who belongs to the PvdA, has indicated that she is in favor of trading.

Although several political parties appear to be enthusiastic about ET, this has largely symbolic value. Unlike the situation in the US, the Dutch Parliament has traditionally little say in the formulation of policy, and the cabinet is mostly concerned with setting general policy guidelines.

4.2 Business and Industry Sector

The influence of industry on climate change policy in the Netherlands is quite significant. To date, industry has been successful in avoiding stringent mandatory measures by being proactive on environmental issues. Through the aforementioned covenants, industry and Government have been working constructively to promote fuel efficiency and renewable energy, and reduce SO2 emissions. Industry, however, feels that a new phase has started now that the Dutch Government has shown a strong commitment to the goals of the Kyoto Protocol.

4.2.1 Vereniging Nederlandse Ondernemers-Nederlands Christelijk Werkgeversverbond (Dutch Employers Organization - VNO-NCW).

Of the industry representatives, the VNO-NCW is traditionally the most outspoken and vocal about general policy issues. The VNO-NCW expressed on several occasions to be in favor of flexible measures such as ET and joint implementation. ₁₃₅ However, they state that

industry in the Netherlands fears the commitments agreed to by the EU as a whole. If the Netherlands indeed has to cut its emissions by 8% below the base year 1990, a de facto cap will be imposed. Such a cap will then have to be distributed by the Government through sectors of society: civilians, Government, energy-producers, chemical industry. Business and industry in the Netherlands is against any emission caps. ₁₃₆

Although Dutch GHG emissions reduction goals may constitute a de facto cap, there are no specific maximum emissions imposed on any industry sector. Neither Government nor industry seem to be ready for such an allocation. However, VNO-NCW is represented in the Union des Employeurs Europeens (Union of European Employers - UNICE), which declared in an April 1998 position paper its support for ET. (See section 2.2 for further discussion of UNICE.)

4.2.2 Dutch Electricity Board (Sep).

The Sep, which represents all Dutch electricity producers, does not favor the trading of CO₂ emission allowances as per Article 17 of the Kyoto Protocol. Their position echoes the arguments of the VNO-NCW: in order to trade you need a cap, and the Sep is against legally binding limits on emitting CO₂. ₁₃₇ The Sep favors voluntary agreements with Government, and beliefs that ET is burdensome for Government and industry alike. There is a strong preference within the Sep for joint implementation, and several pilot projects are currently underway. The Sep set up the Face Foundation in 1990 to offset CO₂ emissions. And "now that the Kyoto Protocol includes the use of sinks as a method for offsetting CO₂ emissions, the Sep has renewed its commitment to the Face Foundation." ₁₃₈ In addition, the Sep initiated the pilot project with the Rumanian utility (see section 4.1.2).

4.3 Nongovernmental Sector4.3 Nongovernmental Sector

Unlike the situation in the US, environmental organizations in the Netherlands play only a marginal role in environmental policymaking. Most of the domestic organizations, such as Stichting Natuur en Milieu (Foundation for Nature and the Environment - SNM) are more oriented towards the promotion of leisure activities in nature than actively lobbying for environmental causes. Several international environmental NGOs, such as Greenpeace and Friends of the Earth, have their international headquarters in the Netherlands. Even though they are popular and well respected, their influence on environmental policymaking in the Netherlands is modest, if not negligible.

4.3.1 Foundation for Nature and the Environment (SNM).

The Foundation for Nature and the Environment is one of the largest national environmental groups in the Netherlands. SNM is not principally against ET and realizes that ET can lead to cost savings. According to Mr. Rijnders of the SNM, " the main problems with the Kyoto Protocol are that there is no equitable allocation of rights, and that the situation with respect to "hot air" in Ukraine and Russia poses a major loophole." SNM favors a system where there is an emissions cap per capita, i.e. that every country can emit an amount on the basis of its population. The SNM is not very involved in the ET debate, and its influence is modest. It did not participate in Kyoto, but supported the Dutch chapter of the Wereld Natuur Fonds (World Wildlife Fund for Nature - WNF) which was opposed to ET as defined in Article 17. Now that "flexible measures" are included in the Kyoto Protocol, the SNM seems to accept that it is unavoidable that "the Dutch Government will try to solve the problem of climate change abroad rather than domestically." ₁₃₉

4.3.2 Face Foundation.

The Face Foundation was established in 1990 on the initiative of the Dutch Electricity Board. There are representatives from several Ministries on Face's Board of Directors, including Mr. W.J. Kooy of the Ministry of Agriculture, Forestry and Fisheries. Face's mission statement is "to bring about afforestation in areas where this is desirable... to compensate wholly or partly for the carbon dioxide emissions from power stations in the Netherlands." The Face Foundation has had quite a significant impact on the attitude of the Dutch Government towards sinks. "Interest in sinks increased significantly after the Face Foundation organized workshops with representatives from different ministries, including representatives from Agriculture, Forestry and Fisheries, and VROM." ₁₄₀ In the package announced on 3 April 1998 by the Dutch cabinet (see section 4.1.1), HFL30m (USD15m) is to be spent on a project to increase the forest area in the Netherlands by 3,500 to 4,000 hectares to act as a CO₂ sink. Because of the limited availability of space in the Netherlands, the Face Foundation aims to achieve most of its afforestation projects abroad.

4.4 Summary

The concept of ET has been debated quite extensively in the Netherlands, and most Dutch experts agree that it would constitute a welcome addition to current policy instruments such as voluntary agreements with industry and taxation. However, from the point of view of the Netherlands, many issues need to be resolved before agreement on the modalities of an international CO₂ trading scheme can be reached in Buenos Aires. Most importantly, the Netherlands wants a system where a least 50% of a nation's required emissions reductions must be achieved domestically. Additional reductions can be achieved abroad through flexible measures. Those reductions, however, must be "real" (i.e., the purchase of "hot air" will not be condoned). Industry in the Netherlands is opposed to ET, largely because it does not want an emissions cap on industry sectors. Industry prefers voluntary agreements and self regulation, with which industry and Government have experience. The Dutch Government, however, has a commitment under the Kyoto Protocol to reduce GHG emissions, and it is likely that at some point the Government will have to allocate binding reductions among different sectors. If this occurs, industry will most likely start embracing emissions trading. For now, both Government and industry remain in favor of sinks and joint implementation, rather than ET, as the chief flexibility measures.

5. Germany

An understanding of German views on emissions trading is central to any EU analysis. ₁₄₁ Germany's economic strength relative to the other EU nations makes it a key player in both EU and global politics. Secondly, German CO₂ emissions have been quite high (per capita and gross) compared to the other EU nations. Third, Germany will be a member of the EU troika that will be in place during the Fourth Conference of the Parties (COP-4) in Buenos Aires this November, 1998, which suggests that Germany might play a more active role in the climate negotiations than it did in Kyoto. Finally, Germany has demonstrated its national commitment to climate protection through an ambitious domestic CO₂ emissions reduction target, and through its initial success in achieving emissions reductions in the 1990s.

In general, German Government, industry and nongovernmental organizations were opposed to the concept of emissions trading prior to the Kyoto Conference. ₁₄₂ For the Government entities and nongovernmental organizations interested in climate protection, opposition stems primarily from the view that climate change policy should be based on domestic reductions of greenhouse gas emissions. There is a great deal of suspicion that the United States and others may use emissions trading as a vehicle to avoid undertaking such domestic emissions reductions. There is also criticism from some quarters that emissions trading is too complicated and not feasible. Currently, however, Germany seems to have accepted the fact that emissions trading has been incorporated into the Kyoto Protocol and the policy question is no longer whether there will be emissions trading, but what form it will take.

5.1 Government positions on emissions trading

The German Government's national policy goal is to reduce CO₂ emissions by 25% by year 2005 as compared to 1990 levels. ₁₄₃ The closure of many inefficient facilities in the former East Germany resulted in a 10% reduction in emissions between 1990 and 1996, by 1990 levels. ₁₄₄ The German Government is planning on reducing emissions another 15% through continued improvements in energy efficiency, improved technology and fuel substitution. ₁₄₅ The German Government has also advocated the EU-wide adoption of a CO₂/energy tax. ₁₄₆

However, the proposed introduction of a domestic CO₂ /energy tax aroused strong opposition from German industry, which offered to take voluntary actions aimed at increasing energy efficiency and reducing GHG emissions, provided such a tax was not introduced. In March 1996, the Government accepted a proposal by German industry under the leadership of the Bundesverband der Deutschen Industrie (German Federation of Industry, BDI), which featured a goal of a 20% reduction in CO₂ emissions by 2005 (with different targets for different sectors), as well as a sector-by-sector monitoring and reporting regime. ₁₄₇ It should be noted that acceptance of this agreement with industry did not alter the Government's ultimate desired objective of a 25% reduction. ₁₄₈

German climate policy is formulated, in a manner similar to other European nations, through the vehicle of a CO₂ Interministerial Working Group (IWG). This IWG is made up of representatives from 10 different ministries and chaired by the Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (Federal Ministry for Environment, Nature, and Nuclear Safety, or BMU). Initially, policy is formulated by the BMU and presented to the IWG members, who then accept, reject, or request amendments. Therefore, it is within the IWG that negotiation between ministries takes place and a final policy is fashioned that is likely to be accepted by the Cabinet. The Bundesministerium für Wirtschaft (Federal Ministry of Economics, or BMWi) has emerged, because of its interactions with German industry, as a very influential player in the German climate debate and the Ministry most likely to be in opposition to the BMU lead (see Figure 5.1).

Figure 5.1: Schematic of German climate policy formulation

Prior to Kyoto the Government attitude about emissions trading was characterized primarily by a lack of discussion. With the climate protection debate centering around an energy tax and technology fixes, emissions trading was not seriously considered. ₁₄₉ Emissions trading was mentioned in the first of four IWG reports as a possible policy instrument to be used in conjunction with the primary instrument of energy taxes. ₁₅₀ Subsequent reports focused on a tax and voluntary agreements, and did not mention trading. ₁₅₁

The Government's attitude toward emissions trading during the Kyoto negotiations was doubtful and skeptical. ₁₅₂ In addition, the Government was clearly concerned that the concept of emissions trading might open up loopholes for the United States to get around domestic emissions reductions. According to Environment Minister, Dr. Angela Merkel, "flexibility must not open up loopholes. With regard to emissions trading, for instance, we must take a proactive approach to ensure that emissions levels will indeed fall - primarily through domestic action. We must not allow reductions from the past to be transferred. In doing so, we would agree to an actual increase in emissions." ₁₅₃

The Government is now formulating a new policy towards emissions trading, which should be roughly shaped out by May. ₁₅₄ During the interim, Government representatives are reluctant to discuss potential policy details, but Minister Merkel has stated that Germany wants to see a cap written into emissions trading rules that will require each country to achieve a limit of no more than 50% of its reductions through trading. ₁₅₅ This reaffirms one of Germany's primary beliefs that meaningful climate protection policy can only be achieved by significant domestic reductions.

