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The Emission Trading Scheme
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On December 17th 2008, the European Parliament voted in favor of the EU ETS Review
See EU ETS Review below
Introduction
The EU ETS is one of the cornerstone of the EU Climate Change Policy. It covers about 40% of the EU's total CO2 emissions with industries including power generation, iron and steel, glass, cement, pottery and bricks.To achieve its own Kyoto targets, the EU has decided to put emissions trading into practice within its territory. The existence of the ETS was preceded by major debates on how the Community as a whole would implement common and coordinated policies and measures to lower distortion of competition within the EU and minimize overall compliance cost. The European Commission therefore initiated the European Climate Change Programme (ECCP) in the year 2000 - a process that was meant to identify the best policy options - in close consultation with Member States and a variety of other stakeholders, including environmental organizations and industry associations. A selection of measures was identified that addressed all sectors of the economy, and that could potentially deliver the reductions required by the Kyoto Protocol and more, at a cost of less than 20 Euros per tonne of CO2. The introduction of emissions trading within the EU is thus part of a vision on both environmental and economic effectiveness.
A few years after the negotiation of the Kyoto Protocol, it thus came to be recognized that more decisive mitigation actions than had originally been anticipated would be needed in order to honour the EU’s commitments taken in Kyoto. Increase in GHG emissions were observed (contrary to the downward trend experienced in the 1990s) and emissions seemed likely to be considerably above the Kyoto target for the EU15 of minus eight percent in relation to 1990 emission levels. Various policies and measures were being undertaken by member states, but something more was needed at the EU level. An EU-wide CO2 emissions tax was not possible since one had been proposed and rejected in the 1990s. A cap-and-trade approach was chosen because it guaranteed a limit on a significant part of the EU’s emissions, it was compatible with the emissions trading provisions of the Kyoto Protocol (adopted at U.S. insistence, ironically), and it was the only other instrument available. The support for the scheme is based on its capacity to deliver in several areas and to ultimately maintain credibility to domestic audiences, including policy-makers, business representatives, NGOs and the general public altogether.
'Cap and Trade'
Emissions trading (or ‘cap and trade’) is an economic policy instrument used to control emissions by providing economic incentives for achieving emission reductions. The idea behind a cap-and-trade system as an environmental policy tool is simple and straightforward. An emission trading system sets an absolute limit (or ‘cap’) on the pollution that causes the problem on the amount of a pollutant that can be emitted. This cap guarantees the environmental goal that is to be achieved - e.g. minus 10% of emissions within 5 years. Within the framework set by the cap, companies or sectors under the trading system are given credits or allowances which represent the right to emit a specific amount, keeping in mind that the total amount of allowances distributed cannot exceed the cap. The trading aspect of the scheme is that companies that emit beyond their allowances must buy allowances from those who emit less or face heavy penalties. The buyer pays for polluting (more), while the seller is being rewarded for having reduced emissions. Companies that can easily reduce emissions will do so and those for which it is more expensive will buy credits. By limiting the total volume of pollution and allowing trading between sources a price is put on every unit of the emissions concerned. This means that environmental pollution - that used to be an external effect of its operation and came “for free” as far as emitters were concerned - now comes at a cost and will have to be taken into account in choices about future behaviour, just like any other production factor.
Adoption of the EU ETS
It took until the summer of 2003 for the proposed Emissions Trading Directive to wend its way through the EU’s co-decision process. The Emissions Trading Directive, like any directive, sets a policy framework that is given legal force and gets implemented through a process called transposition, whereby member state governments issue legislative and regulatory measures within each national jurisdiction. In March 2000, the European Commission adopted a Green Paper on greenhouse gas emissions trading within the EU that launched a debate across the EU on the relevance and practical functioning of emissions trading. The 100 or so responses received were overwhelmingly in favor of emissions trading. It was discussed among Commission officials, Member States, industry associations and ECO representatives. Further consultation meetings with stakeholders, Member States and accession countries in September 2001 demonstrated strong support for emissions trading. The Commission then published a proposal on the implementation of a European wide cap-and-trade system for large industrial points sources of carbon dioxide (CO2), widely known as the Emissions Trading System (ETS). On October 13th 2003, the Directive establishing the ETS was finally adopted at the Environmental Council after controversial discussions within and between the European Council and the European Parliament.
