IEA says U.S. must adopt carbon pricing system

ROME Wed Feb 3, 2010 1:36pm EST

A flower grows close to a thermal power plant on the outskirts of Nagpur December 9, 2009. REUTERS/Arko Datta

A flower grows close to a thermal power plant on the outskirts of Nagpur December 9, 2009.

Credit: Reuters/Arko Datta

ROME (Reuters) - The United States must adopt a carbon pricing system, like the one President Barack Obama has submitted to Congress, if it hopes to meet its U.N. commitments on greenhouse gas emissions, the International Energy Agency's head said on Wednesday.

Nobuo Tanaka, executive director of the Paris-based IEA which advises 28 industrialized nations on their energy policy, said Washington's 2020 target of cutting carbon emissions by 17 percent from 2005 levels meant it would have to adopt new legislation imposing a cost on carbon waste.

Tanaka said the U.S. Senate needed to pass an energy bill, already given initial approval by the House of Representatives, which would allow a cap-and-trade system to set limits on greenhouse gas emissions and allow companies to trade permits.

"To really achieve these (emission) targets, the U.S. certainly has to introduce carbon prices either by cap-and-trade or carbon tax," Tanaka told Reuters.

"The Senate must pass this comprehensive energy and climate bill otherwise it cannot design a cap and trade system."

Facing opposition from states with big coal reserves, Democratic senators are still working on the details of the mechanism, with the aim of presenting the bill by April.

Tanaka welcomed proposals by Obama to curb proprietary trading by U.S. banks, which he said could have short-term impact on speculation by financial institutions in commodity markets. But he sounded a note of caution.

"In the long-term or mid-term, if this prevents companies from investing in risky exploration of oil and gas, it could lead to higher oil prices," he said.

MORE TRANSPARENCY

Tanaka said greater transparency was needed to address the volatility of energy markets and added the IEA was organizing a seminar at the end of this month in Tokyo to discuss this.

"We wish to set an action agenda (in Tokyo) on our side as well as the regulatory side, because we want to see more transparency," Tanaka said.

Tanaka has said speculation played a role in driving crude oil prices to a record high of around $150 a barrel in 2008.

He welcomed initiatives by the U.S. Commodity Futures Trading Commission and Britain's Financial Services Authority toward curbing speculation in commodities markets.

"We are very happy to help them," Tanaka said. "The CFTC has suggested an interesting move toward some position limitations."

In terms of the fundamentals of global oil demand, there were both upside and downside risks, Tanaka said.

While the markets responded with concerns to risk to the global economic recovery, such as the tightening in Chinese monetary policy, he noted that fourth-quarter GDP growth figures from the United States were stronger than forecast.

Tanaka said the impetus for a recovery in oil demand this year would come from developing nations like China and India, with consumption in the 30-nation Organization for Economic Cooperation and Development -- which accounts for roughly half of global demand -- remaining flat.

Tanaka said he was "disappointed" by a U.N. summit in Copenhagen in December which failed to set new emissions targets and put off talks on a legally-binding U.N. treaty on climate change until a new conference in Mexico in November.

"Huge private sector investment is necessary and to make it happen Copenhagen should have set a more clear target," he said.

(Editing by James Jukwey)

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