5.1.1 CO₂ Reduction Interministerial Working Group (IWG).

German policy on climate change is formulated on the basis of recommendations contained in the reports of the IWG, which was established in 1990. The IWG is chaired by the BMU, and coordinated by Franz-Josef Schafhausen of the BMU. As described above, the BMU initiates the policy and presents it to the IWG where the members debate and finalize it. For any policy to have a realistic chance of being accepted by the Cabinet, a consensus needs to be reached between the various factions of the IWG. The IWG has members of the following ministries:

• Auswartiges Amt (Ministry of Foreign Affairs, AA)
• Bundesministerium für Finanzen (Ministry of Finance, BMF)
• Bundesministerium für Wirtschaft (Ministry of Economic Affairs, BMWi)
• Bundesministerium für Bildung, Wissenschaft, Forschung and Technologie (Ministry of Education, Science, Research and Technology, BMBF)
• Bundesbauministerium (Ministry of Construction, BMBau)
• Bundesministeriums für Verkerhr (The Transport Ministry, BMV)
• Bundesministerium für Ernährung, Landwirtschaft und Forsten (Ministry of Nutrition, Agriculture and Forests, BML)
• Bundesministerium für Arbeit und Sozialordnung (Ministry of Labor, BMA)
• Bundesministerium für wirschaftliche Zusammenarbeit und Entwicklung (The Ministry of Development and Cooperation, BMZ)

The BMBau, the BMV, and the BMZ are all minor players within the IWG. However, none of them have any interest staked in emissions trading; they focus instead on other aspects of the climate debate. The BMBau is heavily involved in new energy conserving construction standards. The BMV is concerned with gas mileage efficiency since almost 20% of CO₂ emissions is caused by road traffic. The BMZ coordinates economic aid projects in the developing countries. As such, it has some interest in joint implementation, which overlaps its jurisdiction of projects. Lately, the BMZ has been losing prestige as a Ministry since current political interest has focused more on increasing domestic economic problems, so acquiring control over joint implementation may be able to boost its importance. It tried unsuccessfully to use DM 1 billion of unused funds for emissions reduction projects in developing countries, but the Ministry of Finance prevailed and the money was used to reduce the deficit. ₁₅₆

5.1.2 Federal Ministry for Environment, Nature, and Nuclear Safety (BMU).

As noted above, the BMU holds the responsibility for coordinating Federal climate policy in Germany. The BMU also chairs the CO₂ Reduction Interministerial Working Group. Environmental policy is initiated by the BMU and reviewed to by the other Ministries, which may demand amendments.

The BMU is headed by Dr. Angela Merkel. Within the climate change section of the BMU, two divisions are particularly relevant to the emissions trading issue. Franz-Josef Schafhausen is in charge of the domestic climate change program and joint implementation program and also chairs the IWG. Cornelia Quennett-Thielen is in charge of international negotiations. Mr. Schafhausen is directly involved in producing the policy and hammering out a viable agreement with the other ministries in the IWG, while Ms. Quennett-Thielen takes charge of presenting the policy in the international forum and negotiating agreements with representatives from other nations. Deputy Director General Hendrik Vygen is in charge of them both, but they directly handle the specific details of their areas. The BMU sent 19 representatives to Kyoto and this was by far the largest constituent in the German delegation.

Minister Merkel has repeatedly expressed concern about the potential abuse of loopholes in emissions trading mechanisms, again directed at American purchase of "hot air." ₁₅₇ While the BMU has not done much in-depth studying of joint implementation, it generally favors this instrument over emissions trading because it can be evaluated on a project-by-project basis. ₁₅₈

Currently, the BMU is formulating a new policy position on emissions trading under Article 17 of the Kyoto Protocol. An interview with BMU representative Anja Jänz confirmed that policy formulation is currently under way and that the broad brush strokes should be done by May. ₁₅₉ The main detail is that Germany would like a 50% cap on the amount of emissions reduction obligations that can be achieved through emissions trading. ₁₆₀

5.1.3 Federal Ministry of Economics (BMWi).

The BMWi has been a major player in domestic climate change policy. The BMWi waits for the BMU to present a policy proposal to the IWG and then submits counterproposals or demands amendments. The interaction of this Ministry with the climate change debate is primarily in the hands of the BMWi's Division for Environmental Affairs, now headed by Wendelin Wilhelm. It is worth noting also that the BMWi is instrumental in formulating energy policy.

BMWi has always favored voluntary regulation and when German industry reacted strongly against the proposed CO₂/energy tax, the BMWi negotiated an agreement with industry allowing self regulation instead of the tax. ₁₆₁ It is noteworthy that it was the BMWi rather than the BMU who undertook these important negotiations, which are central to German policy on climate change.

The BMWi seems to have no interest in emissions trading on the grounds that it just won't work. ₁₆₂ One source says he asked the current Minister why the BMWi does not consider emissions trading and he replied that this instrument has never been applied and needs to be studied. ₁₆₃ The former head of the BMWi's Division for Environmental Affairs, Gerhard Maier-Rigaud commissioned several studies on emissions trading. However, he has since been replaced as division head by Mr. Wilhelm and no further studies have been undertaken. A recent interview with Mr. Maier-Rigaud revealed that the BMWi feels that emissions trading is too complicated to be a viable mechanism, especially on a domestic company level. ₁₆₄ Any contemplation of emissions trading has been in the context of nation to nation trade. ₁₆₅

5.1.4 Political Parties.

It is unclear how influential political parties are in the climate policy debate. National elections are scheduled for September in Germany and it is very possible that there will be a change in leadership in the Federal Government. Some sources are of the opinion that the elections will have no effect on the climate/emissions trading debate, while others believe that a replacement of the Christian Democrat-dominated Government by a "Red/Green" (Social Democrat/Green Party) coalition will indirectly create more favorable conditions for the acceptance of an emissions trading system. _{166 167}

Those sources who felt that the election results would have no tangible effects on climate policy noted that there is basic support for the German climate policy from all political parties. ₁₆₈ Other observers paint a different possible scenario, suggesting that a coalition government comprised of the Social Democrats and the Greens would increase the influence of the Greens, who favor regulatory control of industry. The Social Democrats are also in favor of regulatory controls, although they tend to be less zealous on the issue since their main political support comes from unions that might fear job losses as a result of climate policy. ₁₆₉ If such controls (i.e., caps on emissions) were to emerge as a feature of German climate policy, other actor groups, especially industry, might become more sympathetic to emissions trading. ₁₇₀ As long as voluntary agreements are still in place, there is no incentive for industry to support an emissions trading scheme. However, once caps are in place, industry may see a comparative advantage of operating with an emissions trading program and become a proponent. ₁₇₁ Under such a scenario the elections would have a great impact, since the Kohl administration is unlikely to push for regulatory controls in favor of voluntary actions. ₁₇₂

This scenario could then ultimately pit German industry and the BDI against the Green Party, since the Greens are also against the idea of emissions trading. The Green Party opposes emissions trading on the grounds that granting the right to pollute is immoral and that trading would be unfair for developing countries. ₁₇₃ The Greens are particularly critical about the trading regime agreed upon in Kyoto, and are skeptical that emissions trading is merely a loophole that will enable nations not to fulfill reduction obligations at home. ₁₇₄

Another possible result stemming from a Social Democrat/Green coalition is that Green Party head, Joshka Fischer, could then become the Foreign Minister or the next Minister of the Environment. ₁₇₅ A Green Environmental Minister could lead to a CO₂ Interministerial Working Group that is more responsive to the lead of the BMU. ₁₇₆

5.2 Business and Industry Sector

Industry is a very influential player in the formulation of German climate policy. It is principally resistance from industry, and organizations representing the interests of industry (specifically the Federation of German Industry and the BMWi), that the BMU needs to overcome in order to institute its preferred policy. Industry has always opposed emissions trading as a potential financial burden and preferred voluntary actions. There is still little knowledge about emissions trading in the private sector, but it could become a big trading promoter in the future. _{177 178} The principal actor in this sector is the Bundesverband der Deutschen Industrie (Federation of German Industry -- BDI).

Under the umbrella of the BDI, some individual companies and industries are worth noting. Currently most firms are strongly opposed to emissions trading (i.e. BMW and Siemens), while Ruhr Gas, on the other hand, is more interested. ₁₇₉ The hard coal lobby (which is still subsidized by the Federal Government) and the fossil fuel-using electric companies are not enthusiastic about climate change policy in general, as their industries stand to lose profits and jobs. ₁₈₀

5.2.1 Federation of German Industry (BDI).

The BDI represents the economic and political interests of industry in negotiations with Parliament and the Government, political parties, unions, and other important organizations. Joachim Hein is the representative at climate change negotiations. The BDI is a strong player and was successful in countering the proposed energy tax and supplanting it with voluntary actions. ₁₈₁

Under the voluntary action agreement negotiated between the BMWi and the BDI, there are different emissions reduction targets for different industrial sectors, as opposed to company-by-company targets. These targets were negotiated by the BDI, demonstrating their high level of influence in the climate change debate. ₁₈₂ During the negotiations with the BMWi over the CO₂ tax, the BDI did temporarily announce support for emissions trading. However, the group's objective was to seek voluntary measures; once the Government agreed to self-regulation, the BDI promptly renounced its support for emissions trading. ₁₈₃

The voluntary action structure of sector-by-sector emissions targets, which is already established and functioning, creates a resistance to change in and of itself. Adopting a new method would entail overhauling the entire organizational system and potentially create comparative disadvantages for some firms or industrial sectors that would be better off under the status quo. Under these conditions, emissions trading might be a hard sell to industry even if the Government Ministries were to endorse it. However in a recent interview, Joachim Hein described the BDI as very interested in the potential that emissions trading offered for achieving quantified emissions limitation and reduction objectives, presenting the possibility of a marked change in attitude. ₁₈₄ It is apparent that industry will support the most economically advantageous method of achieving climate policy goals.

5.3 Nongovernmental Sector

In Germany, NGOs are somewhat influential, but they are not the same kind of organized lobbying force that they are in the US. ₁₈₅ The BMU welcomes their input but the main player is the Government. Because the NGOs basically support the Government climate program, a good relationship exists between the Government and the NGOs. ₁₈₆ The main NGO players are brought together under an umbrella organization, the Forum Umwelt und Entwicklung (Environment and Development Forum). The principal individual actors are Sascha Müller-Kraenner of Deutscher Naturschutzrung (DNR), Christophe Bals of Germanwatch, Stephan Singer at the World Wildlife Fund Germany (WWF Germany), Friends of the Earth (FOE), Greenpeace Gorinne Zeithen, Hermann Ott at the Wuppertal Institute, and Mannfred Treber at the Forum Umwelt und Entwicklung. In addition, the Sachverständigenrat für Umweltfragen (Scientific Advisory Council for Environmental Affairs) in Wiesbaden is in favor of emissions trading, but has no political power. ₁₈₇

5.3.1 Forum Umwelt und Entwicklung (Environment and Development Forum).

Environmental organizations interested in participating in the climate change debate in Germany are represented in a NGO umbrella group called Forum Umwelt & Entwicklung (Environment and Development Forum). This forum discussed the concept of emissions trading at a 1997 symposium called "100 days till the Berlin climate summit."

The NGOs stated that "emissions trading appears to be an interesting instrument to complement eco-taxes as national fiscal instruments in conformity with the principle of the market economy, particularly within the framework of a global system of emissions reductions. NGOs are just investigating the extent to which emissions trading can play a role in the Framework Convention on Climate Change." Since Kyoto, German NGOs have all accepted the inclusion of emissions trading in the Protocol as fait accompli and are working to shape its form. The emphasis is now on ensuring that a trading system will be economically and socially responsible. ₁₈₈ Emissions trading is still a technique that is considered a great potential loophole for avoiding real emissions reductions. To prevent this abuse, NGOs want to see a cap of emissions reductions accounted for through trading so that at least 50% of emissions reductions are achieved domestically.

5.4 Summary

Germany could be open to a system of emissions trading if it prevented "hot air" loopholes and supplemented a primary strategy of domestic emissions reductions. Germany will likely want to include a cap on the amount of emissions reductions that a nation can achieve through trading. This is consistent with a basic German belief that sincere attempts at meaningful climate protection policy must be based on domestic emissions reductions. The official climate protection position advocates an emissions and energy consumption tax, coupled with improved efficiency in technology. The most often heard criticism of emissions trading is its perceived potential for "hot air" loopholes. German industry could become a proponent of emissions trading if domestic CO₂ emissions caps are established in place of voluntary actions and the flexibility of a trading system becomes economically advantageous. However, the feasibility of implementing a domestic emissions trading system in the absence of binding caps is questionable. This may prevent Germany from becoming a strong advocate of trading.

