Economic pressure is changing the climate-change policy debate around the world—except maybe in the United States. President Barack Obama came out of his Feb. 19 meeting with Canadian Prime Minister Stephen Harper sounding remarkably similar to his predecessor. Obama resolved to pursue carbon-capture technology, a system that would allow industry to avoid cutbacks in energy use. He also stated that the participation of China and India are “absolutely critical” for the success of any worldwide energy pact, a position that echoes the Bush administration if not the existing Kyoto Protocol. Sagging markets are leaving large Kyoto-adhering European companies with loads of carbon credits to sell off without any need to alter their emitting practices. And the UN has warned that the global credit crunch threatens to dry up funds pledged from wealthy nations.

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“Selling allowances would not be happening if they’d had to pay for them in the first place,” he says.

“If everybody had to pay for the allowances on a pay-as-you-go basis, like other commodities they consume, the price for carbon allowances would have fallen anyway as a result of this recession,” he says.

David Victor, head of Stanford University’s Energy and Sustainable Development Program, says that between a third and two-thirds of CDM offsets do not represent actual emission cuts.

http://newsvote.bbc.co.uk/mpapps/pagetools/print/news.bbc.co.uk/1/hi/business/7857771.stm?ad=1A crucial scheme to control greenhouse gases is under threat due to the recession. Under the Kyoto Protocol adopted in 1997, since ratified by 183 countries, industrialised nations agreed to reduce their emissions of gases such as carbon dioxide (C02) which cause global warming.

Among the measures introduced was the European Carbon Trading System, whereby governments put a price on the amount of greenhouse gases that can be emitted by any company.

By forcing companies to pay for the right to pollute, it was hoped they would be more inclined to clean up their act.

Companies are issued emission permits and are required to hold an equivalent number of allowances (credits) which represent the right to emit a specific amount.

The total amount of allowances and credits cannot exceed the cap, limiting total emissions to that level.

Companies that need to increase their emission allowance must buy credits from those who are willing to sell.

In effect, the buyer is paying a charge for polluting, while the seller is being rewarded for having reduced emissions by more than needed.

Three-quarters of the main polluting greenhouse gas, carbon dioxide, comes from burning fossil fuels – oil, gas and coal.

The environmental group Carbon Trade Watch complains about imbalances in the sources of the burning of fossil fuels, as the world’s richest countries consume more per capita than countries with larger populations.

For instance the USA produces 24% of the world’s CO2 emissions yet has only 4.5% of the world’s population. Conversely India has 16.7% of the world’s population yet only produces 4% of the CO2 emissions.

It seemed like a market solution to global warming in Europe, but initially many of these permits were given away for nothing.

Now, as recession bites, industries like steel, cement and glass may be polluting less, but only because they’re producing less.

So companies are desperately selling off the carbon credits they no longer need to bolster their faltering balance sheets

That has led to a big drop in the market value of carbon permits, and as the right to pollute becomes cheaper, there is less incentive for companies to stop polluting.

Mark Lewis, a carbon analyst at Deutschebank, told World Business News that the recession has cast a spotlight on the frailties of emissions trading.

“Selling allowances would not be happening if they’d had to pay for them in the first place,” he says.

“Getting them free allows them to be sold on a risk-free basis and that is exacerbating the fall in the price of credits,” he adds.

Each year the cap on emissions gets tougher, but the price of the credits would have come down anyway as a result of the financial downturn.

“If everybody had to pay for the allowances on a pay-as-you-go basis, like other commodities they consume, the price for carbon allowances would have fallen anyway as a result of this recession,” he says.

In the past, Russia has managed to achieve its Kyoto targets without any pain because its industrial output has declined so sharply.

Critics of carbon trading maintain this proves the inherent weakness of such systems, but Mr Lewis does not think a straight tax on fossil fuels would provide a better solution.

“It might be simpler on one level,” he says, “you would know in advance what the price was but you wouldn’t get any certainty on the level of emissions reduction.”

Another measure introduced under the Kyoto Protocol to curb greenhouse gases is also coming into question.

This is the clean development mechanism (CDM), which allows industrialised countries to invest in projects that reduce emissions in developing countries – as an alternative to what would undoubtedly be more expensive emission reduction programmes in their own country.

However, in recent years, criticism against the mechanism has increased.

Offset projects under Kyoto are only supposed to qualify for carbon financing if they represent emissions reductions above and beyond what would have happened anyway.

