Washington's top diplomat in Europe has launched a scathing attack on the EU's flagship climate change policy, describing its emissions trading system as "goofy".
Boyden Gray, the US ambassador to the EU, also warned that the US would not be able to participate in a post-Kyoto Protocol international agreement to reduce greenhouse gas emissions unless India and China agreed to participate.
"Without having India and China involved fully you shift your heavy industry to places where they don't have controls and you lose jobs and that is one of the principal reasons that we did not agree to Kyoto," Mr Gray told The Irish Times.
The US president George Bush has consistently argued against mandatory cuts on CO2 emissions for fear that it would damage the US economy and cost jobs at home.
However, Mr Gray suggested that Washington could enter some sort of international system to limit greenhouse gas emissions if big developing states also agreed to the cuts. But he said it was becoming increasingly unlikely the US would agree to join any system modelled on the EU's emissions trading system.
"I think Europe broke every single rule and principle when they set it up," said Mr Gray. "If it is not corrected, then I think prevailing opinion in the US will get to the point that even if China and India do join then we will need to use a new trading system to do it because people are saying look at what a goofy system it is."
The emissions trading system works by setting a cap on the amount of pollutants that EU companies can emit. Firms are allocated allowances, which give them the right to pollute to a particular level, and are able to trade these credits if they keep emissions below their limit.
It has been hailed as an innovative and realistic way of cutting carbon emissions. Nicholas Stern, the British government's chief economist and author of a recent report on climate change, described as "absolutely vital" the incentive that the system creates for companies to produce new technologies that minimise carbon use.
But Mr Gray said the EU system was failing for several reasons: China and India are not included; transport emissions are excluded; there is an over-allocation of emissions credits by states; no allowances are awarded for efforts to store carbon; and the mechanism to offset emissions by investing in green projects is unreliable.
Mr Gray robustly defended the US policy on climate change, arguing that the US was investing more in research into renewables and clean coal technology than Europe. "I don't feel we should take a back seat to anybody in terms of how we are going about this and how we are doing . . . I don't think we need to be embarrassed," he said.