6. France

During 1997, and particularly at COP-3 in Kyoto, the Government of France was an outspoken opponent of emissions trading as proposed by the United States. ₁₈₉ Strong criticism emerged from different factions of the Government against the "minimalist and insufficient" character of the US proposal. ₁₉₀ Because of this, France must be considered an important player in any EU-wide analysis on ET. Moreover, the recent evolution of the Government's position towards a more open policy on emissions trading might play an important role in the debate to shape the rules for emissions trading during COP-4.

Over the past year, the debate over emissions trading in the French Government has been split between two views: some Government agencies have shown support for emissions trading, ₁₉₁ while others have strongly disapproved of it. Some have even gone so far as to characterize it as "unethical." ₁₉₂ These contrary positions apparently evolved during the negotiations that led up to Kyoto. ₁₉₃ > However, even supporters of emissions trading in France make their approval conditional to the implementation of an international mechanism for control, strong sanctions, and equitable i ₁₉₄

France has traditionally approached environmental policy with fiscal instruments and therefore has limited experience with market mechanisms such as ET. The high level of involvement of some agencies in the study of implementation mechanisms for ET suggests however that the Government is beginning to consider it a feature of French climate policy. Two possible reasons for this policy shift are: 1) the perception of some Government agencies that emissions trading may enable the development of innovative energy technologies to replace France's nuclear parc in the future; and 2) the possibility that emissions trading also presents an opportunity for France to increase its allowances under the EU "bubble." ₁₉₅

6.1 Government positions on emissions trading

Since the 1970s, a suite of policies helped France to reduce its per capita CO₂ emissions more than any other member state of the EU (a reduction of 26.5% compared to an EU average of 19.3%). ₁₉₆ In response to the oil crisis of the 1970s, the Energy Savings Agency was put in place and strong measures were adopted to increase energy efficiency. These included strict regulations aimed at encouraging energy savings, high duties on fuels, and fiscal incentives intended to improve energy efficiency for industry and households. ₁₉₇ In addition, the Government developed a large nuclear generating system that has contributed to CO₂ emissions reductions at both the national and EU level. France's overall climate policy objective is to reduce its GHG emissions by an additional 8% by 2008-2010.

As a result of France's past efforts, in recent years country officials have argued that "the costs of new measures to be taken in France will be higher than in many other countries within the EU or the OECD. Therefore, the cost (per ton of carbon emissions avoided) of actions to reduce emissions should be of a comparable level for the various countries in Annex I." ₁₉₈ France has traditionally viewed the introduction of progressive taxation in developed countries and the elimination of subsidies that encourage consumption of fossil fuels as the most effective and equitable ways of sharing the cost of reducing CO₂ emissions at the global level. ₁₉₉ Within this framework, France supported the introduction of a CO₂ /energy tax within the European Union. Its support of the tax was restricted to those sectors that would not lose competitiveness at the international level. ₂₀₀

Figure 6.1 Schematic of French climate policy formulation

Currently, France has taken a decentralized approach to its emissions trading policy process. Input from several Ministries is used to determine policy. Ultimately, the Cabinet du Premier Ministre (Cabinet of the Prime Minister, CPM) adopts the French national position on climate change policy toward the UNFCCC. Within the Cabinet, the Secretariat Generale pour la Coordination Interministerielle (General Secretariat for Interministerial Coordination, SGCI), coordinates UNFCCC preparatory meetings at the national level. Climate change policy is actually produced by the Ministere de l'Amenagement du Territoire et de l'Environnement (Ministry of the Environment, MoE) which is the leading agency on environmental policy. Other Ministries, including the Ministere des Affaires Etrangeres (Ministry of Foreign Affairs) and the Ministries of Economics and Finance and of Industry, together with some technical and scientific agencies, also shape France's climate change policy. Although an Interministerial Mission for the Greenhouse Effect exists in France, its role is currently being debated. ₂₀₁

At present, France's positions toward emissions trading seem to be evolving. All agencies, including the MEF, the Agence de l'Environnement et de la Maitrise de l'Energie (Environment and Energy Management Agency, ADEME) and the Centre International pour la Recherche et le Developpement (International Center for Environment and Development, CIRED) currently see emissions trading as a fait accompli within the Kyoto Protocol. Some Ministries have, however, adopted a more proactive approach in studying alternatives for the implementation of emissions trading in France. ₂₀₂

6.1.1 Cabinet of the Prime Minister.

The Cabinet adopts the final decision on France's national position on climate change. The SGCI coordinates this work through interministerial meetings. ₂₀₃ Each Minister is represented in these meetings by advisors or counselors. According to a Government source the role of the SGCI is more that of an arbitrator when opposing positions within Government are present than that of a true coordinator of climate change policy.

6.1.2 Ministry of the Environment (MoE).

Climate policy is made in the MoE mainly through the Division for Pollution and Risk Prevention. Knowledgeable officials have indicated that the MoE is the most influential agency regarding policy on climate change. The fact that over 40% of the French delegation to Kyoto came from the MoE is indicative of its level of involvement in the international debate. During most of 1996 the MoE concentrated its efforts in developing the Loi de l'Air (the Air Law) that was adopted in December of that year. At that time, the agency was not involved in the international process and only after the Berlin negotiations did it regain its leading position in international climate change policy. ₂₀₄ This aspect may have contributed to the initial reticence that the MoE expressed towards ET.

Before COP-3 the MoE showed clear opposition to ET mechanisms. The Minister of the Environment, Ms. Dominique Voynet (a member of the Green Party) ₂₀₅ expressed concerns about emissions trading as a departure from the traditional French fiscal approach to policy. ₂₀₆ The MoE also expressed concern that ET could introduce too much flexibility to the UNFCCC. In a pre-Kyoto press release where it deplored the minimalist character of the US approach to the UNFCCC, the MoE stated that it feared ET would only serve to allow large polluting countries to avoid real GHG emissions reductions. ₂₀₇

MoE did tone down its opposition to ET during consultation meetings with other Government agencies and Ministries in October and November 1997. ₂₀₈ Announcing France's national position to COP-3, Ms. Dominique Voynet declared that MoE's acceptance of ET would be contingent on the adoption of ambitious GHG reductions. In addition, she mentioned that France could accept ET if an international exchange mechanism were put in place, trading took place through a stock exchange, strong sanctions were adopted in cases of non-compliance, and equitable initial endowments were guaranteed.

According to an acquainted official, the MoE accepts the fact that ET has been adopted in the Kyoto Protocol. However, MoE still sees emissions trading only as a supplemental mechanism, and emphasizes that the rules for its international implementation must be resolved in a manner that guarantees transparency, equity and real GHG emissions reductions.

6.1.3 Interministerial Mission for the Greenhouse Effect (MIES).

The Mission consists of three climate policy advisors (one president and two members) attached to the MoE. It is in charge of providing technical and economic advice to the Minister of the Environment on climate issues. The Mission was put in place to coordinate the national debate on climate policy during the negotiations of the Ad Hoc Group on the Berlin Mandate, at a time when the MoE was in charge of the creation of the Air Law. ₂₀₉

At present, the traditional divisions of the MoE have regained their role and, according to some officials, the Mission seems to have lost any decision power. ₂₁₀ Other Government sources however, particularly those in the MoE and the CIRED, view the MIES as a coordinating agency of relative importance. ₂₁₁

Currently, the Government appears to be adopting certain initiatives to increase the influence of the MIES: Mr. Michel Mousel, a former chair of ADEME and former director in the MoE has recently been named its president ₂₁₂ and there is a plan to relocate the Mission as part of the cabinet of the Prime Minister. ₂₁₃

6.1.4 Ministry of Economics and Finance (MEF).

The MEF has actively participated in climate change policy during recent years, through the Service des Energies Renouvelables et de l'Utilisation Rationnelle de l'Energie (Division for Renewable Energies and the Rational Use of Energy), the Treasury, and the Direction de la Prevision (Planning Direction). ₂₁₄ A high level official from the MEF characterized the Ministry as the "only true supporter of emissions trading in France." ₂₁₅

The Ministry has been active in climate policy formulation, and supportive of market mechanisms. It is currently engaged in studies of modalities for the implementation of emissions trading. This Ministry envisions an emissions trading mechanism where trading would be allowed both among countries (governments) and within the private sector. It prefers that emissions allowances be traded through a stock exchange to ensure transparency and that markets be open to involve companies of large size. ₂₁₆

6.1.5 Ministry of Foreign Affairs (MFA).

The MFA has had a high level of involvement in the discussions surrounding ET. One unit in particular, the Direction des Affaires Economiques et Financieres (Direction for Economic and Financial Affairs, DAEF) took part in the Kyoto negotiations and also participated in technical preparatory forums. ₂₁₇ The Ministry of Foreign Affairs has publicly supported the Ministry of the Environment's views with regard to the US emissions trading proposal, qualifying it as modest and disappointing.

6.1.6 Ministry of Industry.

During 1997 the Ministry of Industry conducted a specific study on ET in anticipation of the Kyoto talks. ₂₁₈ This study, along with numerous references to this Ministry's views by Government sources contacted for this report, suggests that the Ministry is a relevant player in the national climate debate. The study concluded that emissions trading could be beneficial for France if large GHG-emitting countries (such as the US) were not allowed to purchase all of their reductions, and if developing countries were not left out of the system. ₂₁₉ One Government official, however, indicated that the Ministry of Industry has no experience with market mechanisms and is therefore skeptical that they can be easily implemented in France. ₂₂₀

6.1.7 Environment and Energy Management Agency (ADEME).

This research agency works under the supervision of the Ministries of Industry, Environment and Higher Education. Its role is to provide these Ministries with technical support on issues related to energy efficiency. ₂₂₁ Apparently, ADEME has no decision-making power but has a high level of knowledge regarding emissions trading. Although it did not attend the Kyoto negotiations, it participated in a preparatory meeting of technical character on emissions trading organized by the OECD. ₂₂₂

According to knowledgeable sources, ADEME is currently studying modalities for the implementation of ET. Its main concerns for COP-4 include the means of implementation of an ET mechanism, the initial allowances for each country, "hot air," joint implementation and the participation of developing countries. ADEME believes that limitations must be placed on the amount of emissions a nation can trade in order to fulfill its obligations under the UNFCCC and Kyoto Protocol. The agency is currently assessing the reduction objectives for specific sectors of industry and is also stressing the need to engage developing countries in the UNFCCC. ₂₂₃ The elements currently being studied by ADEME will certainly be addressed by the French delegation during the meeting in Buenos Aires.

6.1.8 French National Center for Scientific Research (CIRED).

CIRED is a public research organization that works under the supervision of the Ministry of Education. According to a knowledgeable source in CIRED, the organization played a key role during the preparations for Kyoto as an interministerial coordinator.