In practice, large numbers of projects that were already well under way, are presenting themselves as CDM projects in order to gain an extra revenue stream, and these projects do not represent additional emissions reductions, Carbon Trade Watch maintains.

David Victor, head of Stanford University’s Energy and Sustainable Development Program, says that between a third and two-thirds of CDM offsets do not represent actual emission cuts.

If an offset project does not represent reductions and is being used to justify increased emissions at some other point, it actually represents a net increase in emissions.

If a high number of CDM projects are not additional, there is a real danger of a “carbon bubble”.

Scientists are adamant that CO2 emissions must be sharply cut in the next 10 years otherwise there will be irreversible damage to the planet.

Otherwise, it might be too late to repair the damage the planet has already suffered.

“Angela Merkel…said that jobs come first and then climate — and this is the wrong message,” says Lindlahr. “It’s her responsibility to keep the jobs through progressive and innovative climate strategy.”

Chancellor Merkel has been lambasted by climate scientists and activists for weakening the framework and allowing certain industries a free pass. Other members of the business community say that Merkel has not gone far enough in changing the targets — a stance that could damage the competitiveness of the largest exporting country in the world. Merkel has bounced back and forth, trying to appease both sides.

http://www.renewableenergyworld.com/rea/news/story?id=54409

German Chancellor Angela Merkel, the head of a country that has long been considered a leader in climate and renewable energy policies, is causing a stir by announcing that Germany is pulling back from earlier commitments to the structure of a carbon cap and trade program. In order to protect Germay’s large industrial base from higher carbon prices, Merkel is urging the EU to give away more allowances than originally proposed.

Without additional protections, argues Merkel, steel manufacturers, chemical producers and shipping companies could lose their competitive edge, thus shedding jobs. Her position has steadily shifted over the last year as the EU works out the details of its carbon reduction plan.

Both climate protection advocates and detractors have criticized the German government for its inconsistent message to the international community.

Back in Hamburg, sitting in an office overlooking the city, Peter Lindlahr, head of central coordination on climate issues for the

City of Hamburg

, reflects on the direction of the European climate negotiations, partly driven by Germany’s evolving stance on giving away emissions permits to companies in the industrial sector.

“Angela Merkel…said that jobs come first and then climate — and this is the wrong message,” says Lindlahr. “It’s her responsibility to keep the jobs through progressive and innovative climate strategy.”

It’s also Lindlahr’s job to keep the jobs in Hamburg through climate protection efforts. He helps manage a yearly budget of €25 million that funds renewable energy and energy efficiency projects around the city, with a goal of reducing emissions 40 percent by 2020. So far, the program has helped create new jobs, bringing total employment in the city’s renewable energy sector to 3,500.

Chancellor Merkel has been lambasted by climate scientists and activists for weakening the framework and allowing certain industries a free pass. Other members of the business community say that Merkel has not gone far enough in changing the targets — a stance that could damage the competitiveness of the largest exporting country in the world. Merkel has bounced back and forth, trying to appease both sides.

“As long as we have no clear position toward the mechanisms of emissions trading, it’s very difficult to establish something meaningful,” Lindlahr says. “We need to have a clear message as we move into the Copenhagen climate conference next year.”

Despite the backtracking at the Poznań talks, Germany is still recognized as one of the most progressive countries in addressing climate change, especially compared with the U.S. stance over the last eight years. As part of its commitment to the EU 20 percent target, Germany has a goal of reducing carbon emissions 30-40 percent by 2020, depending on how effective other EU countries are at reaching their targets.

Lindlahr recognizes the important role that Germany will play as developed countries debate how aggressively to tackle climate change. But the election of Barack Obama as the next U.S. president will dramatically change the dynamics of negotiations, he says.

“We cannot say we are the opinion leader [in climate change]…I think America will have a very dominant role in the next few years, or in the next few months. I mean, the new administration, they will have a strong approach on the whole debate,” says Lindlahr.

One week later in Brussels, European leaders sign a 20 percent emissions reduction agreement that seems to have struck a balance between the competing interest groups. But this is only the beginning — in one year the

United Nations Framework Convention on Climate Change

will take place, marking one of the most important and complicated negotiations the global community has ever seen.

The next step for Germany and other European countries will be to forge a close relationship with the U.S. and craft a meaningful climate protection strategy that satisfies all parties. That goal, says PIK’s Knopf, may be more difficult than figuring out any of Einstein’s theories.

