Emissions trading up in smoke

Enron's collapse stalls plans to develop market for European pollution. Leo Lewis reports
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The Independent Online

The collapse of Enron and a series of bitter political spats are threatening to derail plans to establish emissions trading in Europe.

Renewable energy companies, which had hoped to gain tens of millions of pounds in revenues from emissions trading in the near future, now fear that they will have to wait as long as eight years before a viable trading platform is established.

Insiders at some of Europe's biggest renewable energy players, including Germany's EnergieKontor, Denmark's Vestas and Spain's Gamesa, have ex- pressed concerns that the dream of emissions trading is now on a lukewarm back-burner.

As part of Enron's derivatives trading business, the doomed energy company was the first to set up emissions trading in the US.

Hit by stringent regulations on sulphur dioxide and nitrogen dioxide, American industry was keen to adopt a system that would allow it to avoid heavy fines. By buying emissions credits from renewable energy companies and recycling businesses, it was hoped that greener companies would be encouraged to grow on the revenues.

Following the Kyoto emissions commitments and other European Union regulations, Europe was also expected to follow, and Enron was laying the groundwork to begin emissions trading when the market became liquid enough. Last week's dismantling of Enron's London operations have in effect crushed those ambitions.

Plans by US brokerage Cantor Fitzgerald to establish a carbon dioxide trading platform were also dealt a blow by the 11 September attacks, when the president of the group's emissions division was among those killed.

Claus Larsen, of Deutsche Bank, is among analysts who believe that the sector will have some years to wait before emissions revenues are available. "Companies will be free to trade emissions on a one-to-one basis," he said, "but it could be a long time now before we get a viable marketplace."

But the Enron collapse is not the only threat to emissions trading. Spokesmen for Innogy, the UK energy company which has placed the emphasis on its green initiatives, have highlighted a series of political squabbles that have also dashed hopes for trading in the medium term.

According to John McElroy, Innogy's head of environmental affairs, the roll-out of emissions trading of any sort in Europe has been stymied by massive inconsistencies between individual countries' approaches to the issue. The problems centre both on the types of emissions that each country plans to regulate, and a big debate over the "ownership" of emissions. The UK's stance is that the emissions are owned by the end user, while the EU believes they belong to the original producer.

"Emissions trading in Europe will be set back because the rules of the game are so badly defined," said Mr McElroy.

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