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DPA | 09 May, 2008
The US should learn the lessons of the European Union's (EU) emissions trading system and create a longer-term plan to reduce global warming, a new environmental report said.

The EU this year expanded its carbon trading scheme, which effectively places a price on the carbon dioxide emissions of industries, while Congress could take up a similar proposal for a US cap-and-trade system early next month.

The EU has laid much of the groundwork in an often criticised test-run over the last three years, but the outcome has been a "functional" system that helped reduce greenhouse-gas emissions blamed for global warming, according to the report by Denny Ellerman and Paul Joskow of the Massachusetts Institute of Technology, released Thursday.

"Someone needed to go first and learn the hard lessons," said Eileen Claussen, president of the Pew Centre on Global Climate Change that commissioned the report.

The EU's emissions trading system works by capping total carbon dioxide emissions and allocating pollution credits to industries. Those allowances can be sold by cleaner firms to high-pollution industries not meeting their requirements.

US President George W. Bush opposes a similar plan in the US, but a bipartisan cap-and-trade bill proposed last year has slowly been making its way through Congress. A cap-and-trade system is also supported by all three remaining presidential candidates.

Ellerman told reporters that the EU's trading system had been a success, though it set very modest emissions goals for itself, and that businesses have begun to factor the price of carbon into their decisions.

But he criticised the EU's plans to regularly revise the caps and allowances, which created "uncertainty" in the market price for carbon. A US cap-and-trade plan would need to have "long horizons" that would convince businesses that the caps were here to stay.

Ellerman also said the economic impact of the EU's cap-and-trade system had been imperceptible. Bush has argued against mandatory emissions cuts in the US because they would hurt growth.

"The European economy has not been wrecked," Ellerman said.