Links between the Kyoto Protocol and the EU ETS
In November 2004 an amendment to the EU ETS directive was published, i.e. the so-called ‘Linking Directive’. Through this amendment Member States can allow the use of credits generated by the Clean Development Mechanism (CDM) and Joint Implementation (JI) for compliance use in the EU ETS. This means that EU ETS companies can use CERs (Certified Emission Reductions) and ERUs (Emission Reduction Units) next to EUAs to cover their emissions. The use of the above Kyoto credits is limited to a certain percentage of the total amount of allowances to be allocated in the relevant trading period. Such linkage mechanisms provide the means to get credit for mitigation investments made in another country. The percentage of such credits has to be mentioned in the National Allocation Plan and has to comply with the supplementarity provisions under the Kyoto Protocol. The European Commission assesses the use of CERs and/or ERUs when deciding on the National Allocation Plans. However, CERs and ERUs generated from nuclear facilities and LULUCF projects cannot be used for compliance in the EU ETS. While the Linking Directive concerns only project-based credits, the ETS Directive anticipates future links with other compatible cap-and-trade systems whereby the allowances from the two systems would be interchangeable without limit. Addtionally, special procedures of the EU ETS make it possible for countries of the European Economic Area (Norway, Iceland, and Liechtenstein) to integrate it as part of their national legislations. In Norway, the CO2 cap-and-trade system was effectively linked to the EU ETS as of January 1st, 2008.
The EU ETS is thus a cap within a cap from 2008 on. The Kyoto Protocol, as modified for the EU15 by the Burden Sharing Agreement (BSA) imposes an economy-wide cap on all greenhouse gas emissions. The EU ETS includes only CO2 emissions and only a subset of the economy—the power sector, specified industrial sectors and all combustion facilities with a thermal input of greater than 20 MW regardless of the sector in which they are found (including commercial and institutional establishments). The sectors included under the EU ETS comprise about 40 percent of the GHG emissions covered by the Kyoto Protocol. GHG emissions from sources not included in the EU ETS, notably transportation and buildings, are to be limited by other policies and measures.
Representatives of the industry sectors covered by the EU ETSwere looking for every possible way of lowering the cost of possessing an allowance for every tonne of CO2. From the start, their demands therefore, included the possibility of using credits from the project mechanisms of the Kyoto Protocol (JI and CDM) as equivalent to EU allowances to meet their obligations under the EU ETS. The European Commission was also in favor of allowing these credits into the system,
as a means of winning win industry acceptance as well as demonstrating to the outside world that the EU was interested in seeing these mechanisms being used.
The EU ETS was designed as an intra-EU policy to reduce emissionsfrom the industry sector and foster cleaner technology to be developed and deployed. This signal for innovation and change in the EU would be diminished or lost if external credits were used to provide the bulk of credits, which companies use to comply with the EU ETS. Furthermore, international climate treaties recognise that industrialised countries, as historical climate polluters, have to take the lead in reducing emissions. Based on both the innovation argument and the insight that developed countries need to cut emissions first, achieving the Kyoto targets primarily through reductions at home became a negotiation position of the EU when the Protocol was being agreed. Showing that reductions in greenhouse gas emissionsare possible in industrialised societies is an important signal to international partners in developed and developing countries. External credits should therefore be only a limited option, but already many EU Member States have declared they want to use them to comply with Kyoto. However, these purchases at a government level are different from also allowing them to be used in the ETS.
