SENATOR BOXER HEARS POSITIVE VIEWS ON CARBON

UNCLAS SECTION 01 OF 02 LONDON 003338 SIPDIS SIPDIS E.O. 12958: N/A TAGS: OREP SENV KGHG PREL UK IZ AF SU SUBJECT: SENATOR BOXER HEARS POSITIVE VIEWS ON CARBON TRADING; DISCUSSES IRAQ, AFGHANISTAN, DARFUR REF: A. STATE 109658 ¶B. LONDON 3093 LONDON 00003338 001.2 OF 002 ¶1. Summary: Senator Barbara Boxer heard strongly positive views from HMG, heavy industry and the investment community on the UK,s experience with carbon cap-and-trade systems as a tool for addressing climate change. Many of HMG officials who handle climate change are new to their portfolios, and it is not yet clear who will attend the September 27-28 Major Economies Meeting (ref a). Discussions on Iraq and Afghanistan with the FCO Minister for Asia, Africa and the UN, Mark Malloch-Brown, (see paras 8-810) focused on post-conflict support for Iraq from the UK, and the need for more international support for Afghanistan. On an eventual withdrawal of UK troops, Malloch-Brown said that PM Brown understands his obligation to &do it the right way.8 On Darfur, Malloch-Brown praised President Bush as a &tremendous, tremendous leader.8 ¶2. Senator Barbara Boxer, Chair of the Senate Environment and Public Works Committee, had a series of meetings on August 23-24 focused on climate change. She met with the senior officials in the new Brown cabinet and with a variety of private sector groups. She met Sir Mark Malloch-Brown, former UN Deputy Secretary-General, who is the Minister for Africa, Asia and the UN at the Foreign and Commonwealth Office (FCO). His portfolio includes global issues such as climate change and human rights. She also met MP Phil Woolas, the new Minister of State for Climate Change and Environment at the Department of Environment, Food and Rural Affairs (DEFRA). Senator Boxer met London Climate Change Services, which is a trade association of the financial industry; the UK Emissions Trading Group, which is a trade association representing industrial interests; and Climate Change Capital, a private financial firm. End summary. -------------- Climate Change Seen as a Business Opportunity -------------- ¶3. In Senator Boxer,s first meeting, DEFRA Minister Woolas expressed the basic message that would recur throughout the visit: aggressive engagement on climate change through cap-and-trade programs is a business opportunity that creates jobs and adds to, not subtracts from, GDP. Woolas said that the EU Emissions Trading Scheme (EU-ETS) and other emissions trading programs within the UK itself have &created an industry8 of high-end environmental engineering firms, environmental technology manufacturers and consultants. Environmental protection, including emissions trading, &is a way to make money,8 Woolas said, and has created 400,000 jobs in the UK. Separately, FCO Minister Malloch-Brown said that carbon emission caps would &unleash8 technology and investment. -------------- -------------- Carbon Market Works ) Currently Low Price Proves It -------------- -------------- ¶4. Government officials, such as the Head of International Emissions Trading at DEFRA Jill Duggan, industrialists from Shell Oil, British Cement and BP, and representatives from international financial players such as Goldman Sachs, Merrill Lynch, NatSource and JP Morgan Chase conveyed a consistent message that the EU-ETS carbon trading market works. The legislation, rules, people and infrastructure for carbon trading are in place, and carbon trading is now a multi-billion dollar industry. ¶5. Dr. Bill Kyte from the Emissions Trading Group, an industrial consortium that focuses on emissions trading policy and communication, said that the simplicity, certainty and transparency of emissions trading programs are paramount. Financiers made the same point in a separate meeting. Kyte noted that the effect of taxes is more opaque and more difficult to adjust than a trading system. Kyte also emphasized the need for &data, data, data.8 He promoted early engagement on policy between government and industry at the &pre-decision8 stage. -------------- -------------- LONDON 00003338 002.2 OF 002 Learning by Doing8 Builds Capacity, Infrastructure -------------- -------------- ¶6. Lessons have been learned from early mistakes, particularly an initial over-allocation of carbon emission permits. The over-allocation has pushed the price down near zero for the time being, but futures prices for carbon are healthy, indicating the market is functioning and foresees a greater demand, said Dr. Kyte from the Emissions Trading Group. Both Dr. Kyte and DEFRA,s Jill Duggan said that business and government had learned a tremendous amount from the pilot stages of the EU Emissions Trading Scheme, which Kyte called &learning by doing.8 Duggan said three years of pilot program was too long; two would have been enough. Financial representatives at a separate meeting noted that carbon caps have to be &tough8 in order to send a price signal at the beginning of the trading program that is strong enough to encourage serious, long-term investors. Investors also noted their preference for &linking8 carbon instruments in various markets to promote liquidity, rational prices and supply. Investors are concerned that a U.S. carbon market would be &hermetic,8 unlinked to global markets. -------------- Major Economies Meeting on Climate Change -------------- ¶7. Although the FCO and DEFRA are aware of the September 27-28 Major Economies Meeting (reftels),they were unaware of any decision on who will come from the UK. The Labour Party,s annual conference, PM Brown,s first as PM, is September 23-27, complicating the question of who attends. Woolas and Malloch-Brown both commented that the formal invitation had not yet been received through the EU,s Portuguese Presidency. Malloch-Brown said that the meeting is &a good signal8 that there is movement within the USG on climate change, a sentiment noted in other meetings as well. -------------- Other Issues ) Darfur, Afghanistan, Iraq -------------- ¶8. FCO Minister Malloch-Brown noted the Prime Minister,s interest in &pushing the poverty agenda8 in Africa, and in paying more attention to Asia. On Darfur, he noted that things are looking better, especially because of the recent 15-0 Security Council resolution on Darfur. &Sudan recognizes it must comply,8 he said. He commented that Darfur is in part an environmental war. He praised President Bush as a &tremendous, tremendous leader8 on Darfur. ¶9. On Iraq, Malloch-Brown said that the UK is committed to make the post-war situation &work8 and noted the responsibility of the UK and the U.S. for Iraqis who worked with them. Iraq is a less pressing issue in the UK than it is in the U.S., he added. On an eventual withdrawal of UK troops, he said that PM Brown understands his obligation to &do it the right way.8 ¶10. On Afghanistan, Malloch-Brown said that &as the cloud of Iraq clears,8 there is more focus on Afghanistan and what he called the &collective international responsibility8 to address Afghanistan,s reconstruction. It would be a &long slog,8 he predicted. ¶11. Senator Boxer,s office cleared the content of this report. Visit London's Classified Website: http://www.state.sgov.gov/p/eur/london/index. cfm LeBaron