EU Greenhouse-Gas Emissions Drop 6%

Industrial Slowdown Reduces Carbon Output, but Eases Pressure on Big Polluters to Change Their Behavior

By LEILA ABBOUD
Greenhouse-gas emissions from heavy industry and utilities in the European Union fell 6% last year as the economic downturn slowed industrial activity in everything from construction to auto manufacturing.
Some analysts and economists say the recession, though it reduces emissions in the short-term, could also slow the adoption of low-carbon technologies in factories and power plants. When the price of polluting is quite low, big polluters have little incentive to change their behavior.
Carbon-dioxide emissions from the 10,500 factories and power plants covered by Europe's "cap-and-trade" system decreased to 2.11 billion tons last year from 2.25 billion tons in 2007, according to an analysis of European Union data by Point Carbon, an Oslo-based consultancy.
Carbon dioxide is the main gas believed to contribute to global warming. The cap-and-trade system limits allowable emissions and creates a market for businesses to buy and sell the right to produce them.
"The numbers reflect the severity of the recession that began about six months ago," said Imtiaz Ahmad, the executive director for carbon trading at Morgan Stanley. "Emissions are likely to fall even more steeply this year as industries including steel and cement decrease output and the demand for electricity drops as well."
The European Union's environment commission oversees the region's carbon caps. It represents more than 80% of all the emissions in the system but the final numbers won't be out until May. Point Carbon analyzed the early data and found that emissions were down all over Europe for the first time since the introduction of legal limits on greenhouse gas in 2005.
In Spain, one of the countries hit earliest and hardest by recession last year, emissions were down 12.9% to 142 million tons, according to Point Carbon. U.K. emissions decreased 6.8% to 254 million tons, while German emissions dropped 3.2% to 457 million tons.
Under cap-and-trade rules, European governments give companies permits that allow them to emit a certain amount of carbon dioxide annually. If a company emits more than its cap, it must cover the excess by obtaining more permits.
One way is by trading on the "carbon market," that is, buying permits from companies with permits to spare.
Permits also can be earned by doing carbon-reduction projects in developing countries, such as putting up wind turbines in China. The goal of the system is twofold: to limit emissions and to give companies an incentive to revamp their factories and move to cleaner methods of electricity generation and industrial production.
Carbon permit prices are trading at 18-month lows because production decreases mean many of the biggest emitters are now well within their caps. Analysts don't expect the prices to increase before next year.
"It's all a question of how long the carbon price stays low," said Mark Lewis, head of carbon research at Deutsche Bank. "If the recession is deep and severe, then there is a risk of a material slowdown in the transition to the low-carbon economy of the future."
The permit price fall is good news for companies like German utility RWE AG and steelmaker ArcelorMittal because it will lower their cost of compliance with Europe's carbon caps. After the EU emissions data was released, the price for a 2009 carbon permit rose 2% to close at €12.15 ($16.14), according to ICAP, a broker of carbon allowances.
Write to Leila Abboud at leila.abboud@wsj.com