January 28, 2009

The EU may seek to create a joint carbon market with the US if that country creates a cap-and-trade system, according to a draft EU strategy paper set for official release Wednesday.

In addition to linking the EU Emissions Trading Scheme with a potential future US carbon trading system, the EU would also set up "bilateral processes" with other national or regional cap-and-trade programs with a focus on tie-ups with Organization for Economic Cooperation and Development nations, the draft strategy paper said.

"The EU has gained first mover experience in setting up the EU ETS as the world’s largest cap-and-trade system. There is a rapidly growing interest and adoption of legislation on this in a number of OECD countries. Complementary to the work on the Copenhagen agreement, the EU should seek to build, by 2015, a robust OECD-wide carbon market through the linking of comparable cap-and-trade systems," the draft strategy paper said.

"This market is to be further expanded to all major emitting countries by 2020. The EU should actively share experience and seek coordination on crucial system design issues."

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The draft document — which represents a picture of the European Commission’s negotiating goals going into UN-led climate talks taking place in Copenhagen in December — also proposes that the EU push for a Eur175 billion (US$230 billion) increase in developed nation funding of any global warming mitigation goals agreed at the UN talks.

The plan would include an additional Eur30 billion to help developing nations adapt to the effects of climate change, the draft document said.

Financing for the increase in funding would come from a "polluter pays" tax on developed nations for every metric ton of CO2 that they emit with the price of CO2 starting at Eur1/mt and gradually rising to Eur3/mt in an effort to generate Eur13 billion by 2013 and Eur28 billion by 2020 if all the major developed nations agree, according to the draft document.

The European Commission also said in the draft document that the UN’s Clean Development Mechanism "should be reformed" at the Copenhagen talks so that it only encourages the development of carbon offset generating projects that "go beyond low-cost or win-win options" to create demonstrable greenhouse gas emission reductions.

In December 2008, EU leaders approved an ambitious climate-change action plan that the 27-member state bloc hopes will become a model for international negotiations in Copenhagen.

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