President Bill Clinton signed Kyoto, but the Senate in effect rejected it.

Will the new president pass a new Kyoto climate accord through Congress by sidestepping the constitutional requirement to persuade two-thirds of the Senate?

http://www.nytimes.com/2009/01/05/opinion/05bolton.html

Candidate Obama promised to “re-engage” and “work constructively within” the United Nations Framework Convention on Climate Change. Will the new president pass a new Kyoto climate accord through Congress by sidestepping the constitutional requirement to persuade two-thirds of the Senate?

Draconian restrictions on energy use would follow. A majority of the Congress would be much easier for Mr. Obama to get than a supermajority of the Senate. A scholar at the Brookings Institution has already proposed that a new president overcome objections to this environmentalists’ holy grail by evading the Treaty Clause.

President George W. Bush resisted many efforts at global governance. But his administration still sometimes fell into the temptation to flout the constitutional requirement of a two-thirds majority in the Senate.

In 2002, the administration considered submitting the Treaty of Moscow, a nuclear arms reduction agreement, for majority approval of Congress. Vice President-elect Joe Biden, who was then the chairman of the Senate Foreign Relations Committee, privately made clear that he would vigorously oppose such an attempt to evade the Senate’s constitutional prerogatives. The administration agreed to submit the agreement as a treaty, and the Moscow agreement cleared the Senate.

We hope the new vice president will not reverse his commitment to the Senate’s constitutional authority. But an administration determined to tie one hand behind America’s back might use Congressional-executive agreements to push the nation all too easily into quixotic and impractical global governance regimes.

President Bill Clinton signed Kyoto, but the Senate in effect rejected it. He also signed the Rome Treaty of 1998 that established an International Criminal Court, which would subject American soldiers and officials to unaccountable international prosecutors and judges for alleged war crimes (including, potentially, the undefined crime of “aggression”). Mr. Clinton did not even send this agreement to the Senate. Mr. Bush “unsigned” it. Mr. Obama might re-sign it and seek approval by only a majority of both houses of Congress

Two of the biggest voluntary carbon offset standards bodies – the global Voluntary Carbon Standard and the US-based Chicago Climate Exchange – are fuelling a revolt against the offset scheme set up under Kyoto to generate carbon abatement projects in developing countries.

http://www.climatechangecorp.com/content.asp?contentid=5862

Two of the biggest voluntary carbon offset standards bodies – the global Voluntary Carbon Standard and the US-based Chicago Climate Exchange – are fuelling a revolt against the offset scheme set up under Kyoto to generate carbon abatement projects in developing countries. The organisations tell ClimateChangeCorp that they are willing to consider carbon credits rejected by the scheme, known as the Clean Development Mechanism (CDM), for sale under their own standard.

David Antonioli, recently appointed head of the Voluntary Carbon Standard (VCS), criticises the CDM for “unfairly” dismissing offset projects that fall outside the boundaries of the scheme’s narrow rules.

On top of this, the CDM has come under fire from carbon offset project developers, who last month set up a pressure group, called the Project Developers Forum, to voice their discontent about the way their proposals are handled. The CDM executive board, made up of an international panel of experts, have the final word on whether to award carbon credits under Kyoto. The board currently rejects around 10% of offset projects under deliberation, while project assessors, the gatekeepers to the board, automatically reject many more for failing to meet CDM rules.

Along with CDM rules, carbon offset project developers criticise the board’s tactics, which they say include changing regulations at short notice in order to disqualify projects, and rejecting projects on minute details that project assessors claim are immaterial.

According to Martin Enderlin, leader of the Project Developers Forum pressure group and an ex-member of the CDM board, the CDM’s approach to project approval has been “paranoid” for about a year, ever since carbon-offsetting cowboys began to be exposed in the media and by independent studies. The CDM executive board is not shy of penalising its stakeholders – project assessors are also feeling the pressure after one of the biggest CDM auditing firms, Det Norske Veritas, was suspended last month for failing to comply with internal management rules.

Enderlin says that the new super-cautious attitude of the board is to find each project “guilty until proven innocent”, a process that currently takes around a year to complete. He accuses the CDM board members of lacking the expertise to credibly contest project assessors and of playing a “political game” through the approvals process and with their continuous rule-making. “I’ve never seen a standard evolve as much as the CDM standard,” he says.

This month’s international climate negotiations in Poznan, Poland, brought about a host of recommendations to the CDM executive board on how to tidy up its act. Much of the emphasis was on the need for the board to be more transparent and democratic in its decision making process.