The early examples of what kind of projects would be generating credits were of low environmental quality or outright destructive282. They included large hydro-electricity dam projects that had already been under construction for years and would flood massive land areas and force people to leave their homes. The Kyoto Protocol also allows projects that involve the storage of carbon in plants and forests to count as emission reduction credits. ECOs feared that this could lead to large-scale monoculture plantations, potentially with genetically modified plants bred for maximum carbon uptake, which would have serious negative effects not only on biodiversity, but also on water and soil protection. In addition, any such so-called “sinks projects” contain the inherent problems of calculating and verifying the carbon uptake and guaranteeing that it will be permanent. In short, ECOs saw a system in its infancy that was focusing on low-quality projects at the lowest price. Allowing these credits into the ETS would effectively raise the cap by allowing additional emissions to take place, with doubts over whether real reductions had taken place elsewhere. The logic behind the exchangeability of emission credits of a different kind - that one tonne of CO2 was the same wherever emitted - would be broken by project credits that were not equivalent to one tonne of CO2 emitted from European chimneys.
Implementation of the EU ETS
As agreed in July and issued in October 2003, the Emissions Trading Directive called for implementing regulations to be in place by the end of 2003 and for National Allocation Plans to be submitted by the end of March 2004. The enlargement of the EU to ten countries in May 2004 increased the scope of the scheme, as well as the difficulties of its implementation. The result was that only five National Allocation Plans were submitted to the European Commission on time and the last member-country’s plan, for Greece, was not approved until June 2005, six months after the trial period had begun. Moreover, when the trial period started on January 1, 2005 there was only one operating national registry, in Denmark, and it was another year and half before the last of the initial East European registries, in Poland, became operational.
The ETS officially started operating on the 1st of January 2005. The EU ETS Directive mandates a first, three-year trading period for 2005-07 - often called the ‘pilot’ or ‘trial’ phase, to be followed by a second, five-year trading period for 2008-12 that corresponds to the First Commitment Period under the Kyoto Protocol, and subsequent post-2012 trading periods. The cap for the first period was determined in mid-2005.
The environmental targets for the ETS are being set for periods of years, in order to avoid the problem of specific circumstances in one year making achievement of the targets too easy or too difficult. The first trading period of the EU ETS runs from the beginning of 2005 to the end of 2007 (three years). From the 1st of January 2008 onwards, it will be operating in five-year periods. This design was chosen to allow compatibility with the Kyoto Protocol, the targets of which are for the period 2008 to 2012. Choosing the same timeline underlines the link with the Kyoto targets and facilitates taking these into account when setting ambition levels for the ETS. It also makes it easier to judge to what extent the industry sector is being asked to contribute to achieving the Kyoto targets. While the ETS directive, negotiated at EU level, laid out the architecture of the system, the target-setting was left to the Member States. They have to decide on the total number of allowances (= the maximum CO2 emissions from the sectors covered) and how many allowances each installation receives. These choices and other information have to be communicated to the European Commission and the public in so-called National Allocation Plans (NAPs) which Member States have to prepare for each trading period. The European Commission assesses the NAPs to determine whether they comply with the criteria set out in the directive that established the EU ETS. These criteria contained in Annex III of the directive include consistency with the Kyoto targets and projected and assessed progress towards them, as well as taking into account other relevant national and EU energy and climate policies. It should also consider economic and technological reduction potential, and not punish those that have already made improvements (so-called “early action”) or operate a cleaner technology (such as power plants that produce electricity and heat at the same time).