A CIRED official, Mr. Olivier Godard, has written numerous articles addressing implementation of ET in France and has been deeply involved in the French ET debate. Godard has expressed concerns that emissions trading could be used by countries to avoid undertaking domestic emissions reductions. ₂₂₄ His studies for CIRED, however, recommend that France should support ET because it may enable the development of non-nuclear energy technologies in time for the replacement of the nuclear parc in 20 years. Godard has also stated that limits must be imposed on the amount of emissions reduction obligations that a nation can meet through ET. ₂₂₅

6.2 Business and Industry Sector

Over three-quarters of industrial CO₂ emissions are produced by a small number of sectors in which energy is a major factor in production costs: metals, construction materials, paper and board, agrofood and chemicals. ₂₂₆ The Government's opposition to an EU-wide tax on CO₂ reflected concerns that the international competitiveness of these sectors would be compromised. ₂₂₇

Industry has been highly supportive of emissions trading in France. However, the Government's position in Kyoto against emissions trading, and its inclination toward the use of fiscal instruments, suggest that industry does not dominate the French climate debate.

6.2.1 Elf Aquitaine.

Elf, the largest oil group in France, agreed before Kyoto to a 15% reduction by 2010 as initially proposed by the EU. ₂₂₈ However, one of its high executives has publicly voiced his group's "preference for the American approach on the means of implementation - of the EU objective - particularly the activities implemented jointly or the tradable permits." ₂₂₉ Elf Aquitaine appears strongly supportive of market mechanisms and of voluntary negotiated agreements between Government and industry.

6.2.2 Unions.

The Union des Utilisateurs d'Energie (Energy Users Union, UNIDEN) integrates the 23 largest consumers of energy in France. UNIDEN strives for the use of market mechanisms and, during the pre-Kyoto phase, publicly criticized the approach of the French Government toward emissions trading. ₂₃₀

6.3 Nongovernmental Sector

Apparently, the role of NGOs is very limited in France. Reseau Action Climat (Climate Action Network, RAC) is the coordinating group for all French NGOs working on climate change policy. According to a source involved in the debate surrounding NGOs, climate policy is set in France by "the last person who has the microphone" and during Kyoto, it was the Environment Minister who had the microphone last. ₂₃₁

France's RAC has expressed concerns about emissions trading under the UNFCCC and Kyoto Protocol. Their major concern is that large polluting countries such as the US will attempt to buy their way out of their commitments. They also viewed ET as an immoral activity that would allow countries to pollute others' air. ₂₃₂

6.4 Summary

Two key features have characterized the French debate on emissions trading. First, most Government actors and institutions have expressed skepticism towards the Kyoto Protocol's flexibility measures, arguing that they can allow large polluters to elude national GHG reductions. Second, France insists that a significant percentage of a nation's required GHG emissions reductions must be achieved through domestic initiatives. Strong disagreement surrounding emissions trading was present during 1997 between Government agencies in France. During the last phase of the preparations for Kyoto, some Ministries that had expressed opposition to emissions trading apparently began to reconsider the merits of ET - with certain qualifications. ₂₃₃ In particular the Ministry of the Environment, the leading agency against emissions trading, suggested it could consider emissions trading if an international mechanism of control were put in place, emissions allowances were exchanged through a stock market, and equitable initial endowments were ensured. ₂₃₄ This shift, and the subsequent studies of emissions trading that have been undertaken Ministry of Economics and Finance, ADEME and CIRED, suggests that France has accepted the reality of emissions trading and is now focused on more specific design aspects of an ET system.

7. Synthesis, Conclusions and Recommendations

Despite general EU opposition to ET during COP-3, since Kyoto the EU has clearly accepted the fact that emissions trading is now part of the policy landscape. As detailed in the previous chapters, the Netherlands and the United Kingdom have been most active in supporting ET. With flexible measures such as emissions trading a central piece of the UK's environmental agenda, the UK (as current EU President) will likely drive further progress on the issue in the EU. After a cautionary stance toward ET during COP-3, Germany is now beginning to look into the issue in earnest and, due to their economic strength and membership in the troika, may play a greater role in EU policymaking on ET during COP-4. France, the country most opposed to ET during Kyoto, is still reticent, but has also begun to moderate its position and study implementation of emissions trading.

This chapter summarizes the major findings and highlights cross-cutting themes that emerge from this report. In light of these themes, we assess the major issues and political dynamics that are likely to be in play in the coming months. We conclude the report by presenting a set of recommendations, which are designed to assist proponents of emissions trading in building international consensus on ET under Article 17 of the Kyoto Protocol.

7.1 Summary of EU and country positions

Recent debates concerning the burden sharing issue within the EU "bubble" have resulted in a temporary shift of focus away from GHG emissions trading discussions. However, results from the 23 March 1998 meeting of EU Environment Ministers indicate that the EU is attempting to forge a consensus on the ET issue. The Ministers' decision to sign the Protocol at that meeting indicates their general support for the agreements made in Kyoto. However, it appears that the EU is envisioning GHG emissions trading as a means but not the primary means for complying with reduction requirements. The EU advocates that a ceiling be placed on the amount of GHG emissions reductions that can be made as a result of emissions trading, and continues to restate its demand that industrialized countries achieve their GHG reductions mainly through domestic action. ₂₃₅ Environment Ministers taking part in the 23 March meeting also issued a joint statement indicating that "satisfactory progress" is needed for ensuring that emissions trading will "provide real, cost effective, and verifiable environmental benefits and [will] not create loopholes that undermine the objectives of the Protocol." ₂₃₆

At the country level, our research suggests that the influential units of the UK Government favor an international GHG emissions trading system. ET is strongly supported by the Deputy Prime Minister as well as other high-level Government officials who have indicated that climate change is a top priority for the UK. This is especially significant since the UK currently holds the EU Presidency and will continue to be an influential member of the troika during COP-4. Focus within the UK has shifted away from debating whether ET is desirable to determining how to design and implement an effective global trading system.

At least two highly influential actors in the Dutch climate debate indicate that the Netherlands has developed a supportive and favorable position on ET. ₂₃₇ However, the Netherlands appears to prefer other mechanisms, such as joint implementation and sinks, as the favored flexibility measures. This is due both to their lack of experience as well as the complex and unresolved issues associated with emissions trading. According to a Senior Policy Advisor at the VROM, the Netherlands expects that agreement on procedures governing joint implementation will be reached in Buenos Aires before any other of the flexible instruments. Industry representatives within the Netherlands have repeatedly expressed their support for flexible measures such as emissions trading, but they favor voluntary agreements and remain strongly opposed to a legally-binding cap on emissions levels. ₂₃₈

Germany has adopted a cautious stance on ET due to its significant concerns that the United States intends to use emissions trading to avoid domestic reductions. It is important to note, especially considering the size and relative influence of Germany, that our research indicates that the German position is not against the concept of ET per se. Instead, Germany opposes the creation of a system that would allow the US and others to avoid responsibility for undertaking significant domestic GHG reductions. Therefore, the Government strongly supports a limit on the amount of reductions that a nation can achieve through ET. German industry, a significant player in the formulation of climate change policy, has begun to express interest in emissions trading. ₂₃₉ This view may change further towards acceptance of ET if upcoming elections put pro-regulatory Greens and Social Democrats into greater positions of power.

Of the countries examined in this study, France has voiced the strongest opposition to emissions trading. The French remain the most divided with regard to their official national position, and are generally skeptical about supporting a trading mechanism -- unprecedented in its complexity and scope -- that has no clear implementation guidelines. However, some Ministries in France are moving forward with plans for emissions trading. Therefore, it appears that the French position is evolving towards acceptance of emissions trading, although the current extent of the division between Government agencies on this issue remains unclear.

7.2 Cross-cutting themes

The country analyses highlight five common themes with regard to the emissions trading debate in the European Union. First, it is clear that the EU's opposition to ET during Kyoto was based primarily on suspicions that trading will be used by the United States as a way to avoid undertaking domestic emissions reductions. A related concern is the "hot air" issue, with fears that the US will purchase emissions allowances from Russia and the Ukraine that have been generated by economic stagnation and retiring of inefficient plants. Second, interviews with EU and member state officials indicate frustration with the perceived over-optimism with which proponents of emissions trading have promoted ET. They are concerned that ET proponents have not adequately addressed the potential problems of an emissions trading regime, including the environmental implications of issues such as hot air. These suspicions and frustrations have been compounded by (third) the EU's traditional reliance on fiscal policy measures, and (fourth) a lack of understanding of and experience with trading at high levels of government. Finally, given these factors and the domestic actions already undertaken in EU nations, both the member states and the EU as a bloc believe that emissions trading (and other flexibility measures) should only complement domestic actions as a means of meeting obligations under the UNFCCC and Kyoto Protocol.

7.2.1 Avoidance of domestic emissions reductions.

The country chapters reveal that the European Union's opposition to emissions trading during COP-3 mainly reflected suspicions of US motives, rather than opposition to the mechanism itself. Each country in this study indicated that its primary reason for opposing emissions trading was that ET, as proposed, would allow the US to purchase enough allowances to avoid having to undertake any meaningful domestic reductions. Given the EU member states' evident commitment to domestic actions, this view is not surprising. Related to this concern is the suspicion that the US will purchase "hot air" allowances from Russia and the Ukraine. Under the Kyoto Protocol, Russia and the Ukraine are not required to reduce their GHG emissions below 1990 levels. Yet, because of economic stagnation and the retirement of inefficient plants, GHG emissions in these nations have been decreasing steadily since 1990. The EU fears that Russia and Ukraine will be able to sell the unneeded allowances that they may accrue for these reductions (as they exceed their obligations under the Protocol), and sell this "hot air" to the United States and Japan.

7.2.2 Perceptions of over-enthusiasm by trading supporters.

Another cross-cutting theme is the widespread perception within the EU that proponents of emissions trading have embraced the mechanism in an overly-enthusiastic manner. Many countries expressed a common sentiment that their concerns over both the technical aspects of an ET system, and the environmental implications of trading, were dismissed without full consideration. Many also feel that emissions trading proponents may not be seriously considering the implications of such ET-related problems as "hot air" for the climate protection objectives embodied in the UNFCCC and Kyoto Protocol. The EU is willing to support an emissions trading regime, but feels there is still a considerable amount of work to be done before an international emissions trading mechanism can be formulated. The perception that proponents of emissions trading are proceeding as if there are no obstacles frustrates the EU.

7.2.3 Fiscal Policies.

Generally, fiscal policies are the preferred strategies for environmental policy implementation in the European Union. Although an EU-wide carbon tax has not yet passed, taxation is an accepted means of government revenue-raising and European counties have some of the highest tax rates in the world. Whereas emissions trading represents an untried policy tool, fiscal policy interventions are familiar. France is the clearest exemplar of this preference, with frequent mentions of fiscal policy in its national climate change position papers. While countries such as the Netherlands and the United Kingdom profess an interest in the flexibility presented by ET, even they see trading as one of a suite of policy instruments, with fiscal instruments being the predominant tool.

7.2.4 Lack of experience with emissions trading.

In part because of the EU and member states' traditional reliance on fiscal measures, there has also been very little experience with emissions trading -- and market mechanisms in general -- in environmental policy. The few examples of trading, such as in the Netherlands, have been very limited in scope and have not played a serious role in the EU-wide debate over international GHG emissions trading. Among high-level officials there is simply not a great deal of familiarity with tradable permits, and with the intricacies associated with developing an emissions trading market of the scope suggested by some proponents of ET.

7.2.5 Limits on flexible measures.

A final theme that emerges from the study is the strong view among the EU nations that flexibility measures should only be secondary to domestic policies and measures. The EU feels that effective climate policy must first be based on domestic reductions of GHG emissions. The EU's approach to energy and climate policy, as well as the concerns noted above, clearly motivates this view. All the country chapters describe proactive policies that were adopted by the EU countries in the early 1990s, when climate change emerged as a serious international issue. In the UK, this consisted of road fuel taxes and voluntary agreements with industry; France instituted energy efficiency legislation and taxation; Germany pursued domestic reductions through efficiency and voluntary agreements; and the Netherlands also pursued voluntary agreements with industry and employed fuel taxes. The EU sees individual nations as bearing the primary responsibility for lowering emissions. Although they are interested in the increased flexibility offered by the various alternative reduction mechanisms included in the Kyoto Protocol, the EU and its member states believe that the first steps should be taken domestically, as has been the case in the EU for the past several years.

