Czech firms benefit from carbon trading scheme, but climate change seems here to stay

Photo: European Commission

Years from now, 2006 may be remembered as the year the world started to get really scared about global warming. Al Gore's film "An Inconvenient Truth", was a hit, and here in the Czech Republic, record breaking temperatures in summer and autumn got people murmuring that climate change is already here.

Well, is it? I asked Jan Pretel, a climatologist at the Czech Hydrometeorological Institute. He told me the answer is probably yes - he has seen the warning signs.

"In last 10 years, we recognize several very huge floods. The first such flooding appeared in 1997, more or less one half of Moravian region was flooded. Next year, '98, serious flooding in the northeastern part of Bohemia. The same appeared in 1999. In 2002 we recognized very huge flooding in Bohemia. In this year, we recognize several regions, small regions which have been flooded three times, which is not very very normal, I think."

Climatologists like Pretel say that while it would be hard to attribute a single specific event, like a flood, to global warming, the world's weather patterns are changing significantly. And CO2 emissions from cars and factories are the main culprit.

Recently several hundred business people gathered at a hotel in Prague to discuss how their companies can reduce their carbon output. It's not that they're big environmentalists, they just want to comply with the two-year old emissions trading scheme which the Czech Republic, as a member of the EU, participates in.

Daniel Demanovsky was a speaker at the forum. He represents Vertis, an investment and financial advice company, specializing in emissions trading, also known as cap and trade. The idea, he says, is to use market principles to achieve a reduction in greenhouse gases.

"Cap and trade trading is of course a kind of compromise between interests of economy and interests of environment. But it means if there is a company which has very good production program and it works on green technologies for many many years. To achieve any further reduction is very very expensive for this company. And then you can have some heating company which still burns brown coal. Because of this system it's possible for a company like the later one to invest in the first one and achieve reduction which without this system could never happen."

Photo: European Commission
Essentially, the less efficient company buys credits from the more efficient one, and the more efficient one then has further incentive to innovate. Anyway, that's the idea behind the European Union Emission Trading Scheme, a mechanism created by the EU to help member states comply with the 1997 Kyoto Treaty. The basic concept is that each country gets a certain amount of emissions credits, a number that's decided in Brussels. It's then up to the national capitals to decide how many credits to give to which companies. If a firm wants to emit more carbon than it has credits, it has to buy credits from another company.

At the conference, there were a lot of smiling faces. Maybe that's because Czech companies on the whole ended the year in the black, in terms of millions of credits used.

"Czech companies which are under the scheme came in 97 but in 2005 emitted actually only 85, so they have a very comfortable surplus of these allowances which they can sell and major part they already sold to EU wide market."

Which means a 12 million credit surplus. For the moment, Czech businesses are getting a reward for coming in lower than the amount the European Commission planned for them. And still the Czech economy managed to grow - just not in areas that increase emissions, like heavy industry.

Jan Haverkamp of the environmental group Greenpeace supports the scheme, but says it has not been an unqualified success. On a scale of one to ten:

"The way that the first emissions period worked, what, was a starter. I'd give it a 6. Just sufficient. And the reason for that is, it did not do what supposed to do, it did not decrease emissions yet. But it set people to think."

One major snag came earlier this year, when too many EU gave out too many credits, and the price of a credit plummeted.

"If you get economy on secondary school, I think somewhere in the second or third lesson, you will be told about the pig cycle. This is a very good example. Every country now tries to get too much emissions. And we've seen already where that leads to this year when in April the emissions trading market crashed, and the price of carbon fell on to less than less than a quarter of where it started. This is inflicting damage not only planet but also on your own pocket."

What the European Commissioner for the Environment, Stavros Dimas, now wants to avoid, is another crash like the one that happened last Spring, which seriously damaged the system's credibility. Which brings us to Phase II of the emissions scheme.

And here's some news for anyone who thinks Czech government has come to a complete standstill while the political parties bicker: the minister of Industry and Trade, Martin Riman from the Civic Democrats, this month came to an agreement with the Minister of the Environment, Petr Kalas, who is unaffiliated, on the country's goals for phase two of the trading scheme, which covers 2008-2010. The Czech Republic is asking to up its allocation of credits from 96 million, which it didn't use all of in Phase I, to 102 million in Phase II. Again, Greenpeace's Jan Haverkamp:

"Now what I expect is when the representative of the Czech Republic comes into Brussels, hands over the envelope, and the person accepting it opens it, and sees the number, that person will probably laugh the other one in the face. Because a 25% increase in CO2 emissions is not what trading scheme is about. Second period will become more important, we need to score an 8 or 9 if we really want in the long run to avoid climate change. "

Photo: European Commission
But this is not the universal view. Jan Pretel of the Czech Hydrometeorological Institute says the scheme unfairly fails to account for the big drop in carbon emissions by new member countries like the Czech Republic BEFORE they joined the EU. Therefore, it's understandable if those countries try to work the system.

"If we are asking more allowances it doesn't mean that we want to emit more. We are just trying to have the opportunity to sell this difference in emissions and reinvest money into new technologies."

Greenpeace's Jan Haverkamp sees a contradiction. He notes that just one company, the power producer CEZ, has received the lion's share of Czech emissions credits, and profits from selling what's left over. This year CEZ invested in a massive new coal-fired power station in Bosnia, which is not a part of the EU or the emissions trading scheme.

Greenpeace would like to see the Czech Republic, and all European countries, move away from coal as quickly as possible, seeking reductions though a mix of greater efficiency and renewable sources: solar, biomass, geothermal, and wind:

"The first wind turbines you will now see in South Moravia. Which is very logical because you saw them always on the other side of the Austrian border. And I think people already do not believe anymore the myth that the wind stops at the Austrian border. I think we're over that point now."

On the broad goal of moving away from coal and towards less harmful sources of energy, Jan Pretel agrees, but he says wind is not the best way to get there:

"If I had a farm in the countryside I would build a wind propeller to produce energy, just for myself. But from the point of view of the total energy production in Central Europe, I don't see any perspective. We are very dependent on coal. I know that. From that point of view, I think it will be probably necessary to start to think about safe nuclear energy in my country. Look at France. France's portion of total energy production is about 75-80%. If we are looking at CO2 emission trends in France, compared with the rest of EU 15, France is doing reasonably well."

And there's a separate debate which has broken out in many European countries - whether nuclear power's benefits can ever outweigh its risks.

On this, however, Pretel and Haverkamp agree - modest reductions in CO2, as the Czech Republic has made, can yield only modest results.

While scientific opinion is nearly unanimous that climate change is real, Czech President Vaclav Klaus has long denied its existence. In a letter to Tony Blair earlier this year, he wrote, "what is concisely referred to as global warming, is a fatal mistake of the present time."

As this snow-free winter goes on, here are two facts to consider:

The European emissions trading scheme doesn't cover cars, the source of between 10 and 25% of emissions in European countries.

And the Kyoto Protocol doesn't include China or India, the world's two rapidly growing mega-economies, or the United States, the single largest emitter.