Information AboutEu Ets |
| CATEGORIES ABOUT EUROPEAN UNION EMISSION TRADING SCHEME | |
| climate change policies | |
| energy policies and initiatives of the european union | |
| carbon emissions trading schemes | |
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Under the EU ETS, large emitters of carbon dioxide within the EU must monitor and annually report their CO2 emissions, and they are obliged every year to surrender (give back) an amount of emission allowances to the government that is equivalent to their CO2 emissions in that year. The installations may get the allowances for free from the government, or may purchase them from others (installations, traders, the government.) If an installation has received more free allowances than it needs, it may sell them to anybody. In order to make sure that real trading emerges (and that CO2 emissions are reduced), EU governments must make sure that the total amount of allowances issued to installations is less than the amount that would have been emitted under a business-as-usual scenario. The total quantity to be allocated by each Member State is defined in the Member State National Allocation Plan (NAP). The scheme allows a regulated entity to use a Carbon Credit in the form of a Certified Emission Reduction (CER) or Emission Reduction Unit (ERU) to comply with its obligations. A CER or ERU is resultant of a Carbon Project that has been certified by the Clean Development Mechanism Executive Board or the Joint Implementation projet's host country. ALLOCATION For each phase of the EU ETS each Member State must propose a NAP which is submitted to the EU Commission for acceptance. The Commission then decides if the NAP fulfills the 12 criteria set out in the Annex III of the Emission Trading Directive (EU Directive 2003/87/EC ). The first and foremost criterion is that the proposed total quantity is in line with a Member State's Kyoto target. Of course, the Member State's plan can and should also take account of emission levels in other sectors not covered by the EU ETS. For instance, transport is responsible for 21% of EU greenhouse gas emissions, households and small businesses for 17% and agriculture for 10% {Link without Title} . LAUNCH The scheme, in which all 25 member states of the European Union participate, commenced operation on 1 January 2005. In its first year, 362 million tonnes of CO2 were traded on the market for a sum of €7.2 billion. [http://www.pointcarbon.com/wimages/Carbon_2006_final_print.pdf] The price of allowances increased more or less steadily to its peak level in April 2006 of ca. €30 per tonne CO2 [http://www.emissierechten.nl/marktanalyse.htm], but came crashing down in May 2006 to under €10/ton when it became clear that many countries had given their industries such generous emission caps that there was no need for them to reduce emissions. Lack of confidence in allocations under the first phase of the scheme continued through 2006 resulting in a trading price of €1.2 a tonne in March 2007, declining to €0.13 in June 2007. Consequently, NGO's have accused national governments of abusing the system under industry pressure, and have urged for far stricter caps in the second phase (2008-2012). [http://www.emissierechten.nl/marktanalyse.htm] PHASE I In the first phase (2005-2007), the EU ETS includes some 12,000 installations, representing approximately 40% of EU CO2 emissions {Link without Title} , covering energy activities (combustion installations with a rated thermal input exceeding 20 MW , mineral oil refineries, coke ovens), production and processing of ferrous metals, mineral industry (cement clinker, glass and ceramic bricks) and pulp, paper and board activities. PHASE II The second phase (2008-12) expands the scope significantly:
The inclusion of aviation is a move considered important due to the large and rapidly growing emissions of the sector. The inclusion of aviation is estimated to lead to an increase in demand of allowances of about 10-12 million tonnes of CO2 per year in phase two. This in turn is expected to lead to an increased use of JI credits from projects in Russia and Ukraine, which would offset the increase in prices and eventually result in no discernible impact on average annual CO2 prices. {Link without Title} . Ultimately, the Commission wishes the post-2012 ETS to include all greenhouse gases and all sectors, including aviation, maritime transport and forestry For the transport sector, the large number of individual users adds complexities, but could be implemented either as a cap-and-trade system for fuel suppliers or a baseline-and-credit system for car manufacturers[http://www.naturvardsverket.se/bokhandeln/dse/620-5550-X . The National Allocation Plans for Phase II, the first of which were announced on November 29, 2006, will result in an average cut of nearly 7% below the 2005 emission levels {Link without Title} . The annual Member State CO2 allowances in million tonnes allowances are: The European Commission has started infringement proceedings against Austria , Czech Republic , Denmark , Hungary , Italy and Spain , for failure to submit their proposed National Allocation Plans. OVERALL EMISSION REDUCTIONS The environmental effectiveness of the scheme rests on the tightness of the caps. So far, Phase 1 is widely believed to be overallocated ('long' allowances in the technical jargon), implying that no overall emission reductions have been achieved. However, the first phase isn't over and any analysis of the overall emission reductions is therefore preliminary. Phase I In 2004, called the caps a 'major disappointment' arguing that only two (UK and Germany) of the 25 EU states asked the participating industry sectors to reduce emissions compared to historic levels and found that in the 15 old EU member states as a whole, allocations were 4.3% higher than the base year. In May 2006, when several countries revealed registries indicating that their industries had been allocated more allowances than they could use, trading prices crashed from about €30/ton to €10/ton, and have (after an initial slight recovery) declined further to €4 in January 2007 [http://www.emissierechten.nl/marktanalyse.htm and below €1 in February 2007, reaching €0.13 towards the end of June 2007. Phase II In 2006, Ecofys performed an initial assessment of NAPs for phase II, using the proposed but not-yet-approved NAPs {Link without Title} . They found that most member states did not have sufficiently strict caps, and that they would be insufficient in assisting the members in meeting their Kyoto targets. They also compared caps with official business-as-usual (BAU) projections and with independent BAU projections to assess stringency of caps. They concluded that the caps were 7% under official BAU but (except for Portugal, Spain, and UK) the proposed cap was "higher" than the independently estimated BAU, suggesting overallocation. Partly in response to this, the Commission cut eleven of the first twelve Phase II plans it reviewed (accepting only the U.K.'s plan without revision). The commission tightened the caps some 7% {Link without Title} , also corresponding with 7 per cent below the 2005 emissions. However, as of January 2007, not all plans have been finalized. ALLOCATION Most allowances in all countries were given freely (known as Grandfathering ). This approach has been criticized as being less efficient than auctioning and providing too little incentive for installing clean, renewable energy {Link without Title} , {Link without Title} . THE INCLUSION OF SINKS Currently, the EU does not allow CO2 credits under ETS to be obtained from Sinks (e.g. reducing CO2 by planting trees). However, some governments and industry representatives lobby for their inclusion. The inclusion is currently opposed by NGO's as well as the EU commission itself, arguing that sinks are surrounded by too many scientific uncertainties over their permanence and that they have inferior long-term contribution to climate change compared to reducing emissions from industrial sources {Link without Title} . SEE ALSO
NOTES EXTERNAL LINKS ''Official pages''
''How ETS works''
''Key reports, and assessments''
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