7.3 Kyoto to Buenos Aires and beyond

In light of the analysis presented above, it seems likely that caution and incremental steps will characterize ET discussions during the run-up to COP-4. The EU will attempt to limit the scope of ET, casting it as only one of several secondary means for emission reductions. It is doubtful that the EU will accept a plan for emissions trading that would enable a nation to meet less than 40% of its GHG emissions reduction obligations through domestic means. The EU has recently articulated this position, issuing a statement that it seeks to require Parties to meet at least 50% of their obligations through domestic reductions. ₂₄₀ This position runs in direct opposition to the United States' objective to have few limits placed on flexibility measures, and the debate on this matter could prove to be a strong point of contention at COP-4.
Another major topic during COP-4 will be the linkages between ET and sinks, the Clean Development Mechanism, and joint implementation. Discussions with EU country representatives indicate that any treatment of ET will have to include discussions of the other flexibility measures. Difficulties in sorting out the links among the flexibility measures, the modalities for which have themselves not been fully worked out, may be compounded by the EU's relative unfamiliarity with emissions trading. These difficulties, and the short time frame within which to prepare for COP-4, may be significant enough to prevent major progress from being achieved in Buenos Aires.

Finally, there are a number of factors that may constrain the possibilities for implementing an emissions trading regime in the EU. Most important among these is the extensive use of voluntary agreements between government and industry to achieve emissions reductions. This policy instrument is a prominent feature of climate policy in the UK, the Netherlands, and Germany. While it is not inconceivable that emissions trading can occur in the absence of legally binding emissions caps, the structure of most voluntary arrangements (as in Germany) makes it very difficult to implement a private sector-based trading scheme without major changes. Therefore, in the absence of sector-specific, legally binding domestic caps it appears unlikely that an emissions trading regime can easily incorporate the private sector. This suggests that some EU nations may limit their involvement in ET to government-to-government trades. While this limitation may not be a significant factor behind EU support for, or opposition to, emissions trading, it may compromise the potential efficiency of the GHG emissions market - a cornerstone of the arguments articulated by proponents of ET.

Currently, however, the most contentious climate-related debate in the EU concerns burden sharing. As discussed in Chapter 2, the 8% emissions reduction requirement of six gases in the Kyoto Protocol has resulted in the reopening of negotiations on the EU "bubble." Several countries are using this as an opportunity to reduce their share of the burden. As countries position themselves in this debate, there are indications that nations supportive of ET (such as the UK) may link their preference for flexibility measures to their support of proposed changes in burden sharing arrangements. ₂₄₁ Regardless of how this debate is resolved, it is clear that a more detailed EU position on emissions trading will be delayed until internal negotiations on the "bubble" are completed.

7.4 Policy Recommendations

The recommendations below are suggested as points of action for building further consensus among the Parties to the UNFCCC on emissions trading. They are intended for actors and institutions that wish to promote ET as a means for achieving greenhouse gas emissions reductions.

7.4.1 Be proactive on EU concerns such as "hot air."

One of the European Union's emphatic objections to emissions trading has been the possibility that trading might allow parties to purchase "hot air" allowances. The EU has also insisted that domestic reductions comprise a considerable portion of the Annex I signatories' Article 3 commitments. Moving early and earnestly to address these concerns, as well as those related to the rules and modalities of an ET regime, would go a long way toward easing EU frustrations that their concerns are not being taken seriously. Additionally, providing clear information on the domestic steps being taken by the US would help to convey that there is sincerity in the US' commitment to addressing the issue of climate change.

7.4.2 Emphasize the importance of emissions trading for US ratification of the Kyoto Protocol.

Our research indicates that EU officials do not fully appreciate the significance of emissions trading vis a vis the United States' ratification of the Kyoto Protocol. Emissions trading is a central feature of the Administration's efforts to convince the Senate that climate change can be addressed in a way that does not damage the US economy, an argument that is based on the US' successful experience with SO2 trading under the Clean Air Act Amendments of 1990. By emphasizing the importance of emissions trading in "2-level game" discussions, US proponents of ET may assist their efforts in discussions with EU delegates. Toward this end, it may be useful to recall that, under Article 4 of the Protocol, any group of nations may join together to meet aggregate emissions reduction targets. This means that, for example, the United States and Russia could create a "bubble," much like the EU, to achieve their Article 3 reduction targets collectively.

7.4.3 Seek ties with EU counterparts.

This report identified several groups in each country that have been receptive to and/or working on emissions trading. Forging second-level ties with such groups may assist in the process of building consensus on ET. Within the Netherlands, the Ministry of Housing, Planning and Environment (VROM) and the Ministry of Economic Affairs have articulated support for GHG emissions trading, as has the Dutch Employers Organization (VNO-NCW). The German Federation of Industry (BDI) has significant influence with the formulation of climate policy, and has indicated preliminary support for emissions trading. Within France, the Ministry of Economics and Finance and the Environment and Energy Management Agency (ADEME) have indicated support for ET, and have adopted a proactive approach towards development of modalities. These organizations are good places to begin forging staff-level ties concerning emissions trading; such ties may offer opportunities for conducting the "2-level game" discussions suggested above.

7.4.4 Undertake efforts to de-bias the information base.

In Kyoto, Parties who had little or no exposure to the concept of emissions trading were being asked by enthusiastic ET proponents to adopt such a system on a global level. This low level of awareness, combined with suspicions over the proponents' real motivations, suggests the need for the dissemination of objective information on experiences and problems with emissions trading. There have been a number of such studies conducted on emissions trading: by international organizations such as the OECD Annex I Expert Group, NGOs such as Resources for the Future and the Royal Institute of International Affairs, numerous academic studies, as well as US Government reports on SO2 and GHG emissions trading. Bilaterally, the consensus-building approach described in 7.4.3 would offer opportunities for the US and other ET proponents to disseminate such information among lower and mid-level bureaucrats. Additionally, there are numerous multilateral fora, including academic conferences and the June meetings of the UNFCCC Subsidiary Bodies (for Science and Technological Advice and Implementation), that can provide opportunities to disseminate this information to higher-level players. Finally, following on other on-line support vehicles for environmental treaties, emissions trading proponents may wish to consider developing an on-line clearinghouse of studies and information on emissions trading.

7.4.5 Focus technical discussions on the advantages and disadvantages of limits on flexibility measures.

There are potentially important trade-offs between environmental and efficiency objectives associated with the imposition, or absence, of limits on trading and other flexibility measures. These trade-offs have not been fully explored, either by proponents or skeptics of ET. All parties would benefit from a free and frank exchange on these matters, and would allow the US and the EU to assess critically their own arguments regarding limits on the flexibility measures. Just as it is important for skeptics to understand better the potential environmental and efficiency benefits of emissions trading, it is also important for proponents to understand and weigh seriously the potential risks in light of the ultimate objective of the UNFCCC.

Notes 1. Introduction

Note 1: UNFCCC. 1997. "Kyoto Protocol to the United Nations Framework Convention on Climate Change." (FCCC/CP/1997/L.7/Add.1) 10 December 1997: Article 17 Back.

Note 2: Earth Negotiations Bulletin. 11 August 1997. Vol. 12, No. 55: 1. Back.

Note 3: Earth Negotiations Bulletin. 3 November 1997. Vol. 12, No. 66: 1. Back.

Note 4: UNFCCC. 1995. "List of Issues Identified by Parties" (FCCC/AGBM/1995/4). 6 October 1995. Back.

Note 5: UNFCCC. 1996. "Synthesis of Proposals by Parties" (FCCC/AGBM/1996/10). 19 November 1996. Back.

Note 6: UNFCCC. 1997. "Consolidated negotiating text by the Chairman" (FCCC/AGBM/1997/7). 13 October 1997. Back.

Note 7: Earth Negotiations Bulletin.13 December 1997. Vol. 12, No. 76: 11-12. Back.

Note 8: UNFCCC. 1997. "Kyoto Protocol to the United Nations Framework Convention on Climate Change" (FCCC/CP/1997/L.7/Add.1). 10 December 1997. See Article 4, Paragraphs 1, 4 and 5. See also: UNFCCC. 1997. "Report of the Third Conference of the Parties to the United Nations Convention on Climate Change;" and Earth Negotiations Bulletin, 13 December 1997. Volume 12, Number 76: 9. Back.

Note 9: See Mullins, Fiona and Baron, Richard. 1997. "International GHG Emissions Trading: Policies and Measures for Common Action." Annex I Working Group on the UNFCCC, Working Paper 9. March 1997: 10-11. Back. 2. European Union

Note 10: This chapter contains information obtained from interviews with 17 people close to the policymaking process. Back.

Note 11: OECD. 1997. Report on the In-depth Review of the National Communication of the European Community. Available HTTP: http://www.unfcc.de. Viewed 3 April 1998. Back.

Note 12: UNFCCC. 1997. "Kyoto Protocol to the United Nations Framework Convention on Climate Change." (FCCC/CP/1997/L.7/Add.1) 10 December 1997. See Article 4, Paragraphs 1, 4 and 5. Back.

Note 13: "Report of the Third Conference of the Parties to the United Nations Convention on Climate Change." 1997. Earth Negotiations Bulletin, Volume 13, Number 76: 9. Available HTTP: http://www/iisd.ca. Back.

Note 14: Ziegler, Andreas R. 1996. Trade and Environmental Law in the European Community. Oxford: Clarendon Press: 143. Back.

Note 15: "What Will Kyoto Deal Really Mean for Europe?" Europe Environment Bulletin. 13 January 1998. Back.

Note 16: Council of Ministers, 24 March 1998. Back.

Note 17: Ibid. Back.

Note 18: Council of Ministers, 24 March 1998. Back.

Note 19: "Environment Council: Member States Call for Exact Figures on Kyoto Agreement." European Report, 20 December 1997. Back.

Note 20: "The Kyoto Compromise." The Economist, 13 December 1997: 16. Back.

Note 21: Council of Ministers. 1998. "2076th Council Meeting." Council of Environment Ministers, Communique 2076 (6894/98). Brussels. 23 March 1998. Back.

Note 22: Boulton, Keyla. "Emissions Trading Line Agreed." Financial Times. 6 April 1998:3. Back.

Note 23: Ibid. Also: Council of Ministers. 23 March 1998. Back.

Note 24: OECD 1997. For further discussion, see: McCormick, John. "Environmental Policy and the European Union" International Organizations and Environmental Policy. Bartlett, Robert V., Priya A. Kurian and Madhu Malik, eds. Westport: Greenwood Press. Back.

Note 25: Sbragia, Alberta. 1996. "Environmental Policy: The `Push-Pull' of Policymaking." Policy Making in the European Union. Helen Wallace and William Wallace, eds. Oxford: Oxford University Press: 235-253. Back.

Note 26: European Union. 1987. Single European Act of 1987. Title VII - Environment, Articles 100a; 130r, paragraphs 1-5. Back.

Note 27: Sbragia. 1996: 235-255. Back.

Note 28: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/inst/en/ Viewed 7 April 1998. Back.

Note 29: Cini, Michelle. Columbia University. Personal interview. 24 March 1998. Verweij, Herman. Telephone interview. 3 March 1998. Back.

Note 30: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/inst/en/ Viewed 7 April 1998. Back.

Note 30: Ibid. Back.

