Under Kyoto, the EU has already used cap and trade to trim 100 million tons of C02 emissions, according to some estimates. Europe's experience, however, has not run smoothly.
European nations still lag in meeting carbon reduction goals. They mistakenly set their base-line emissions far too high, according to an October analysis by Point Carbon, a global carbon-data firm. So when European companies began to trim their actual emissions, they found they had far more allowances than they needed. The result: The price of emissions credits nose-dived last April, falling by two-thirds in a month.
The EU plan also handed out many of its allowances free of charge, rather than having them auctioned off, says David Hawkins, director of the Natural Resource Defense Council's climate center. That reduced the price of the allowances and sparked charges of a government giveaway to industries.
Finally, the EU has not laid out a decades-long plan that clearly shows how the cap will tighten, the Point Carbon study says. Instead, its plan stops at 2012, when the Kyoto limits expire, creating uncertainty in the business community over what happens next.
"One key lesson from Europe's experience is that the US must structure markets so they're fair to consumers and only reward companies for cutting emissions, not just for being effective in lobbying for large [numbers] of pollution allowances," Mr. Hawkins says.
Here in the US, pressure to regulate greenhouse gases is building.
Last fall, California unveiled its plan to cut its emissions 25 percent by 2020. Most expect a California trading program, although it isn't absolutely mandated. In the Northeast, carbon-emissions trading is slated to begin in 2009 as part of a nine-state Regional Greenhouse Gas Initiative.