Putting a price on clean air

Countries are under pressure to cut carbon emissions

By BBC environment correspondent Tim Hirsch

On a hillside created by decades of rubbish from the citizens of Hamburg, a giant wind turbine helps supply the energy needs of Germany's second city.

The local electricity company which built it now has to produce slightly less power from its coal-fired station across the River Elbe.

By making that change, the company has earned what are known as emission reduction credits.

These could be used towards Germany's targets to cut the greenhouse gases like carbon dioxide which many scientists now believe are heating up the Earth's atmosphere.

But Hamburg Electricity has decided instead to become the first European company to put those credits on the international market.

It is selling them to Canada's second largest polluter, the TransAlta Corporation of Calgary, the BBC has learned.

Market and loopholes

TransAlta generates electricity from coal, and hopes to be able to use those credits towards meeting its own obligations to cut pollution under the Kyoto treaty agreed two and a half years ago, though still not in force.

The deal has been set up by the New York brokers Natsource, one of a number of international financial traders specialising in this embryonic market.

Hamburg has invested in wind power

It was created by the prospect of legally-binding cuts in greenhouse gas emissions.

Garth Edwards of Natsource says the Canadian company would find it extremely expensive to make all the required cuts in its own operations, and is choosing instead to buy some of the reductions made in Germany.

Some environmental groups fear this market-based system could provide loopholes for major polluters wanting to escape the changes necessary to slow down global warming.

But supporters of the scheme claim it should help turn the aims of Kyoto into reality.

Treaty doubts

UK firms like Zetec Power, which is developing emission-free vehicle engines powered by hydrogen fuel cells, believe the growing demand for these credits will help pump cash into cleaner technology.

Zetec's Gerard Sauer says the finance available from this market, estimated at £900m a year in Britain alone, should make it easier for the company's products to become economically competitive.

There are still strong doubts about whether the United States, the world's biggest polluter, will ratify the Kyoto treaty, and even if it does come into force the rules governing these trades are far from clear.

A UN conference at the Hague in November is due to settle the remaining arguments about the working of the agreements.

But while the world's politicians continue to bicker, a growing number of companies are deciding they cannot afford to wait to see how the debate turns out.

The market in cleaner air is joining oil futures and pork bellies as a scarce commodity ripe for speculation.