by Preeya Sud
11th December 2007

Last week, over 190 nations gathered at the UN Climate Change Conference in Bali to discuss the future policies to mitigate the effects from greenhouse gasses. The conference, which runs until the 14th of December, may be the first step to delivering binding emissions targets for participating nations after the Kyoto agreement expires in 2012. This at least, is what the EU and its 90 officials descending on the resort (creating a carbon footprint of god knows what) hope to achieve.

The EU currently sees itself as the leader in the battle against climate change. It is on target to achieve the Kyoto goals of reducing carbon emissions to 8% below the 1990 levels, has implemented a fully functional carbon trading scheme and has endorsed a plan to cap emissions to at least 20% below the 1990 levels by 2020 even in the absence of the participation of other developed nations – namely the United States – in a global emissions treaty. These targets are estimated to cost around €1.1 trillion over 14 years and are all in an attempt to limit a global rise in temperature to 2°C; something which can only be achieved if the US, China and India also limit greenhouse as emissions. Specifically, they are responding to a report published by the Intergovernmental Panel on Climate Change (IPCC) which outlines the consequences of inaction.

In this apocalyptic type world, increased risks from drought, fires, flooding and associated diseases are likely to threaten thousands of lives and disproportionately impact the poorest in society. Sceptics will argue that the temperature rises are a result of natural fluctuations including variations in the earths orbit, volcanic eruptions and intensity of the sun. They also point to the fact that previous periods in the Earths history have been much hotter than today. Even so, it is beyond reasonable doubt that humans have exacerbated global warming. So we should probably do something to limit it – potential epidemics of disease are entirely natural, have a history of wiping out populations, and yet we still take steps to mitigate them by quarantining and vaccinating.

The reduction of greenhouse gas emissions in the EU will be achieved using instruments such as the EU’s ‘pioneering’ Emissions Trading Scheme, the largest such trading scheme for greenhouse gasses. The trading scheme works by setting a cap on the amount of emissions and issuing permits up to that amount to firms and other groups. These permits can then be traded between emitters. If the costs of reducing pollution are lower than the cost of a permit then the emitter will sell that permit to someone whose costs of reduction exceed the price of a permit. In this way, the total costs of curbing emissions are reduced compared to a standard regulation where everyone has to reduce emissions to the same level. Emissions trading schemes also spur innovation of cleaner technologies and are certain to reduce emissions to a required target since only a limited number of permits are created.

This all sounds very rosy. And in a perfect world emissions trading on a global scale could solve the climate problem. However, get even the tiniest aspect of running a trading scheme wrong, as the EU did in 2005, and the whole thing becomes an expensive debacle. In 2005, EU issued too many allowances causing a crash in the price of carbon permits and a failure to reduce emissions to its then target levels. Efficient permit markets require strict and enforceable regulations, things which are expensive to achieve and require a functioning legal infrastructure. So extending the European model to the rest of the world may be tricky – in countries where it takes aeons for a case to even reach court and then another few years while the affected parties bribe each other into submission would such a trading scheme ever be possible?

Alongside instruments which could be used to reduce CO2 emissions from industry such as a carbon trading scheme or carbon taxes, the EU proposes to limit CO2 emissions from energy combustion by increasing efficiency, switching to renewable energies and using nuclear energy. Other potential areas of improvement include improving insulation to reduce energy consumption and forestry management.

Of course, this is only Europe, and a global problem requires global participation – in fact to limit temperature rises to 2°C, all industrial nations will have to reduce greenhouse gas emissions to 30% below 1990 levels by 2020. This is the reason the EU says it is pushing for a global treaty on climate change to come into effect from 2012. However, there are those who believe in such an altruistic picture of the EU. They argue that by setting an emissions cap and other measures to combat climate change like elimination of trade tariffs on environmentally friendly products, countries may limit the development of others or in the latter case, effectively protect their markets from foreign competition.

So over all, the conference in Bali is likely to be one fraught with all the usual equity and policy debates that surround solving any global environmental issue. That climate change is happening, regardless of who or what is causing it, is unquestionable. Will we reach a consensus on what is the bes policy to tackle it? Probably not. But we should be heartened that Europe, however much its policies cannot be transferred to the rest of the world, is taking action.