Note 31: The UK, Germany and France cast 10 votes each; the Netherlands, 5; Austria, 4. (http://www.europa.eu.int/inst/en/). The qualified majority voting system was established to ensure that the importance of the larger states is increased or assured in relation to smaller states. Bulmer, Simon. 1994. "History and Institutions of the European Union." The Economics of the European Union. Artis, Mike J. and Norman Lee eds. Oxford: Oxford University Press: 29. Back.

Note 32: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/inst/en/ Viewed 7 April 1998. Back.

Note 33: Ibid. Back.

Note 34: Council of Ministers, 24 March 1998. Back.

Note 35: Ibid. Back.

Note 36: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/inst/en/ Viewed 7 April 1998. Back.

Note 37: Overall, ET is not a priority in Austria's climate change policy. There is no appreciable knowledge base on ET within industry groups, the nongovernmental sector or the political parties. To the extent that the Government has a position on emissions trading, it simply echoes views expressed by all of the other nations included in the present study. In particular, according to senior Government officials, the Government feels that flexible mechanisms should be used only as secondary measures for meeting obligations under the Kyoto Protocol. Climate policy in Austria is initiated by the Federal Ministry of Environment, Youth and Family Affairs, and is carried out by two committees - the Austrian Council for Climate Change (ACCC) and the Interministerial Committee to Coordinate Measures to Protect Climate Change (IMC). The Federal Environment Agency is considered as an extended arm for the Federal Ministry of Environment, Youth and Family Affairs and oversees the ACCC and IMC. Back.

Note 38: "Austrian EU Presidency: Priorities Revealed." ENDS Environment Daily 21 April 1998. Back.

Note 39: Ibid. Back.

Note 40: Ibid. Back.

Note 41: "The Reform of the European Union." 1998. Glossaire CIG-SCADPLUS. Available HTTP: http://europa.eu.int:80/comm/sg/scadplus/leg/en/cig/g4000c.ht. Back.

Note 42: Verweij, Herman. Telephone interview. 3 March 1998. Back.

Note 43: Council of Ministers, 24 March 1998. Back.

Note 44: Ibid. Back.

Note 45: Ibid. Back.

Note 46: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/inst/en/cl.htm#secretar. Viewed 7 April 1998. Back.

Note 47: Ibid. Back.

Note 48: Ziegler, 1996. Back.

Note 49: Sources close to the policymaking process stated that a strict interpretation of Article 113 of the Treaty of Rome, which grants the Commission its power to govern trade, is being used to prevent emissions trading from falling into the Commission's exclusive competence. See Articles 110-116, Treaty of Rome; also "EU policy in the Uruguay Round." In Policy Making in the European Union. Helen Wallace and William Wallace, eds. Oxford: Oxford University Press: 303. Back.

Note 50: Ibid. Back.

Note 51: "EU Firms Call For Rigorous Gas Trading Rules." ENDS Environment Daily. 7 April 1998. Back.

Note 52: European Union. Institutions of the European Union. Available HTTP: http://www.europa.eu.int/ep.htm#intr. Viewed 7 April 1998. Back.

Note 53: Cini, Michelle. In person interview. 24 March 1998. Back.

Note 54: European Report. 21 March 1998. Back.

Note 55: "EU Firms Call For Rigorous Gas Trading Rules." ENDS Environment Daily. 7 April 1998. Back.

Note 56: Ibid. Back.

Note 57: "Power Firms, EU, Study CO₂ Emissions Cuts." ENDS Environment Daily, 27 March 1998. Back.

Note 58: Kerr, Andrew. WWF. Electronic mail correspondence. 17 March 1998. Back.

Note 59: "Industry Emissions Trade Position Welcomed." ENDS Environment Daily. 3 April 1998. Back.

Note 60: "Ministers Take Stock of EU Climate Policy." ENDS Environment Daily. 24 March 1998. Back. 3. United Kingdom

Note 61: This chapter contains information obtained from interviews with 12 people close to the policymaking process. Back.

Note 62: See "John Prescott: Green Light for the EU presidency." Financial Times 7 January 1998 and "Environment Tops The Agenda - Prescott." The Irish Times 28 February 1998. Back.

Note 63: This action effectively tabled the issue of emissions trading until COP-4 in Buenos Aires. The interpretation of article 17, particularly with relation to when trading may begin, varies significantly. See Earth Negotiations Bulletin, 13 December 1997: 11-12. Back.

Note 64: For discussion, see UNFCCC, 24 February 1997. United Kingdom of Great Britain and Northern Ireland: Report on the in-depth review of the National Communication of the United Kingdom. FCCC/IDR.1/GBR. Back.

Note 65: "Survey - Energy Efficiency." Financial Times 28 November 1997: 1 Back.

Note 66: For a discussion of voluntary regulatory approaches in UK policy, see UNFCCC, 24 February 1997: 4. Back.

Note 67: UNFCCC, 24 February 1997: 3. Back.

Note 68: Ibid: 16. Back.

Note 69: This analysis is a synthesis of research on the United Kingdom, substantiated by reliable sources within HMT. Back.

Note 70: Other Cabinet Committees may also be active in environmental policymaking, particularly with respect to policy at the EU level. Back.

Note 71: Prescott has stated "once the rules on trading emissions have been worked out, for example, the City will have a fresh opportunity to trade in these new international commodities." The Deputy Prime Minister's support for emissions trading is not without qualification, and his key concern about an international system is "evasion of responsibility." For example, speaking in the context the upcoming negotiations, Prescott stated that "there is a great fear that these [emissions trading, carbon sinks and the Clean Development Mechanism] may be used by countries to avoid their responsibilities." See "John Prescott: Green light for the EU presidency." Financial Times 7 January 1998, emphasis added. Also, "Key green themes in the UK presidency." ENDS Environment Daily 7 January 1998. Back.

Note 72: DETR. 17 February 1998. "The British Deputy Prime Minister, John Prescott, urges greening of EU policies." Press Release 105/ENV. Back.

Note 73: France is seeking to increase its emissions by 6%, the Netherlands wants its share reduced and Austria and Denmark are expressing discontent with their targets. For discussion, see comments by Prescott and Meacher: "Ministers take stock of EU climate policy." ENDS Environment Daily 24 March 1998 and "UK Will Urge EU to Stick to CO₂ Deal." Reuters 23 March 1998. Back.

Note 74: In a June 1997 consolidation of ministries, the Department of the Environment became absorbed into the DETR. Back.

Note 75: The DETR has also published a paper proposing a tradable permit policy as a means to deal with domestic water pollution issues. Siting US EPA studies (in relation to the US Clean Water Act Reauthorization), the Department has performed local and national-level feasibility studies on effluent trading. Although no formal system has been implemented, this indicates practical and theoretical acceptance of the concept of emissions trading. See DETR, Economic Instruments for Water Pollution, 20 January 1998. Back.

Note 76: In a pre-Kyoto address, Meacher stated that "mechanisms such as emissions trading and joint implementation could indeed achieve real benefits and we should not dismiss them." See DETR. 4 June 1997. UK Will Take the Lead in the Fight against Global Warming [On-line]. Available HTTP: http://britain-info.org/bis/fordom/environ/970604de.htm, viewed 21 March 1998. Back.

Note 77: DETR. 18 December 1997. The British Environment Minister, Michael Meacher announces UK Presidency priorities for the environment. Press Release. Back.

Note 78: Fialka, John. "Agencies Vie For Role in Curbing the Global-Warming Problem." The Wall Street Journal Interactive Edition 24 November 1997. Back.

Note 79: According to Peter Unwin, head of the GAD, "we don't just want to provide a way for countries to print permits by taking on undemanding targets." At a 12-13 March meeting at OECD headquarters, Unwin again voiced his concerns about "hot air" and emphasized the need for monitoring and enforcement rules. See "Kyoto Targets Key Priority Of EU Presidency - UK Official." AP-Dow Jones News Service 5 February 1998. See also Axel Michaelowa. 1998. Summary of "Moving Forward Post-Kyoto - Setting Priorities for Implementation of the Agreement." 12-13 March 1998. OECD Headquarters, Paris. Back.

Note 80: "EU leaning towards 50% Kyoto trading cap." ENDS Environment Daily 2 April 1998 and Reuters, 23 March 1998. Back.

Note 81: 1 "UK Presidency environmental calendar." ENDS Environment Daily 7 January 1998. Climate change is on the provisional agenda for the EU Environment Council meetings on 23 March 1998 and 16-17 June 1998, although a common position is not expected to emerge from either meeting. Back.

Note 82: Collier, Ute (Friends of the Earth - UK). Electronic mail correspondence. 3 and 6 March 1998 and Treasury sources. Back.

Note 83: The Treasury believes that such taxes are more appropriate if implemented domestically, as the energy portfolios of EU countries differ drastically. Our research suggests that the carbon/energy tax is unlikely to be adopted domestically. Observers noted that the logic of green taxation is not fully accepted by Treasury economists, and they are more preoccupied with "mainstream" challenges such as interest rate policy and the monetary union. Crowe, Roger. "Green taxes come up against pain barrier (UK)." The Guardian 2 February 1998. and Treasury sources. Back.

Note 84: "Brown's budget will put green claims to the test." The Times of London 11 March 1998. Back.

Note 85: Treasury sources. Back.

Note 86: Collier, 1998. Back.

Note 87: Treasury sources. Back.

Note 88: Crowe, Roger. The Guardian 2 February 1998. Back.

Note 89: See "Competitiveness UK" at www.dti.gov.uk/comp/. Back.

Note 90: DTI. 28 January 1998. John Battle Calls for Public Views on Electricity Trading Arrangements. Press Release P/98/049. Back.

Note 91: Anderson, Dean (Royal Institute of International Affairs). Telephone interview. 23 February 1998. Back.

Note 92: See www.dti.gov.uk/presidency/. Back.

Note 93: Jenny Barker (CBI). Telephone interview 2 April 1998, and DETR sources. The International Chamber of Commerce - UK (ICC UK) and the Association of Electricity Producers (AEP) also take part in these consultations. No information on climate change or emissions trading was forthcoming from ICC-UK or AEP. Back.

Note 94: Barker, 1998 and "UK industry warns of limits to green taxes." ENDS Environment Daily 13 March 1998. Back.

Note 95: Ibid. See also "CBI Gives Amber Light To Green Taxes." CBI Press Release 12 March 1998 [On-line]. Available HTTP: http://www.cbi.org.uk/standard/press_releases/articles/120398121300.html. Viewed 8 April 1998. Back.

Note 96: Ibid. Back.

Note 97: "Climate Change Report Presented To The UK Prime Minister." M2 Communications 3 April 1998. Back.

Note 98: ACBE. 1998. "Climate Change: A Strategic Issue for Business." 3 April 1998. Back.

Note 99: The emissions trading project was announced on 30 September 1997 by CEO John Browne and is slated to begin in late 1998. Technical assistance is being provided by the Environmental Defense Fund (EDF) in the United States. The information in this paragraph is based on: Blower, Kenneth (British Petroleum America). Telephone interview. 2 March 1998. Back.

Note 100: In a prepared speech at the Royal Institute of International Affairs on 6 February 1998, Browne welcomed the flexible instruments built into the Protocol saying, "I find emissions trading - which has been so successful in other areas - one of the most promising of all the options...if we can work out the right scheme - and I know a great deal of excellent work has been done here on that subject - then the available resources could be used optimally to have the greatest possible impact on the problem." From British Petroleum. 6 February 1998. "John Browne, BP Group Chief Executive, speaks at the Royal Institute of International Affairs Conference `Climate After Kyoto: Implications for Energy', Chatham House, London, UK" [On-line]. Available HTTP: http://www.bp.com/sp_060298.html, viewed 29 March 1998. Back.

