The Poznań Conference brought together the 192 Parties to the UN Framework Convention on Climate Change (UNFCCC), which include the United States, and the 183 Parties to the Kyoto Protocol. The European Community and all Member States are Parties to both. The EU delegation was led by the 'troika' comprising, for the high level segment, French Ecology Minister Jean-Louis Borloo, Czech Environment Minister Martin Bursik and Commissioner Dimas.

The parliamentary delegation in Poznań was composed of 28 MEPs. See the agenda, the list of participants and the summary of the work of the Delegation.

Key EU objectives for a new global agreement

In March 2007, EU Heads of State and Government endorsed an integrated climate change and energy strategy put forward by the European Commission which outlines the EU’s proposals for a global and comprehensive agreement to combat climate change after 2012, when the Kyoto Protocol targets will expire.

European Heads of States endorsed an EU objective of a 30% reduction in greenhouse gas emissions by 2020 compared to 1990 as its contribution to a global and comprehensive agreement for the period beyond 2012, provided that other developed countries commit themselves to comparable emission reductions and economically more advanced developing countries commit themselves to contributing adequately according to their responsibilities and capabilities.

The Community has, on multiple occasions, stressed that, in order to meet this objective, the overall global annual mean surface temperature increase should not exceed 2°C above pre- industrial levels, which implies that global greenhouse gas emissions should be reduced to at least 50% below 1990 levels by 2050. All sectors of the economy should contribute to achieving these emission reductions. Developed countries should continue to take the lead by committing to collectively reducing their emissions of greenhouse gases in the order of 30% by 2020 compared to 1990.

The European Commission website expresses its objective in a new climate deal as follow:

' The future framework, which will cover the period after 2012, when the Kyoto Protocol's emission targets will have expired, needs to have global participation and to tackle climate change in a comprehensive and ambitious way. Its 'shared vision' should be for developed countries to reduce global greenhouse gas emissions sharply by 2020 while helping developing countries, through technological and financial support, to develop along a low-carbon path and to adapt to the impacts of climate change which are now inevitable. The EU firmly believes that global warming must not exceed 2°C above pre-industrial levels since there is strong scientific evidence that the risk of irreversible and possibly catastrophic environmental changes will become far greater beyond this threshold. Keeping within 2°C will require global emissions to peak by 2020 and then be at least halved from 1990 levels by 2050. To stop the rise in global emissions, developed countries will need to cut their collective emissions by 30% of 1990 levels by 2020 while developing nations, particularly the major emerging economies, should contain the growth in their emissions by keeping them 15-30% below projected 'business as usual' levels in 2020.'

                                                                                                                                                                                     Press Release RAPID

EU priorities in Poznan

The Poznań conference is an important opportunity to take stock of negotiations so far, step up their pace and make further progress, and lay a solid basis for the final year of negotiations.

The current legislation only implements a - 20% by 2020 reduction target compared to 1990. At the latest 3 months after the signature of an international agreement by the EU the European Commission shall present an impact assessment report  that will look at the ambition level of the agreement, options to move to a 30% reduction target, impact on carbon leakage, etc. On the basis of that report, the Commission shall propose a new legislative proposal implementing the agreement. This proposal will go through a co-decision procedure, such as the current package. While there is reference to a -30% target in the legal text, there is no obligation to implement a -30% reduction target, even in case there is an international agreement, e.g. the EU can agree to a -21% reduction target internationally without a problem.

It is important to note that this commitment is to a legally binding commitment to cap the allowed emissions of the EU at 30% below 1990 levels. As such this commitment would not be met by purely domestic action, as this commitment would be met in part through the acquisition of emission trading units from countries outside the European Union. Emission units would be obtained from other Annex I countries covered under legally binding national emission limits, or from internationally recognised trading units generated by the clean development mechanism and new instruments that are anticipated to be developed under the new Copenhagen agreement, such as sectoral emission crediting mechanisms.  

EU 2020 GHG reduction targets overview

2005 or 1990 base-year?