The ultimate fear of project developers is that the current decision-making structure of the CDM may be too inefficient to persuade negotiators to bring the scheme into the post-2012 climate agreement – a decision which could leave them creditless and out of pocket.

At the Project Developers Forum launch event, CDM board members retaliated by voicing their own doubts about the “environmental integrity” of the project developers.

Voluntary markets: A solution or sidetrack?

The culture of mistrust between the CDM board and project developers is being compounded by the voluntary offset sector’s readiness to take rejected Kyoto credits off the hands of developers.

Enderlin warns that selling rejected credits on the voluntary markets would be “extremely risky” and would both undermine the CDM’s position and increase its paranoia about carbon cowboy developers.

Whilst some developers, such as global offset developer Ecosecurities, deny trading rejected Kyoto credits, others, like Trading Carbon, based in London, say they are happy to sell credits that have failed to meet the criteria of the CDM board, as long as they are from “high quality” offsetting projects. These would include projects that have failed bureaucratic CDM rules on application time schedules, for example, but not those failing because of a lack of carbon abatement “additionality” – in other words, because the carbon abatement in question doesn’t really need the incentive of credits to go ahead.

Rafael Marques, senior vice president of the Chicago Climate Exchange (CCX), the first cap-and-trade system to be set up in North America, and representing a fifth of companies in Dow 30 Index, tells ClimateChangeCorp: “The CCX is willing to review all projects submitted to the programme, regardless of decision by the CDM”. He goes on to explain that the “CCX is a separate system, with its own set of rules and approval criteria”.

David Antonioli of the VCS, which was set up by project developers in partnership with the Climate Group, says that voluntary standards need to reserve the right to take on failed CDM projects that may have been rejected on immaterial grounds, or – as is the case with forestry projects – were simply “too innovative” to be covered by CDM rules.

However, the voluntary market has yet to prove its worth. Voluntary credits rely heavily on corporate and individual buyers of carbon offsets. On the Chicago exchange, credits currently trade at around a dollar and a half per tonne of abated carbon, and the VCS has yet to set up its first credit registry.

Meanwhile, carbon credits are trading on the EU Emissions Trading Scheme for around €14 per tonne, as Kyoto-compliant countries buy up vast quantities of credits generated under the CDM in order to meet their 2012 emissions targets.

The European Parliament approved a cut in carbon dioxide emissions to 20 percent below 1990 levels by 2020, heeding warnings of severe weather, famine and drought as the atmosphere heats up.

World leaders will meet in Copenhagen next December to try to agree a global deal, but preparatory talks in Poland ended last week with deep divisions between rich and poor nations.

http://www.reuters.com/articlePrint?articleId=USTRE4BG2SH20081217

The European Union finalized plans for its battle against global warming on Wednesday, seeking to lead the way toward a broad alliance including other big polluters like China and the United States.

The European Parliament approved a cut in carbon dioxide emissions to 20 percent below 1990 levels by 2020, heeding warnings of severe weather, famine and drought as the atmosphere heats up.

The deal takes on a greater importance coming just before Barack Obama assumes the U.S. presidency, amid hopes in Europe he will cooperate more on tackling climate change than incumbent George W. Bush.

“Happily Bush is going,” said European Environment Commissioner Stavros Dimas. “Everybody knows what Mr. Obama has set as priorities — energy security and climate change.”

World leaders will meet in Copenhagen next December to try to agree a global deal, but preparatory talks in Poland ended last week with deep divisions between rich and poor nations.

The advancing economic crisis had at times threatened to derail the EU’s climate negotiations.

A myriad of concessions to water down the costs for industry helped pin down a deal, although this fueled criticism from environmental groups.

DISSENT

Chancellor Angela Merkel and Prime Minister Silvio Berlusconi had fought successfully for industries like German steel, chemicals and cement and Italian glass and ceramics, as well as their powerful auto sectors.

Lawmakers approved measures on Wednesday to cut CO2 emissions from new cars by 18 percent by 2015, after intense lobbying by the industry won it a three year reprieve.

“There was an explosion in dissent and manufacturers were at loggerheads,” said Italian socialist Guido Sacconi, who led the rules for cars through parliament.

“Trying to secure a conclusion came when the car industry found itself at the epicenter of the economic crisis and this heightened difficulties,” he added.

