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article imageU.S. cap and trade plans risk repeating European mistakes

By Michael Krebs     May 17, 2009 in Environment
Europeans warn U.S. legislators to learn from their mistakes as cap and trade bill is unveiled this week. Multi-billion windfalls to industries at stake.
The most important lesson of history is likely found in avoiding costly mistakes, and it is in this vein that European academics are imploring American lawmakers to look at what happened in Europe and to not listen to the advice of industry lobbyists.
"This bill would impose enormous taxes and restrictions on free commerce by wealthy but faltering powers - California, Massachusetts and New York - seeking to exploit politically weaker colonies in order to prop up their own decaying economies," wrote Mitch Daniels, Governor of Indiana in a Wall Street Journal opinion piece on Friday.
And while power-producing states struggle against the power-consuming states, European cap and trade experts are trying to help the U.S. congress avoid significant losses.
European analysts are concerned that aggressive lobbying by industries and legislators to ease the impact on fuel bills that American consumers will be asked to pay could have an impact on the overall value of the carbon cuts.
"The U.S. debate is really U.S.-centered. There is so much focus on buying the 60 (Senate) votes needed, and each senator's vote that is bought comes with something attached, some type of concession for a sector or for trade unions," said Susanne Droge of the German Institute for International and Security Affairs, according to a Reuters report.
The European analysts point to the fact that utilities will pass on the cost of the carbon permits to consumers regardless of the subsidies that they may receive from the government, yielding windfall profits while still hurting households.
"And because there were initially too many permits the EU carbon price crashed to zero two years ago, relegating the first trading phase of the scheme from 2005-07 to an experiment," Reuters reported. "As well as paying higher power prices under the EU scheme, industries such as metal makers, chemical plants and paper mills have their own carbon quotas, implying a double cost."
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