Note 101: Salt, Matt with Ron Knapp (World Coal Institute). Telephone interview. 3 March 1998. Back.

Note 102: UNFCCC, 24 February 1997. Back.

Note 103: IEA Coal Research. 1997. "International Emissions Trading for Greenhouse Gases" and "Coal and Greenhouse Credits Examined." Coal Week International Vol. 18, No. 51, 23 December 1997. Back.

Note 104: A knowledgeable US observer suggested that governments could potentially give the coal sector preferential treatment when allocating emissions allowances domestically. Back.

Note 105: IEA Coal Research. 1997. Back.

Note 106: Salt, 1998. Back.

Note 107: Global Environmental Change Report (GECR). Volume IX, Number 24 of 24 December 1997. Back.

Note 108: RIIA operated much of this conference under "Chatham House Rule" to foster increased discussion; meaning that information, identities and affiliations remain confidential. The RIIA also has a subsidiary consultancy group, Climate Change Services for Chatham House Enterprises Limited (CHEL), that helps clients assess and manage financial and regulatory risks associated with climate change policy developments. Emissions trading systems is one of the stated areas of expertise of the group. Back.

Note 109: Anderson, 1998. Back. 4. Netherlands

Note 110: This chapter contains information obtained from interviews with 13 people close to the policymaking process. Back.

Note 111: Sbragia, A. 1998. Environmental Policy: The `Push-Pull' of Policymaking. Wallace, ed. Policy Making in the European Union. New York. Oxford University Press. Back.

Note 112: VROM. 1998. Third National Environmental Policy Plan (NEPP-3), February 1998. Ministry of Housing, Planning and Environment: 49. Back.

Note 113: VROM 1998: 53-55. The NEPP-3 lists these instruments under a heading 'Policy Options' (emphasis added), together with several other instruments such as underground storage of CO₂; using green electricity in Government buildings; increasing gasoline tax with 50 cents (25 US cents), and several other instruments. These instruments have not necessarily been employed yet, but are being considered. Back.

Note 114: VROM 1998: 213. Back.

Note 115: Ibid: 214. Back.

Note 116: Ibid: 220. Back.

Note 117: Senior Policy Advisor (VROM). Telephone interview. 26 March 1998. Back.

Note 118: Ibid. Back.

Note 119: Tijdschrift Milieu Vol. 12, No. 4. 1997: 187-197. Back.

Note 120: Senior Policy Advisor (VROM). Telephone interview. 26 March 1998. Back.

Note 121: "http://www.minvrom.nl." Back.

Note 122: Ibid. Back.

Note 123: Ibid. Back.

Note 124: Television interview with Minister de Boer on TV program Kenmerk, 20 March 1997.a href="#txt124"> Back.

Note 125: Senior Policy Advisor (VROM). Telephone interview. 27 February 1998. Back.

Note 126: Senior Policy Advisor (VROM). Telephone interview. 26 March 1998. Back.

Note 127: Europe Information Service, 7 February 1998. The Agreement was signed in Tarqu Mures, Romania, by Margreet De Boer, the Dutch Minister of VROM. During preparations for this pact, Dutch authorities informed the European Commission and discussed their intentions with the competent departments. Within these departments, the Agreement is viewed as a sort of pilot project, as a way of testing the system and seeing how it works. However, the Commission emphasized that no Community resources are available for this type of exchange. Back.

Note 128: "The Netherlands announces new climate change measures." ENDS Environmental Daily. 6 April 1998. Back.

Note 129: Senior Policy Advisor (VROM). Telephone interview. 26 March 1998. Back.

Note 130: "http://www.minez.nl." Back.

Note 131: Senior Policy Advisor (Ministry of Economic Affairs). Telephone interview. 27 March 1998. Back.

Note 132: VROM 1998: 236. Back.

Note 133: Pheifer, Bert. Electronic mail correspondence. 12 February 1998. Back.

Note 134: Ibid. Back.

Note 135: Vereniging VNO-NCW Forum. 18 December 1997 Back.

Note 136: Korten, Thieu. Telephone interview. 26 February 1998. Back.

Note 137: Pheifer. 1998. Back.

Note 138: Ibid. Telephone Interview, 27 March 1998 Back.

Note 139: Rijnders, K. Telephone interview. 5 March 1998. Back.

Note 140: De Ligt, Sjaak. Telephone interview. 4 March 1998. Back. 5. Germany

Note 141: This chapter contains information obtained from interviews with 13 people close to the policymaking process. Back.

Note 142: Bader, Pascal. (Kennedy School of Government Harvard University) Electronic mail correspondence. 24 February 1998; Michaelowa, Axel. (Hamburg Institute for Economic Research) Electronic mail correspondence. 24 February 1998; Ott, Hermann. Telephone interview. 5 March 1998; Morgan, Jennifer. (US Climate Action Network)Telephone interview. 13 March 1998. Back.

Note 143: IWG. 1997. 4th Report of the CO₂ Reduction Interministerial Working Group: 1. Back.

Note 144: UNFCCC. 1997. Report on the in-depth review of the national communication of Germany, 21 July 1997. FCCC/IDR.1/DEU. (Adobe Acrobat). Available: http://www.unfccc.de/fccc/docs/idr.htm: 1-4. Back.

Note 145: Ibid: 2. Back.

Note 146: IWG. 1997. 4th Report of the CO₂ Reduction Interministerial Working Group: 1. Back.

Note 147: UNFCCC. 1997. Report on the in-depth review of the national communication of Germany, 21 July 1997: 4. Back.

Note 148: Michaelowa, Axel. 24 February 1998.a href="#txt148"> Back.

Note 149: Ibid; also, Morgan, Jennifer. 13 March 1998. Back.

Note 150: Michaelowa, Axel. 24 February 1998. Back.

Note 151: Ibid. Back.

Note 152: Morgan, Jennifer. 13 March 1998. Back.

Note 153: Merkel, Angela. 1997. Statement by the Federal Minister for the Environment, Nature Conservation and Nuclear Safety Dr. Angela Merkel at the third session of the Conference of the Parties to the Framework Convention on Climate Change in Kyoto. Back.

Note 154: Jänz, Anja. (Second Secretary, BMU) Telephone interview. 18 March 1998.a href="#txt154"> Back.

Note 155: Morgan, Jennifer. 13 March 1998; Jänz, Anja. 18 March 1998. Back.

Note 156: Michaelowa, Axel. 24 February 1998. Back.

Note 157: Merkel, Angela. 1997. Back.

Note 158: Morgan, Jennifer. 13 March 1998; Puhl, Ingo. (Center for Clean Air Policy) Electronic mail correspondence. 3 March 1998.a href="#txt158"> Back.

Note 159: Jänz, Anja. 18 March 1998. Back.

Note 160: Morgan, Jennifer. 13 March 1998. Back.

Note 161: Michaelowa, Axel. 24 February 1998. Back.

Note 162: Ott, Hermann. (Wuppertal Institute) Telephone interview. 5 March 1998. Back.

Note 163: Michaelowa, Axel. 24 February 1998. Back.

Note 164: Maier-Rigaud, Gerhard (Bundesministerium for Wirtschaft). Telephone interview. 25 March 1998; Michaelowa, Axel. Electronic mail correspondence. 27 March 1998. Back.

Note 165: Ott, Hermann. 5 March 1998. Back.

Note 166: Jänz, Anja. 18 March 1998. Back.

Note 167: Bals, Christophe, (Germanwatch) Telephone interview. 17 March 1998. Back.

Note 168: According to BMU Second Secretary Anja Jänz, the upcoming elections will probably not have a great effect because Germany has a strong national position on climate change policy and NGOs and political parties are generally supportive. Christophe Bals of the prominent environmental NGO, Germanwatch also stated the opinion that the elections would have little effect since all parties support the Government climate policy position. Back.

Note 169: Loske, Reinhard. (Wuppertal Institute) ) Electronic mail correspondence. 17 March 1998. Back.

Note 170: Ott, Hermann. 5 March 1998. Back.

Note 171: Ibid. Back.

Note 172: Ibid. Back.

Note 173: Morgan, Jennifer. 13 March 1998. Back.

Note 174: Mller-Kraenner, Sascha. (Deutscher Naturschutzrung). Electronic mail correspondence 22 February 1998.a href="#txt174"> Back.

Note 175: Morgan, Jennifer. 13 March 1998. Back.

Note 176: Loske, Reinhard. 17 March 1998. Back.

Note 177: Morgan, Jennifer. 13 March 1998. Back.

Note 178: Puhl, Ingo. 3 March 1998 Back.

Note 179: Morgan, Jennifer. 13 March 1998. Back.

Note 180: Michaelowa, Axel. 24 February 1998. Back.

Note 181: Ibid. Back.

Note 182: Morgan, Jennifer. 13 March 1998. Back.

Note 183: Michaelowa, Axel. 24 February 1998; Bader, Pascal. 24 February 1998. Back.

Note 184: Hein, Joachim. (Bundesverband der Deutschen Industrie) Electronic mail correspondence. 1 April 1998. Back.

Note 185: Morgan, Jennifer. 13 March 1998; Ott, Hermann. 5 March 1998. Back.

Note 186: Jänz, Anja. 18 March 1998. Back.

Note 187: Bader, Pascal. 24 February 1998. Back.

Note 188: Bals, Christophe, 17 March 1998. Back. 6. France

Note 189: This chapter contains information obtained from interviews with 12 people close to the policymaking process. Back.

Note 190: Ministere de le Amenagement du Territoire et de le Environnement. 23 October 1997. La communaute scientifique internationale est unanime pour estimer que la reduction rapide des emissions de gaz a effet de serre est un enjeu majeur pour la protection de la planete et la prevention des risques naturels. Available: "http://www.environnement.gouv.fr/actua/cominfos/serre.htm." Back.

Note 191: Lamotte, Henri and official from ADEME. Telephone interviews. 24 and 26 February 1998. Translated by Johanna Hjerthen. And, Philibert, Cedric. "Les permis négociables et la Convention sur le climat: de l'expérience américaine aux enjeux de l'harmonisation." Revue de l'Energie October 1997. 491: 606-622. Translated by Johanna Hjerhen. Back.

Note 192: Official from ADEME. Telephone interview. Translated by Johanna Hjerthen. Back.

Note 193: Besset, Jean Paul: "Les Etats Divergent sur les Solutions". Le Monde 28 November 1997. "Wednesday, November 26, the French Minister of the Environment, Dominique Voynet, who is not a partisan of a world where pollution could be sold, publicly envisioned a prospective acceptance of a mechanism of emissions trading if ambitious objectives on reductions were determined." Translated by Johanna Hjerthen. Back.

Note 194: Ibid. Back.

Note 195: Godard Olivier: "Les permis négociables et la Convention sur le climat : de l'expérience américaine aux enjeux de l'harmonisation." Revue de l'Energie October 1997. 491:606-622. Godard states in this sense that "in 2010 or 2015, France will have to begin to replace its electric parc. Thirty or forty years after the initial measures were adopted as a consequence of the first oil crisis, France will have the opportunity to reconsider the importance it gave to the nuclear option. It will be allowed to contemplate alternative enegy choices that will perhaps envision new technologies (for alternative sources of energy with lower costs). Thus, the possibility to chose should not be put at stake by rejecting emissions trading." Translated by Johanna Hjerthen. Also see: Environmental Data Sevices. 1997. Available: http://www.ends.co.uk. Back.

Note 196: Ibid. Back.

Note 197: UNFCCC. 1997. National Program for the Mitigation of Climate Change of France, 1994. [Adobe Acrobat]. Available: "http//www.unfccc.de. " Back.

Note 198: Ibid. Back.

Note 199: Ibid. Back.