This might be confusing but the base- or reference-year for the EU’s -20% over-all target is 1990. For the effort sharing and EU ETS parts the baseline from which the reductions count is 2005, leading to a total reduction of -20% compared to 1990. The main reason for using 2005 as reference in the separate dossiers is that there is no good emission data available for the EU ETS before 2005, 2005 being the first year in which we have verified EU ETS emission reports.

Sharing method

The relative shares for each Member State are calculated according to a formula based on GDP/capita with cut-off points at - 20% reduction compared to 2005 for the richest EU Member State and +20% for the poorest Member State.

Linear but flexible annual targets

Member States must reduce their emissions by 2020 compared to 2005 levels. The emissions in 2013 - the start of the period - shall be no higher than the average emissions of the years 2008, 2009 and 2010. For Member States with a growth target the 2013 emissions shall not be higher than the linear expansion of the average 2008, 2009 and 2010 emissions towards 2013.

Each year the emissions of a Member State from 2013 onwards must be on a linear pathway towards the 2020 target. Member States have a high degree of flexibility to achieve their annual reduction targets. They can borrow 5% - in case of 'force majeure' - of the emissions of next year to achieve their target. They can carry over a surplus emission reduction to the next years. Member States which overachieve in one year can sell or give that overshoot to other Member States, which are underachieving. This new element in the compromise creates a de facto Kyoto-type emissions trading between Member States.

Clean Development Mechanism credits

Each member state is allowed to use CDM credits each year up to 3% of their 2005 emissions, which are bankable and trade-able over the whole period. In addition, 12 member states (Austria, Finland, Denmark, Italy, Spain, Belgium, Luxembourg, Portugal, Ireland, Slovenia, Cyprus and Sweden), subject to conditions related to the overall costs of implementing the reductions (and other specificities) can use an additional 1% of 2005 emissions (from CDM in LDCs and small island developing states).

Although the 3% or 4% of 2005 might seem low, this percentage is allowed each year in the period 2013-2020. With the required reductions in the beginning (2013) very low and going up to -10% in 2020, the over-all use of external credits compared to the over-all effort over the period 2013-2020 is very high.

This means there is the potential for more than 72%  of the total reduction effort under the Effort Sharing directive to be off-set outside of the EU through the CDM. The real domestic reduction effort towards 2020 compared to 2005 is less than -3% (out of the -10%).





Quality of external credits
The credits can be used are the same as under the EU ETS in the period 2008-2012, excluding nuclear and possibly forestry). Member States have to report on the types of credits and the quality criteria applied.

Compliance
If Member States are not achieving their annual reduction target (taking into account all the flexibilities possible - i.e. after CDM use, borrowing, buying, etc.), a correction factor of 1.08% is introduced, which is applied to next years target. Member States have to prepare a plan of corrective action on which the commission can give an opinion.

The fact that there is a correction factor is an improvement with regard to the Commission’s proposal. However, due to all the flexibilities such as the huge amount of off-sets allowed it is most likely that it will never have to be applied.

Financial support for developing countries

Despite the European Parliament’s support for a binding 10 billion euros by 2020 for adaptation in developing countries, and to the principle of financial support for mitigation in developing countries, no binding quantitative commitment to financing for developing countries is given under the ES directive.

CONCLUSION

Potential

	The first time a non-ETS, EU-wide cap has been introduced, with a binding linear pathway - not just a final target - and an annual compliance with correction factor.
	The change in base-year from 1990 to 2005 has removed 'hot air' from the system
	Maritime emissions have been capped for the first time

Weaknesses

	The amount of flexibility introduced to meet targets through CDM – it being possible for up to 80% of the reduction effort to be achieved outside of EU borders
	The lack of a robust compliance mechanism, comparable to that under the ETS

Post 2012 Review of the EU Emissions Trading Scheme

The Commission proposal for the EU Emissions Trading Scheme (ETS) sets the rules for the third phase of the scheme from 2013-2020, progressively capping industrial emissions from the power and manufacturing sectors up to -21% of 2005 emissions by the end of the period. This represents 2/3rds of the reduction effort for the EU’s unilateral -20% emissions reduction below 1990 by 2020.

EU wide cap-setting and allocation rules

An important improvement in the EU ETS is the fact that the cap is now set at EU level and not through the allocation plans of Member States. The rules for allocating and auctioning allowances are also set at EU level. This is a major and structural improvement, giving the EU ETS more transparency and international credibility.

