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Europe's Problems Color U.S. Plans to Curb Carbon Gases

http://www.washingtonpost.com/wp-dyn/content/article/2007/04/08/AR2007040800758_pf.html

By Steven Mufson
Washington Post Staff Writer
Monday, April 9, 2007; A01

Wout Kusters, director of a manufacturing plant in the Dutch lowlands, knows something the U.S. Congress needs to know. So does Gervais Pruvost, a laborer in a small cement plant in northern France. So does just about every German homeowner.

When you're trying to slow down global warming, beware of unintended consequences.

As U.S. lawmakers work on the details of their greenhouse-gas legislation, they are looking carefully at Europe's experience. Five Senate proposals all use the same basic approach, known as "cap and trade," that Europe has used for the past two years. But what the snappy name "cap and trade" means is that the market will put a price on something that's always been free: the right of a factory to emit carbon gases. That could affect the cost of everything from windowpanes to airline tickets to electricity.

Europe has already hit a few bumps with its program. There's the Dutch silicon carbide maker that calls itself the greenest such plant in the world, but now can't afford to run full-time; the French cement workers who fear they're going to lose jobs to Morocco, which doesn't have to meet the European guidelines; and the German homeowners who pay 25 percent more for electricity than they did before -- even as their utility companies earn record profits.

In some ways, Europe's program has been a success. It covers 45 percent of the continent's emissions, 10,000 companies and 27 European Union countries. It has built registries that list carbon dioxide emissions for every major plant.

In other ways, the approach has been a bureaucratic morass with a host of unexpected and costly side effects and a much smaller effect on carbon emissions than planned. And many companies complain that it is unfair.

Consider the plight of Kollo Holding's factory in the Netherlands, which makes silicon carbide, a material used as an industrial abrasive and lining for high-temperature furnaces and kilns. Its managers like to think of their plant as an ecological standout: They use waste gases to generate energy and have installed the latest pollution-control equipment.

But Europe's program has driven electricity prices so high that the facility routinely shuts down for part of the day to save money on power. Although demand for its products is strong, the plant has laid off 40 of its 130 employees and trimmed production. Two customers have turned to cheaper imports from China, which is not covered by Europe's costly regulations.

"It's crazy," said Kusters, the plant director, as he stood among steaming black mounds of petroleum coke and sand in northern Holland. "We not only have the most energy-efficient plant in the world but also the most environmentally friendly."

A few hundred miles away, in northern France, Pruvost took to the streets with 400 other cement workers from the region last December to protest a license for a rival company that plans to take advantage of Europe's system for controlling greenhouse gases by circumventing it. The rival wants to import material from Morocco, where factories don't have to pay to emit carbon gas.

Pruvost, 54, has worked for 30 years at a cement plant in the tiny town of Dannes in the gentle bluffs near the English Channel, as his father did before him. Looking for another job, Pruvost mused as he stood above a noisy giant mixing machine, would be "unimaginable." Though the potential rival factory has a permit, it has not started building the grinding facility it will need for the cheap imports.

Of all the effects of the new rules, the rise in the price of power has aroused the most outrage. Much of the anger of consumers and industries has been aimed at the continent's utility companies. Like other firms, the utilities were given slightly fewer allowances than they needed. But instead of charging customers for the cost of buying allowances to cover the shortfall, utilities in much of Europe charged customers for 100 percent of the tradable allowances they were given -- even though the government handed them out free. Electricity rates soared.

The chief executive of one utility, Vattenfall, which owns a coal plant that is one of the continent's biggest carbon emitters, defended the decision. Lars G. Josefsson, who is also an adviser to German Chancellor Angela Merkel, said higher electricity prices are "the intent of the whole exercise. . . . If there were no effects, why should you have a cap-and-trade system?"

But consumers ask why four big utilities that dominate the German market got to keep the money.