Global Economics

Eastern Europe's Carbon Credit Windfall


Thanks to Kyoto emission levels pegged to 1990, when pollution was worse, former Eastern Bloc countries now sell carbon credits to Japan

In an odd twist on market economics, Europe's ex-communist states are starting to exploit a new market. Thanks to the Kyoto climate-change agreement, they can, in effect, now make money off the pollution their onetime central planners were willing to tolerate as the price for rapid industrialization and universal employment.

Ukraine, Hungary, the Czech Republic and other countries of the region not exactly renowned for clean air have made or are close to signing deals to sell the rights to emit greenhouse gases, and their main customer is environmentally friendly Japan.

This carbon windfall dropped into Central and East Europe's lap because the Kyoto Protocol sets 1990 as the reference year for future reductions in greenhouse gas emissions. The socialist states at that time were producing gargantuan amounts of CO2 and other gases implicated in global warming from unfiltered coal-fired power plants and factories; when those unprofitable industries withered, countless thousands of workers went on the dole—but the air got cleaner. In the coming years, in line with European Union mandates, would-be members gradually adopted better environmental policies. It's the difference between the often unspeakably bad air of 1990 and the comparatively clean air of today that allows them to sell "carbon credits" potentially worth billions of euros.

FUTURES MARKET IN CLEAN AIR

The Japanese government and private carbon dealers have been scouring the region for the past year looking to buy carbon credits to help Japan meet its Kyoto commitment to cut greenhouse gases by 6 percent below 1990 levels by 2012. Japan is the fifth-largest emitter of these gases.

In 2007 Japan and Hungary reached preliminary agreement on the sale of a reported 10 million tons of carbon credits. One Japanese newspaper said the deal could be worth 125 million euros.

This summer Japanese officials and corporations cut more deals. A private trading company, Marubeni, will purchase carbon dioxide emissions credits from a Ukrainian mine in one of the first such trades to be registered under the UN climate change convention, of which Kyoto forms a part.

This week Japanese and Czech officials signed a government-to-government carbon trade, with the exact number of credits yet to be decided. Bulgaria is also looking to sell off some of its accumulated carbon credits, Reuters reported in July, with several potential customers including Japan.

It's early days yet for Kyoto-based emissions trading, and the price of carbon credits—which depends as much on government policy as on any concept of the inherent value of cleaner air—may well experience wide swings. For an idea of what regional countries hope to earn from the scheme, the Czech Environment Ministry has said it foresees making from 400 million to 1 billion euros from the sale of rights to discharge some 100 million tons of CO2 between now and 2012.

The Kyoto rules offer this windfall only to 13 ex-communist European countries (those considered as industrialized, but still in transition from centrally planned to open market economies), and they should not be lured into complacency. True, air quality across most of this region is dramatically better than in the early 1990s; gone are the days when dense, coal-laden smog settled over Prague and schoolchildren were issued respirators when outdoors.

Not to speak of conditions in places like the notorious "black triangle" coal belt where the Polish, Czech, and former East German borders meet. Certainly in the more prosperous Central European members of this group of 13, the bad old pollution is quickly giving way to the sweet smell of prosperity—fumes and dust from automobiles which, although they are far cleaner per vehicle than the old Skodas and Trabants, collectively are becoming a serious nuisance through the sheer number of them on the roads.

In the Czech Republic worsening air quality, primarily due to cancer-causing agents and particulates, as well as ground-level ozone, affected 29 percent of the country and more than 60 percent of its people in 2006, the government's annual environmental report found. Such findings will surprise no one who visits Prague on a windless summer day. The worst offenders were car emissions and home coal furnaces, which are getting popular again as the price of natural gas keeps rising. As a result, the country ranks near the top among EU states in microscopic dust in the air, behind Italy and Slovenia.

Europe needs to keep working on cleaner air—and not only the countries still trying to reverse the depredations of centralized industrial planning (in Spain, for example, emissions are still climbing steeply). Unlike carbon credits, clean air itself may not be exportable to Japan, but it sure makes life a lot better in the center of Europe.

Provided by Transitions Online—Intelligent Eastern Europe

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