Green group politicians branded the rules as a sell-out to industry, while industry group ACEA repeated calls for billions of euros in EU support to help manufacturers meet the targets.

The biggest threat to a deal was the opposition of nine former communist nations, which feared the deal would ramp up costs for their highly polluting coal-fired power sectors.

To buy their support, the EU has offered a partial exemption and agreed to give them 12 percent of revenues from the EU’s flagship emissions trading scheme (ETS), which makes industry buy permits to pollute.

The European Commission, which originated the climate laws in January, demonstrated its appetite for further action by adopting rules on eco-friendly design on Wednesday, which would cap the energy consumption of televisions on standby mode.

Environmentalists vented their anger over the dilution of the EU’s ambition, most of them criticizing the high levels of carbon offsets, which allow member states to pay for most of their emissions cuts in developing nations rather than at home.

“People will look back at 2008 and ask…knowing what they knew then, why did they not do more to save all of us from the unbearable impacts from a warming planet?” said British Green group politician Caroline Lucas.

http://www.reuters.com/article/environmentNews/idUSTRE4BB36720081212?sp=true

Europe secured the world’s widest agreement to battle climate change on Friday after paying east European states to accept changes that will punish their heavily polluting power sectors and ramp up electricity prices.

The historic deal to cut carbon dioxide by a fifth by 2020 was secured despite an economic crisis by allowing a myriad of exemptions for industry, sparking criticism from environmental groups.

“This is a flagship EU policy with no captain, a mutinous crew and several gaping holes in it,” said Sanjeev Kumar of environment pressure group WWF.

But French President Nicolas Sarkozy rejected that view, saying: “This is quite historic.”

“You will not find another continent in this world that has given itself such binding rules as we have just adopted,” he added.

The agreement came after a year-long battle dominated by a struggle between eastern and western Europe over the costs.

The nine east European nations were seen as the final blockage to agreeing a package of measures aimed at tackling climate change but which will ramp up costs for their highly polluting coal-fired power sectors.

Two swathes of funding will be distributed to them taken from around 12 percent of revenues from the EU’s flagship emissions trading scheme (ETS), which makes industry buy permits to pollute.

The money is partly framed as a reward for the massive drop in emissions they experienced when their industry collapsed in the wake of communism.

Their power sectors were also partially exempted from paying for emissions permits from the ETS on a sliding scale starting with paying for 30 percent of emissions in 2013, rising to 100 percent in 2020.

BAD GUY

Hungary had battled to the end of negotiations for more money, while Italy fought to protect its glass, ceramics, paper and cast iron industries, and eventually dropped a threat to block the deal.

“I can’t use any veto on the climate question because I can’t cast myself in the bad-guy role since the left would use this position to fight me politically,” said Italian Prime Minister Silvio Berlusconi.

Measures were agreed to reduce the risk that carbon curbs would hurt European industry and reduce its ability to compete with less regulated rivals overseas. The biggest threats are seen for steel, aluminum, cement and chemicals.

European industries exposed to international competition will receive free emissions permits if they will see a 5 percent increase in costs, a measure that is viewed as covering over 90 percent of EU industry.

Britain came away having secured a boost to funding for innovative technology to capture and bury emissions from power stations underground in depleted North Sea gas fields.

“Gordon Brown made clear this was one of his priorities not only because of the environment benefits, but also because it offer Europe the opportunity to lead the pack, securing jobs and growth,” said a British diplomat.

http://www.nytimes.com/2008/12/11/business/worldbusiness/11carbon.html?_r=1&ref=science&pagewanted=print

The case of Germany, Europe’s largest economy, illustrates the many problems in Europe’s approach. For instance, RWE, a major German power company and Europe’s largest carbon emitter, received a windfall of about $6.4 billion in the first three years of the system, according to analyst estimates. Regulators in that country have accused utilities of charging customers for far more permits than was allowable.

This week, leaders of the European Union are meeting in Brussels to shape the next phase of their system, and find ways to cut greenhouse gas emissions by 20 percent by 2020. They also seek to close loopholes worth billions to various industries, while confronting the same tug of war between long-term environmental goals and short-term costs that proved so vexing the first time around.

The European summit meeting coincides with a round of negotiations among 190 nations to establish a new global treaty limiting greenhouse emissions, a treaty the Obama administration might seek to join.

Pressure From Lobbyists

During long negotiations on the landmark Kyoto climate treaty more than a decade ago, the Clinton administration pushed to include emissions trading as a means of achieving the goals, favoring that approach over energy taxes or traditional regulatory limits on emissions.