Source: CAN Europe
Coverage
In January 2005, the European Union Greenhouse Gas Emission Trading established by Directive 2003/87/EC, commenced operation. To start with, it covers only carbon dioxide emissions and concentrates on large point sources from key industry sectors. It is the first international trading system for emissions in the world, and covers around 12,000 installations (owned by ca. 5,000 companies) spread across Europe. The EU ETS is designed to cover (only) large industrial point CO2 sources, i.e. combustion installations over 20MWth, which includes most of the fossil fuel installation in the power sector, oil refining installations, cokes, iron and steel production, lime and cement production, glass production, ceramics, and paper and pulp production. In the EU ETS, the electrical power generators are by far the biggest emitters with around 63% of the total EU ETS CO2 emissions. Other significant emitting sectors in the EU ETS are the cement and lime industry (around 9%), refineries (around 7.5%), the iron and steel sector (around 7%) and other combustion installation from e.g. the chemical sector (9%). Some member states plan to use the so-called “opt-in” rule which allows them to expand the scope of the EU ETS beyond the above mentioned greenhouse gas and sectors. In particular France and the Netherlands applied for an opt-in of N2O emissions from the production of fertilisers as from 2008. What is more, some Member States requested an opt-out of certain installations from participation of the EU ETS in the period 2005-2007. Such an opt-out is only allowed in the first trading period and can only be accepted by the European Commission if the concerned installations are subjected to equal reduction efforts and monitoring and reporting rules as they would have been subjected to under the EU ETS. On October 24, the new Directive amending the 2003 ETS Directive to include aviation was signed formally by the presidents of Parliament and the Council of Ministers meeting in Luxembourg.
There are other serious environmental issues to be considered when judging the suitability of a trading system. Climate change caused by greenhouse gases is independent of the geographical location of GHG emissions. But with respect to damage to human health and the environment from toxic pollutants, the geographical location and dilution is of crucial importance. An instrument that allows one source of pollution not to reduce its impact because this is being compensated for elsewhere has to deal with the problem of such locations with higher local pollution, so-called “hotspots”, in which the emissions continue unabated. In fact, this is also an issue when a trading scheme is introduced for a greenhouse gas such as carbon dioxide, because other harmful gases are being produced alongside the CO2. Continued CO2emissionsin one plant must, therefore, not lead to a worsening of local air quality. This problem can, in theory, be overcome by ensuring adherence to separate air quality legislation to limit these other pollutants. In turn, such legislation could imply an indirect restriction on CO2 emissions. The potential conflict between two such instruments serving different issues must be resolved without compromising either one of the environmental objectives 212
In the future, it may be desirable to include more industry sectors and other greenhouse gases, provided that these can be monitored and verified with sufficient accuracy. However, such an expansion of the system can only take place once a proper functioning of the present set-up is guaranteed. Should the ETS turn out not to deliver on its promises, other instruments, like taxation, charges and product policies will need much greater political attention.
Allocation methods
The term allocation is frequently used in the EU ETS to refer to both cap-setting and the distribution of allowances by the Member States to covered installations. The operators of each of these installations require a greenhouse gas permit issued by the relevant national authorities as part of the Trading System to continue running their plant. For each trading period, Member States develop National Allocation Plans (NAPs).
For the first trading period, each Member State had to prepare and publish its first National Allocation Plan in early 2004. For future trading periods, every NAP needs to be submitted to the Commission one year and a half in advance of the start of the trading period, so for 2008-12 the deadline is 30thof June 2006. The European Commission has three months to complete its assessment. In the first round of NAPs, the Commission sent letters to each Member State with technical questions that required clarification. On the basis of these answers, evaluation proceeded. The Commission can either approve or reject plans, with the possibility of conditionally approving them during the course of proceedings. No plans were rejected in the first round, although some were approved on condition only. Most MS amended their NAPs prior to the Commission decision to receive approval.
Member States grant each installation covered by the trading system a specific number of emission allowances, each worth 1 tonne of CO2 (mainly for free), which make up the official currency of the system. At the end of each year, companies must have an allowance for every tonne they have emitted. If they have not received a sufficient number of free allowances from their government in the beginning, they will have to decide on a strategy for bringing allowances and emissions in line. They can either reduce their emissions or buy allowances from the market, effectively paying somebody else to make the reductions for them. Generally, one distinguishes three methods of allowance allocation: grandfathering, benchmarking or auctioning. Allowances can be obtained in different ways. They can be allocated to the emittants at the start of the trading period or they can be purchased on the allowance market. For more details on the NAPs of each Member State, see here.
