Next week [June 2, 2008] the U.S. Senate is scheduled to begin debating national legislation to combat global warming. As American lawmakers consider their options, they have been looking to the European Union for some help. The European plan to cut global emissions, seen by some as a potential model for U.S. policy, is evaluated in a new report from the private PEW Center on Global Climate Change and the Massachusetts Institute of Technology

Three years ago, the European Union launched a program that put limits on emissions of carbon dioxide, the so-called "greenhouse" gas that's been linked to global warming. Twenty-seven nations participated in the trial phase of the European Trading Scheme or ETS. Sometimes referred to as a "cap-and-trade" system, the E.U. plan allows industries that reduce their carbon output to sell their surplus allowances as pollution credits to those who failed to meet the cap.

MIT Economics professor and report co-author A. Denny Ellerman says EU member countries have done more than any other group of nations to control their carbon dioxide output. He says the 3-year ETS trial has been a political and economic success. "There is a price on CO2 and it does affect business decisions." But for the long haul, Ellerman says, the member countries have put in place "a mechanism for the control of greenhouse gas emissions over the sectors of the economy that are included." He says that infrastructure is up, has been tested and is working."

As the ETS moves forward it will expand to gases other than CO2. While there are central rules, each member state is responsible for reporting and enforcement. Ellerman says the decentralized operation reflects the political reality of the European Union. "Every one of these member states ? even the tiniest ? enjoys more sovereignty than any American state or the biggest, think of California and Texas, would ever dare to aspire to."

According to the report, a price on carbon did not harm the economy, something U.S. policymakers had feared if similar mandatory emission cuts were ordered in America. Ellerman says that's because CO2 is just one more price among many in terms of location, and production. "What a firm does that counted before 2005, before the start of the program, continues to count after the program is in effect."

Under the ETS, some companies did experience unexpected carbon emission reductions, in part because the program pushed industries to make their factory operations more efficient. That's an outcome that U.S. companies have also achieved, says PEW Center on Global Climate Change President Eileen Claussen. "Of the 27 or 30 companies in the U.S. who have set voluntary targets, in fact they met the targets by a series of small things at almost no additional costs."

Pew Report co-author Denny Ellerman says that while ETS continues to be refined, it can serve as a field-tested model that the U.S. and other countries can adapt to their own circumstances. "If you were thinking of a system that would include China and India, you are actually seeing in the span of the European System an enormous, a much greater heterogeneity than we have in the United States, that's actually there."

Among the proposals considered by Congress is a bipartisan bill sponsored by Senators Joe Lieberman and John Warner. While the Lieberman/Warner Climate Security Act faces White House opposition, Environment Counselor for the Delegation of the European Commission in the United States, Malachy Hargadon says the bill compares favorably with the European plan. "It is more comprehensive in scope, setting longer time lines, covering more sectors and a wider part of the economy than ETS."

Senators and presidential hopefuls Hillary ClintonBarack Obama, and John McCain each favor cutting carbon emissions and are expected to weigh in on the bill. Malachy Hargadon says the U.S. should push ahead with its own carbon cap and trade scheme, but keep it simple. "Let the market work. Don't try to interfere with it by setting price caps. Let the market decide."

The European Union is not alone in putting a cap and trade scheme in place. New Zealand will launch a similar initiative this year. Canada and Australia hope to have their plans up and running by 2010.