Note 200: Ibid. Back.

Note 201: Knowledgeable officials from the Ministry of Economics and Finance, ADEME and the Ministry of the Environment. Telephone interviews. February and march 1998. Translated by Johanna Hjerthen. Officials indicated opposing views on the influence and power of the MIES. While some suggested the Mission plays a coordinating role within the debate, others mentioned that the activities of the Mission are very limited and that it is the SCGI which leads the discussions on climate policy. Back.

Note 202 1 CIRED, ADEME and Ministry of Economics and Finance sources. Telephone interviews. February and March 1998. Translated by Johanna Hjerthen. Back.

Note 203: Knowledgeable sources from the Ministry of Economics and Finance and ADEME. Telephone interviews. 24 and 26 February 1998. Translated by Johanna Hjerthen. Back.

Note 204: Ibid. Back.

Note 205: Hoagland, Jim. Morality, Multipolarity and French Foreign Policy. Le Monde 13 December 1997. Back.

Note 206: Ministere de le Amenagement du Territoire et de le Environnement. 6 February 1998. Politique internationale et nationale de lutte contre léffet de serre. Available: "http://www.environnement.gouv.fr/actua/cominfos/confser.htm." Back.

Note 207: Ministere de le Amenagement du Territoire et de le Environnement. 23 October 1997. La communaute scientifique internationale est unanime pour estimer que la reduction rapide des emissions de gaz a effet de serre est un enjeu majeur pour la protection de la planete et la prevention des risques naturels. Available: "http://www.environnement.gouv.fr/actua/cominfos/serre.htm." Back.

Note 208: Acquainted official from ADEME. Telephone interview. Translated by Johanna Hjerthen. Back.

Note 209: Ibid. Back.

Note 210: Knowledgeable official at the Ministry of Economics and Finance. Telephone interview. 24 February 1998. Translated by Johanna Hjerthen. Back.

Note 211: Knowledgeable officials from CIRED and MoE. Telephone interview and electronic mail correspondence. 6 March and 23 March 1998. Translated by Johanna Hjerthen. Back.

Note 212: Knowledgeable CIRED official. Telephone interview. 6 March 1998. The official stated that Ms. Michele Mousel, former chairman of ADEME and a former director in the Environment Ministry had been recently named as the new president of the Mission. Her experience in these government institutions and her level of involvement in climate policy would therefore suggest that she might have the potential to increase the Mission's role in government policy. Back.

Note 213: Knowledgeable sources from ADEME and CIRED. Telephone interviews. 26 and 28 February 1998. Translated by Johanna Hjerthen. Back.

Note 214: UNEP. 1997. List of Participants, Kyoto Japan. December 1997: 18-19. Back.

Note 215: Knowledgeable official from the Ministry of Economics and Finance. Telephone interview. 24 February 1998. Translated by Johanna Hjerthen. Back.

Note 216: Ibid. Back.

Note 217: UNEP. 1997. List of Participants, Kyoto Japan. December 1997: 18-19. Also, OECD and IEA. List of Participants to the Workshop on Methods for Producing GHG Emissions Projections and Estimating Effects of Measures. 29-30 September 1997. Back.

Note 218: Stoleru, Lionel: "Les trois Pieges de Kyoto". Le Monde 25 November 1997. Back.

Note 219: Ibid. Back.

Note 220: Acquainted official from Ministry of Economics and Finance. Telephone interview. 24 February 1998. Translated by Johanna Hjerthen. Back.

Note 221: ADEME. 1997. Pour en savoir plus sur l'ADEME. Agence de l'Environnement et de la Maitrise de l'Energie. Available: "http://www.ademe.fr/general.html." Back.

Note 222: OECD and IEA: List of Participants: International GHG Emission Trading, Annex I Expert Group Workshop. Regional Environment Center, Szentendre, Hungary, 17-18 April 1997. Back.

Note 223: Knowledgeable source at ADEME. Telephone interview. 26 February 1998. Translated by Johanna Hjerthen. Back.

Note 224: Personal interview with official from CIRED. 28 February 1998. Back.

Note 225: Ibid. Back.

Note 226: UNFCCC. 1997. National Program for the Mitigation of Climate Change of France, 1994. Back.

Note 227: For further explanation, see 6.1. Back.

Note 228: Besset, Jean Paul. Interview with Mr. Philippe Jaffre from Elf Aquitaine. Le Monde 24 November 1997. Back.

Note 229: Ibid. Back.

Note 230: Ibid. Back.

Note 231: Acquainted NGO source. Telephone interview. 1 April 1998. Back.

Note 232: Ibid. Back.

Note 233: Acquainted official from ADEME. Telephone interview. 26 February 1998. Translated by Johanna Hjerthen. Back.

Note 234: Ibid. Also, Ministry of the Environment. The National and International Policy on the Greenhouse Effect. 26 November 1997. Available: "http://www.environment.gouv.fr/actua/cominfos/confser.htm. Back. 7. Conclusions and Recommendations

Note 235: 1 "Focus Report: EU wants `Concrete Ceiling' on Emissions Trading." Global Environmental Change Report. 27 March 1998: 1-3 Back.

Note 236: 1 Ibid. The quote refers both to emissions trading as well as other flexible measures such as joint implementation and the Clean Development Mechanism. Back.

Note 237: 1 Ministry of Housing, Planning and Environment (VROM) and the Ministry of Economic Affairs Back.

Note 238: 1 Views indicated by the Dutch Employers Organization (VNO-NCW) Back.

Note 239: 1 Views expressed by the German Federation of Industry (BDI) Back.

Note 240: 1 "EU leaning towards 50% Kyoto trading cap." ENDS Environment Daily 2 April 1998 Back.

Note 241: 1 ENDS has reported that France proposed at the March meeting of Environment Ministers that in return for an increased allocation of the EU bubble, it will moderate its position on ET. Back.

Glossary of Terms

Activities implemented jointly (also joint implementation): a concept where industrialized countries meet their obligations for reducing their greenhouse gas emissions by receiving credits for investing in emissions reductions in developing countries. Proponents of activities implemented jointly argue that such an international trade in emissions credits would achieve greenhouse gas reductions in industrialized countries at much lower costs while providing foreign investment benefits to developing countries.

Burden sharing: (see EU bubble)

Emissions trading: an economic incentive-based alternative to command-and-control regulation. In an emissions trading program, sources of a particular pollutant (most often and air pollutant) are given permits to release a specified number of tons of the pollutant. The government issues only a limited number of permits consistent with the desired level of emissions. The owners of the permits may keep them and release the pollutants, or reduce their emissions and sell the permits. the fact that the permits have value as an item to be sold or traded gives the owner an incentive to reduce their emissions.

EU bubble (burden sharing): in the context of international climate change negotiations refers to the notion that the European Union as a whole would accept some aggregate limit on carbon reductions but that the limit would not have to be shared pro rata by all members. One could then have a weaker reduction limit for, say, Portugal than Germany, provided that the total reflected the internationally agreed-upon goal.

European Commission:the administrative and executive body of the European Union responsible for initiating proposals for review and acceptance and ensuring international treaty obligations are implemented.

European Union:a regional economic integration organization of 15 member states recognized by the United Nations. The European Union negotiates as a single entity during all climate-related meetings.

"Hot air:"the anticipated selling to the US and Japan of unneeded GHG emissions allowances by Russia and the Ukraine (who are not required to reduce their GHG emissions below 1990 levels), which may accrue for emissions reductions that have resulted primarily from economic stagnation.

Joint implementation: (see activities implemented jointly)

Troika: term used to describe the three relevant member states involved in the EU presidency - the incoming president, the current president, and the outgoing president.

Acronyms

2. European Union

COREPER	Committee of Permanent Representatives
DGXI	Directorate-General XI, Environment
MEP	Member of tde European Parliament

3. United Kingdom

ACBE	Advisory Committee on Business and tde Environment
BP	The British Petroleum Group, Inc.
CBI	Confederation of British Industry
CHEL	Chatdam House Enterprises Limited
DETR	Department of Environment, Transport and tde Regions
DTI	Department of Trade and Industry
GAD	Global Atmosphere Division
HMT	Her Majesty's Treasury
IEA	International Energy Agency
IIED	International Institute for Environment and Development
OECD	Organization for Economic Cooperation and Development
RIIA	Royal Institute of International Affairs
WCI	World Coal Institute

4. Netherlands

CDA	Christen Democratisch Appel (Christian Democrats)
EZ	Ministerie van Economische Zaken (Ministry of Economic Affairs)
D'66	Democraten '66 (Liberal)
face	Forest Absorbing Carbon dioxide Emission (Foundation)
LNV	Ministerie van Landbouw, Natuurbeheer en Visserij (Ministry Agriculture, Forestry and Fisheries)
PvdA	Partij van de Arbeid (Labor Party)
Sep	Samenwerkende Electriciteits Producenten (Dutch Electricity Board)
SNM	Stichting Natuur en Milieu (Foundation for Nature and tde Environment)
VNO-NCW	Vereniging Nederlandse Ondernemers-Nederlands Christelijk Werkgeversverbond (Dutch Employers Organization)
VROM	Ministerie van Huisvesting, Planning en Milieu (Ministry of Housing, Planning and Environment)
VVD	Volkspartij voor Vrijheid en Democratie (Conservative)
WNF	Wereld Natuur Fonds (World Wildlife Fund for Nature)

5. Germany

AA	Auswartiges Amt (Ministry of Foreign Affairs)
BDI	Bundesverband der Deutschen Industrie (Federation of German Industry)
BMA	Bundesministerium für Arbeit und Sozialordnung (Ministry of Labor)
BMBau	Bundesbauministerium (Ministry of Construction)
BMBF	Bundesministerium für Bildung, Wissenschaft, Forschung and Technologie (Ministry of Education, Science, Research and Technology)
BMF	Bundesministerium für Finanzen (Ministry of Finance)
BML	Bundesministerium für Ernahrung, Landwirtschaft und Forsten (Ministry of Nutrition, Agriculture and Forests)
BMU	Bundesministerium für Umwelt, Naturschutz und Reaktorsicherheit (Federal Ministry for Environment, Nature, and Reactor Safety)
BMV	Bundesministeriums für Verkerhr (The Transport Ministry)
BMWi	Bundesministerium für Wirtschaft (Ministry of Economics)
BMZ	Bundesministerium für wirschaftliche Zusammenarbeit und Entwicklung (The Ministry of Development and Cooperation)
DM	Deutsch Mark
DNR	Deutscher Naturschutzrung
FOE	Friends of the Earth
IWG	Interministerial Working Group
WWF	World Wildlife Fund

6. France

ADEME	Agence de l'Environnement et la Maitrise de l'Energie (Environment and Energy Management Agency)
CIRED	Centre International pour la Recherche et le Developpement (International Center for Environment and Development)
CPM	Cabinet du Premier Ministre (Cabinet of tde Prime Minister)
MEF	Ministere de l'Economie, des Finances et de l'Industrie (Ministry of Economics, Finance and Industry);
MFA	Ministere des Affaires Etrangeres (Ministry of Foreign Affairs)
MI	Ministere de l'Industrie (Ministry of Industry)
MIES	Mission Interministerielle Pour l'Effet de Serre (Interministerial Mission for tde Greenhouse Effect)
MoE	Ministere de l'Amenagement du Territoire et de l'Environnement (Ministry of tde Environment)
RAC	Reseau Action Climat (Climate Action Network)
SGCI	Secretariat Generale pour la Coordination Interministerielle (General Secretariat for Interministerial Coordination)
UNICE	Union des Employeurs Europeens (Union of European Employers)
UNIDEN	Union des Utilisateurs d'Energie (Energy Users Union)