Distribution of allowances
The distribution of allowances, referred to as 'allocations' in the context of the EU ETS, is carried out mainly based on historical emissions. This approach, which uses past pollutionlevels, is called “grandfathering”. Allocation decisions can be combined with future needs estimates (pro- jections) or based on performance (using benchmarks) or on willingness to pay (via auctioning) and combinations of these. The ETS directive specifies that most of the allowances will be handed out for free. Auctioning is possible for up to 5% for the period 2005-7 and a maximum of 10% for 2008-12. Some MS that had experience with using benchmarks have used these for allocation (the Netherlands and Belgium), most others have used future growth projections and applied correction factors. Member States are supposed to hand out or auction allowances by the end of February of the year in progress.
National Allocation Plans
NAPs are required to give a lot of detailed information, which amounts to an outline of a Member State’s Kyoto target implementation strategy with specifics for all sectors. For the trading sector there must be an explanation of the methodology used for allocating the overall cap on industry emissions and how they have been assigned to sub-sectors and the installations in them. Apart from making domestic efforts, Member States may also purchase emission credits from projects implemented in other countries in accordance with the mechanisms of the Kyoto Protocol, such as the Clean Development Mechanism (CDM) and Joint Implementation (JI). These projects generate officially certified credits, which enable governments to count the achieved reductions against their own Kyoto targets. NAPs must spell out in detail what volume of such credits a country is planning to purchase, what national authority will be in charge and where the funds will come from.
In each Member states, NAPs set out:
- The total quantity of allowances allocated
- The quantity of allowances allocated at sector level
- The quantity of allowances allocated at installation level
- Technical aspects; Community legislation and policy
More on Monitoring and Reporting of GHG by Member States
Compliance system
The question of how a policy such as the ETS is being enforced is obviously crucial to its environmental effectiveness. At the heart of this is the level at which penalties for non-compliance are being set, so that there is a strong disincentive to simply ignoring the legislation. The ETS directive puts a price tag on every tonne of CO2 for which an installation cannot show an EU allowance. For the period 2005-2007, this is a penalty of 40 euros ; after this, it rises to and 100 euros per tonne. Until the end of 2012, this is expected to be higher than the price of allowances on the market, so any rational actor will choose the market over the fine. In fact, in addition to the payment, any emission not covered by an allowance has be made up in the next trading period, meaning the operator will have to bring forward the missing allowances then. The level at which penalties are set may have to be increased in the longer term to account for higher carbon prices on the market, but this is unlikely to be necessary in the near future. This point will be addressed during the official review of the directive. Rules for monitoring and reportingunder the EU ETShave been developed by the Commission and were open for comments in the first half of 2005. It is important to have EU-wide rules rather than leaving these to MS, in order to ensure compatibility of effort and integrity of cross-border exchange of allowances. The fact that third party verifiers will assess the accuracy of company reporting is also an important provision to guarantee that no emissionsremain unaccounted for.
