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

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.

However, because of lobbying by well-connected companies, the E.U.'s limits on emissions ended up being higher than the actual emissions. As a result, fewer companies than expected had to buy emissions this year, and the price of carbon allowances, which had topped $30 per ton of carbon about a year ago, crashed to about $1 a ton. That eased some of the pressure on electricity rates, but prices for next year, after tighter E.U. limits take effect, are still about $20 a ton.

The E.U. is drawing up new rules for a second phase of its program, due to run from 2008 to 2012, but those, too, have sparked controversy.

Fights have erupted as countries seek to guard their interests. Eastern European nations have lobbied for more generous allocations because of their communist legacies and lower living standards. Germany, the continent's largest wind-energy producer, wants an E.U. mandate that each country get 20 percent of its energy from renewable resources by 2020; Poland, which uses no renewable resources, is resisting.

Germany boasts that it has cut emissions to 18.4 percent below 1990 levels, the benchmark used in the Kyoto Protocol and in Europe. But nearly half the reduction was because of sagging industrial output in the former East Germany after reunification. For the 2008-2012 period, E.U. officials sliced 5 percent off Germany's emissions proposal.

Individual companies have also haggled over whether their historical records were representative emission benchmarks.

"A paper mill in Italy would get different credits from a paper mill in Germany, even if they are completely the same," said Marco Mensink, energy and environment director of the Confederation of European Paper Industries.

Perversely, Europe's cap-and-trade system has done little to reduce output at such places as the Janschwalde coal plant, Europe's third-biggest carbon dioxide emitter. Each year, it spews more than 25 million tons of carbon dioxide. The dirty gray plant still has turbines and generators that date from Soviet times. It has nine cooling towers, and just half of its output can power all of Berlin.

But the cap-and-trade system does provide an extra reward for efficiency. And the owner of the plant, the Swedish energy firm Vattenfall, installed new blades in the old Russian turbine, boosting the plant's efficiency to 36 percent, from 33 percent. Vattenfall has also retrofitted a 1,600-megawatt plant nearby at Schwarze Pumpe, which has a much higher efficiency rate.