Even after the Americans backed out of ratifying Kyoto, Europe decided to set up the world’s first large, mandatory carbon-trading market. “I was eager to put it in place as soon as possible,” said Margot Wallstrom, the European Union’s environment commissioner then.

From the start, Ms. Wallstrom, now a vice president of the European Commission, said she was lobbied heavily by governments and by companies seeking to limit the financial burden.

The initial idea of charging for many of the permits never got off the ground. Many politicians feared that burdening European industries with extra costs would undercut their ability to compete in a global marketplace. In the end, the decision was made to hand out virtually all the permits free.

With European Union oversight, individual countries were charged with setting emissions levels and distributing the permits within their borders, often to companies with strong political connections.

Jürgen Trittin, a former Green Party leader who was the German minister of environment from 1998 to 2005, recalled being lobbied by executives from power companies, and by politicians from the former East Germany seeking special treatment for lignite, a highly polluting soft brown coal common around central Europe.

The framework of the European system put governments in the position of behaving like “a grandfather with a large family deciding what to give his favorite grandchildren for Christmas,” Mr. Trittin said in an interview.

The debates on what limits to set for carbon dioxide emissions were particularly arduous. Mr. Trittin recalled a five-hour “showdown” in March 2004 with Wolfgang Clement, then the economy minister, in which he lost a battle to lower the overall limit. It was eventually set at 499 million tons a year, a reduction of only 2 million tons.

In a recent e-mail message, Mr. Clement did not challenge the details of his former colleague’s account, but he characterized as “just nonsense” Mr. Trittin’s claims of undue industry influence. He said the Greens were unrealistic about what could be achieved.

“I reproached them — and I’m doing this still today — that at the end of their policy there is the de-industrialization of Germany,” Mr. Clement said. “That’s our conflict.”

Eberhard Meller, the president of the Federation of German Electricity Companies, which represents companies like RWE, said, “Good sense triumphed in the end.” For his part, Mr. Clement eventually joined the supervisory board of RWE Power, in 2006.

The benefits won by German industry were substantial. Under the plan that the European Union originally approved for Germany, electricity companies were supposed to receive 3 percent fewer permits than they needed to cover their total emissions between 2005 and 2007, which would have forced them to cut emissions.

Instead, the companies got 3 percent more than needed, according to the German Emissions Trading Authority, the regulatory agency, a windfall worth about $374 billion at the peak of the market. German lawmakers also approved exemptions and bonuses that could be combined in dozens of ways and allowed companies to gain additional permits.

“It was lobbying by industry, including the electricity companies, that was to blame for all these exceptional rules,” said Hans Jürgen Nantke, the director of the German trading authority, part of the Federal Environment Agency.

Higher Bills Draw Inquiry

After the system kicked off, in 2005, power consumers in Germany started to see their electrical bills increase by 5 percent a year. RWE, the power company, received 30 percent of all the permits given out, more than any other company in Germany.

The company said its price increases from 2005 to 2007 predominantly reflected higher costs of coal and natural gas. But the company acknowledged charging its customers for the emission permits, saying that while it may have received them free from the government, they still had value in the marketplace.

The German antitrust authority later investigated. In a confidential document sent to RWE lawyers in December 2006, that agency accused RWE of “abusive pricing,” piling on costs for industrial clients that were “completely out of proportion” to the company’s economic burden, according to the document, which was obtained by The New York Times.

Without admitting wrongdoing, RWE last year agreed to a settlement that should provide lower electricity rates to industrial customers in Germany from 2009 through 2012.

Meanwhile emissions have risen at RWE’s German operations since the trading system began. The company emitted nearly 158 million tons of carbon dioxide in 2007, compared with 120 million tons in 2005, according to its annual reports.

The company said its emissions rose in part because one of its nuclear power stations, which emit no carbon dioxide, was off line for a while.

Jürgen Frech, the chief spokesman for RWE, said that charging customers for the carbon permits was “beyond reproach,” and added that the company will spend more than $1 billion this year to comply with the emissions trading system. RWE also said it is investing $41 billion over the next five years in projects including renewable energy and developing cleaner ways to generate electricity from coal mined in Germany.

For all the problems with the European system, some experts say it is simply too early to judge whether it will succeed. As the region that went first with mandatory carbon trading, Europe was bound to make some initial mistakes, they said.