End of the first trading period
In April 2006 the country totals of theverified emissions were published. These emission reports showed that the EU ETS sectors were significantly over-allocated. This means they received more allowances compared to the actual emissions. For the EU 25 this was around 169 Million tonnes (Mtonnes) of CO 2 or 7.8% over the average annual allocation for the period 2005-2007. The relative (%) over-allocation was the highest in the Baltic Member States (Lithuania (46%), Latvia (38%) and Estonia (33.6%)). The frontrunners in the absolute over-allocation were Poland (36 Mtonnes), France (25.2 Mtonnes), Germany (24.9 Mtonnes) and the Czech Republic (15.10 Mtonnes). This over-allocation lead to an immediate price crash of the European Allowance (EUA) price from around 30 EUR/tonne CO 2 to 12 EUR/tonne CO 2. Most experience is available for the electricity sector where several surveys have reviewed the pass through of CO2 allowance prices onto power prices
From an environmental point of view, the fact that a ‘grandfathering’ approach was adopted rather than giving a clear priority to auctioning presents a significant weakening of the potential impact of the directive. Only the gap between the allowances that are being given out for free and actual emissions will have a price tag, diminishing the financial incentive to reduce emissions. Industry was very vocal in its opposition to auctioning, which it regarded as a different means of establishing a tax system. This opposition was reflected in the behaviour of many Member States, despite the prospects of revenue from auctioning and advice from economists that this was the more efficient procedure. This means that no so-called “double dividend” is inherent in the ETS at the moment, which can be reaped with revenue-based policies. In the Review of the EU ETS that will be voted this fall, the possibility of introducing more auctioning is being advanced.
Early assessments of the NAPs for the first trading period show that governments have been cautious in demanding ambitious reductions from their industry sectors and generous in their initial allocations, considering that many EU15 MS are considerably far from their Kyoto targets. This development threatens the achievement of the EU’s Kyoto targets and thereby questions its international credibility, because it has invested a lot of political capital in the UN negotiations on climate change. Failure to deliver on the EU’s promises to implement domestic policies will have serious repercussions on the feasibility of engaging other international partners to continue with the Kyoto framework of absolute reduction targets.
Furthermore, the financial incentives to change current practice and move to less-CO2 intensive processes and plants depends on the level at which the targets are being set, because the degree to which companies lack available allowances determines the carbon market price. This signal is extremely important to help steer investment in the right direction. In the European power mar- ket for example, around a third of generation capacity needs to be replaced over the coming 10-15 years. These plants and their emissionswill be around for many decades and it would be disastrous for the climate if these plants were running on coal or lignite that produces immense volumes of CO2. These long-term effects also play a role in the kind of technology that will be developed to improve future processes. Strong targets are needed to send a clear signal that CO2 emissions need to be avoided.
EU ETS Review
In 2005, the Commission started the official review of the EU Emissions Trading System, as demanded by the directive in Article 30. This includes an evaluation of the allocation, reassessing certain provisions of the link with external credits and considers the expansion of the system to include other sectors and gases. A consortium of consultants has been awarded the task of assisting with an evaluation of the impacts of the system and the consequences of potential changes. The review report by the Commission, accompanied by proposals to amend the directive if this is considered necessary, is due by mid-2006. Since such amendments will have to go through codecision procedures, meaning they require a compromise between the Environment Ministers in their Council and the European Parliament, they will most likely not be approved before the start of the next trading round in 2008. Major changes to the directive are, therefore, most likely to be applied from the period 2013-17 onwards.
The timing of the review means that little experience with the ETS will have been gained, but major decisions for the medium-term future need to be taken. The Commission’s DG Environment has indicated that it would like to keep the system mainly as it is at the moment, rather than adding complexity through significant adjustments. Many actors agree, however, that a certain degree of harmonisation of the rules is desirable. Important discussions will also take place regarding the potential inclusion of other sectors and gases, for example, to link the aviation industry to the ETS, or to include methane emissionsor fluorinated gases in trading.
In response to Article 30 of the ETS Directive, the Commission submitted a report to the European Parliament and the Council considering the functioning of the EU Emissions Trading Scheme (ETS) in November 2006. The Communication provides for a analysis of how the ETS had worked to date and outlines the need of a review process with a view to adapting some features of the Directive for the trading period starting in 2013. Read
In their vote of October 7, the ENVI Committee members of the European Parliament backed a tougher Emissions Trading Scheme (ETS) backed the Commission's plans of reducing GHG emissions by at least 20% by 2020 from 1990 levels or by 30 % in event of an international agreement in Copenhagen in December 2009. Rapporteur Avril Doyle's report was adopted with 44 votes in favor, 20 against and one abstention.