For the power sector

The power sector in most countries will be subject to 100% auctioning from 2013. Separate treatment is foreseen for CEE countries (based on a formula), where the power sector will be subject to buy 30% of its permits in auction from 2013, and 100% by 2020. One of the costs of avoiding 100% free allocation in the CEE power sector is a provision on state aid that allows for 15% of the costs of new coal power plants (CCS-ready) between 2013 and 2016 to be met using auction revenues.

For the manufacturing sector

The general rule (for sectors not deemed to be exposed to serious risk of ‘carbon leakage’, ie relocation outside of the EU) establishes 20% auctioning from 2013, rising to 70% by 2020, with a view to rising to 100% by 2027.

For sectors at risk of ‘carbon leakage’ (relocation outside EU)

Weak criteria, establishing the carbon leakage thresholds,  mean that around 90% or more of the manufacturing sector’s emissions will be defined as at risk of carbon leakage, and will get 100% free allocation at the level of a benchmark of the best available technology. (average of 10% best EU performers). At the latest by 31st December 2009, - i.e after a Copenhagen Agreement - the list of sectors and sub-sectors exposed to carbon leakage will be determined by the Commission after discussion at the level of Heads of State and Government. Not later than 30th June 2010, the Commission will submit a report to the Parliament and the Council assessing the carbon leakage implications of the international agreement. At this point, proposals can be made to adjust the levels of free allowances up or down.

A sector with more than 5% relative price increase and more than 10% trade exposure is considered to be at serious risk of carbon leakage. A sector with more than 30% price increase or 30% trade exposure falls in the same category.

The red surface covers the sectors at serious risk of carbon leakage. This area covers the big emitters, representing more than 90% of the EU ETS’ manufacturing industry’s emissions.

Distribution of allowances to be auctioned

In total, 12% of allowances to be auctioned will be set aside for CEE member states in the interests of 'solidarity and growth' and in recognition of the reductions achieved by those countries between 1990 and 2005 (‘hot air’).

Use of auctioning revenues
There is no good estimate at this time how much of the total allowances will be auctioned. A rough guess is that it will be around 50% of the total amount of allowances, but this depends on the specific allocation of the total cap to the power sector.

There is a non-binding suggestion that Member States should use at least 50% of auction revenues to invest in activities related to climate change, including contributions to the Adaptation Fund, REDD and CCS and other technologies.

CCS (and other new technologies)

Clean Development Mechanisms

Any existing credits from phase 2 of the ETS can be carried over to meet reduction targets under phase 3  plus additional credits (around 200 Mt bringing total at around 1600Mt) amounting to a maximum of 55% of the reduction effort in phase 2 and 3 together (2008-2020).

However, there is a provision in the legislation which is supposed to limit the off-sets to 50% of the reductions compared to 2005. Measures will be proposed to that regard.

The amount of off-setting in phase 3 (2013-2020) will be determined by the quantity of external credits banked between phase 2 and 3. This amount can be high due to expected lower emissions in the next years as a consequence of economic downturn.

In principle the same type of credits allowed in phase 2 can be used in phase 3 (no nuclear, sinks). As from 2013 there might be new criteria restricting the use of certain credits from specific project types. Those criteria can be adopted through a comitology procedure.

CONCLUSION

Strengths

	Introduction of a harmonized cap and allocation methods at EU level (no more national allocation plans)
	Fewer permits handed out for free, especially in the power sector

Weaknesses

	The exemptions to auctioning for the vast majority of manufacturing industry
	The levels of CDM (up to 50% of the reduction effort)
	The subsidies offered to new coal power plants
	The lack of earmarking of auctioning revenues to generate predictable, reliable and additional financing for developing countries

What's next for the EU ETS?

11.12.09 - During the negotiations in Poznan, and in order to give a last push to the Climate and Energy package to be sealed the next day, environmental NGOs of the world sent an open letter addressed to Jose-Manuel Barroso, the President of the European Commission, Hans-Gert Poetteringm, the President of the European Parliament, and former Council President, French President Nicolas Sarkozy. Read the letter