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Europe Plans Eco-Cities, But Who's Going to Pay for it?

You have to give Europeans a gold star for effort. First, they set up the world’s largest cap-and-trade carbon system back in 2005, and will extend it to more sectors — including airlines — in 2011. Then, they unilaterally sign up to a 20% reduction in CO2 output by 2020 (based on 1990 levels). And if other countries follow suit, the EU will raise that to a 30% cut by the end of the next decade.

Now, the Europeans are at it again. According to news agency Reuters, the EU will soon select 25 to 30 cities across the continent to become test beds for eco-friendly technologies. The selected few will invest in renewables, energy efficient products, and so-called smart grids to reduce their overall emissions. The goal, according to internal EU documents seen by Reuters, is to ‘promote hi-tech solutions to climate change to give European businesses a head start as the world switches to low-carbon energy.’

Part of this strategy already is underway. In Amsterdam, local officials have been installing smart-grid technology, solar panels, and other eco-friendly gadgets since June. And on the outskirts of the German city of Hamburg, an eco-project, developed by the global design firm tecArchitecture and engineering firm ARUP, hopes to create a "sustainable creative-industrial environment." Other European cities are falling over themselves to entice eco-investments to reduce their carbon emissions.

Yet there's one problem that may scupper Europe's ambitious plans: who's going to pick up the tab? On that point, the EU has remained remarkably quiet. Indeed, according to Reuters, "EU officials are still calculating the exact needs for funding and how it will be split between industry and the public purse."

Governments already are racking up multi-billion dollar deficits to keep local economies merely treading water. And despite companies' claims of embracing the green agenda, many have cut back spending in the wake of the global downturn.

So how could these eco-cities be funded? French President Nicolas Sarkozy recently proposed a domestic carbon tax to be levied on individuals and small businesses. That would certainly raise some revenues. But people not based in the eco-cities may balk at subsidizing investment that doesn't benefit them directly. Other solutions, such as siphoning off money from Europe's carbon trading scheme, also are wrought with problems.

This debate will grow even more heated when politicians inevitably start to rein in government spending (possibly by the second half of 2010). So far, there's broad support across Europe for fighting climate change. But as EU unemployment is expected to top 10% in the near future, many may start to question whether state money should really be spent on these proposed eco-cities -- and not on getting people back to work.

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