The review sets out several key points:
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Less free allocations
At present, heavy industry gets some permits for free and has to buy others only if it exceeds the allowances. As part of the new vote in the EP, full auctioning of emission permits will be introduced for the power sector from 2013.
In the new report, the MEPs support the Commission view of cutting free allocation of emission permits by 85% in 2013 to 0% in 2020. From 2013, full auctioning should be the rule (expect for sectors with a risk of carbon leakage). In the first and second trading periods (2005-2012), the great majority of allowances have been allocated for free. Now industries will receive a certain quota of emission allowances free of charge but will need to pay for any further permits via auctioning. For the manufacturing sector, a large amount of allocations should remain free of charge, MEPs say, up to 85% in 2013.
Avoid carbon leakage from energy intensive sectors
The distribution of the free allowances shall be based on ex ante benchmarks to be set for each sector at the level of the best greenhouse gas and energy efficient techniques for which MEPs set out detailed criteria.
What is more, sector exposed to 'carbon leakage' might receive up to 100% of free allowances until 2020 in order to avoid the relocation of production to third countries with a less strict climate policy. MEPs do not list the sectors "exposed to carbon leakage" but ask the Commission to identify them three months earlier than the Commission's proposed date of 31 March 2010, and then to revise them every four years, rather than every three. They also set out detailed criteria for identifying sectors exposed to carbon leakage.
Full auctioning for the power sector from 2013
MEPs agree that full auctioning should apply for the power sector. No free allowances shall be given to electricity generators for district heating and heat produced through high efficiency cogeneration in respect of the production of heating and cooling.
Inclusion of new industries, new gases and more sectors
The current ETS concerns heavy industries such as power stations, cement or pulp factories. MEPs support the extension of the scope of the ETS to include new industries such as petrochemicals, aluminium and ammonia producers. It also includes two further gases: nitroud oxide and perfluorocarbons. MEPs also call on the Commission to make a new legislative proposal as soon as possible in order to include the shipping sector into the ETS scheme by 2013. The Commission shall also specify the date for the inclusion of freight transport by road, that of the mining sector and the waste sector into the scheme by 2013.
'Green' use of auction revenues
MEPs want permit auction revenues to be used for climate change protection measures. Revenues taken from the auctioning of permits could total 50bn euros (£39bn) annually by 2020, the European Commission estimates. MEPs agreed that at least 50% of these revenues (as opposed to 20 % proposed by the Commission) should go to an international fund, which invests in projects in developing countries to help, for instance, fight against deforestation. The remaining 50% should go to European projects to adapt to climate change or fund climate research and development.
In particular, MEPs want the ETS to support large scale conmercial demonstration projects undertaken in the Capture and Geological Storage of carbon dioxide (CCS). Up to 500 million allowances could be devoted to those projects in the EU and in third countries. MEPs asked the Commission that contracts for 12 commercially viable carbon capture plants across Europe are let before the UN meeting in Copenhagen in December 2009. Voting list to the report
17 December. The deal is struck
On December 17, the European Parliament voted the proposal by MEP Avril Doyle as revised by the European Heads of State on December 11 and 12. The new legislation will apply from 2013 to 2020 and should lead to a reduction in greenhouse gas emissions of 21 % compared to reported 2005 levels. The Community-wide quantity of allowances issued each year will decrease in a linear fashion, so as gradually to reduce the overall level of emissions each year.
The revised directive establishes auctioning from 2013, but it includes several exceptions, as advocated by the European Council on 12 December 2008.
The revised ETS law was approved by the European Parliament in December 2008, but still has to be formally adopted by the EU Council, representing the EU's 27 national governments, before it can enter into force. EU sources expect this to occur around March or April this year.
The revised law sets new framework rules for the ETS after 2013, most notably by setting a single EU-wide emissions cap and gradually phasing out free ETS allowances for most of the installations covered.
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Source: Euractiv, Europa, Climate Action Network Europe, EEB