Expanding Greenhouse Gas Emission Trading Systems

Expanding Greenhouse Gas Emission Trading Systems

Feb, 2008  - The European Commission has 
released a set of proposals to expand the current greenhouse gas Emission 
Trading System to combat global warming and promote renewable energy in 
the period beyond 2012, when the present trading period ends. 
At a news conference introducing the proposals Wednesday, Environment 
Commissioner Stavros Dimas warned, "On current trends, climate change will 
almost certainly be endangering the lives of millions of people and 
causing serious disruption to our economies within the lifetimes of many 
in this room today." 
"Europe and the rest of the world have to act fast, and act boldly, if we 
are to prevent this catastrophe," he said. "Today's package underlines the 
European Union's determination to continue leading global action by 
example." 

Currently the system allows trading in emissions of carbon dioxide and 
covers power stations and other combustion plants, oil refineries, coke 
ovens, iron and steel plants and factories making cement, glass, lime, 
bricks, ceramics, pulp, paper and board. 
The Commission now proposes to include additional sectors and greenhouse 
gases. Six gases are governed under the Kyoto Protocol, to which the EU 
member states and the European Union adhere. 
Carbon dioxide emissions from petrochemicals, ammonia and aluminium will 
be included in the expanded trading system, as will emissions of nitrous 
oxide, N2O, from the production of nitric, adipic and glyoxylic acid. 
Emissions allowances of perfluorocarbons from the aluminium sector will 
also be traded. 
The capture, transport and geological storage of all greenhouse gas 
emissions will also be covered. 
The new proposals are introduced to help the European Union achieve its 
greenhouse gas reduction target agreed at the March 2007 meeting of the 
European Council of Ministers. 
At that meeting, the EU adopted an emissions reduction target of at least 
20 percent by 2020 compared with 1990 levels. 
The reductions target would be raised to 30 percent as long as other 
industrialized countries commit to comparable efforts in the framework of 
a global agreement to combat climate change after the Kyoto Protocol 
expires in 2012. 
At the December 2007 United Nations climate change conference in Bali, all 
nations reached consensus that they would negotiate a global agreement to 
curb climate change to take the place of the Kyoto Protocol. If that 
agreement is finalized, it would trigger the EU's 30 percent greenhouse 
gas reduction target. 
The decision to launch EU-wide negotiations to strengthen the Emissions 
Trading System was taken at Bali and the negotiations are expected to 
start in March or April. 
Dimas called the 30 percent cut in emissions "crucial." 
"It is a 30 percent cut by developed countries that is needed to get 
global emissions onto a downward track - and it is a 30 percent cut that 
we will continue to press for in the international negotiations launched 
at Bali," he said. 
The European Environmental Bureau, EEB, the largest federation of 
environmental citizens organizations in Europe representing 143 
organizations in 31 countries, welcomed the proposals as "a first step" 
but said they fall short of what is needed to really curb climate change. 
EEB Secretary-General John Hontelez said, "The Commission has been under 
massive pressure from industry coalitions and several member states to 
present watered-down proposals and it has, to a certain extent, given in 
to that pressure." 
"The EEB insists that the EU stick to its agreed objective of keeping 
global warming below 2 degrees Celsius, which would require the EU to go 
for a 30 percent reduction target, rather than the 20 percent proposed 
today," Hontelez said. 
"This would be in line with the Bali conclusion that industrialized 
countries have cut greenhouse gas emissions by 25-40 percent by 2020," he 
said. 
Under the new proposals, if all 27 European Union member states and the 
European Parliament agree, there will be one EU-wide cap on the number of 
emission allowances instead of the current system of 27 national caps. 
The annual cap will decrease along a linear trend line, which will 
continue beyond the end of the third trading period - 2013-2020. 

The system will remain based on trading periods, but the third trading 
period will last eight years, from 2013 to 2020, as opposed to five years 
for the second phase from 2008 to 2012. 
A much larger share of emissions allowances will be auctioned instead of 
allocated free of charge. And harmonized rules governing free allocation 
will be introduced, said the Commission, the executive branch of the EU 
government. 
It is estimated that around 60 percent of the total number of allowances 
will be auctioned in 2013, and this proportion will increase in later 
years. 
Auctioning of allowances should be the basic principle for allocation from 
the third phase onwards, the Commission said in a statement. "This is 
because auctioning best ensures the efficiency, transparency and 
simplicity of the system and creates the greatest incentive for 
investments in a low-carbon economy." 
It best complies with the "polluter pays principle" and avoids giving 
windfall profits to certain sectors that have passed on the notional cost 
of allowances to their customers despite receiving them for free, the 
Commission said. 
Hontelez said the EEB "deplores" the proposed delays in moving from free 
emission credits to a system that requires only certain industry sectors 
to pay for their emissions. 
EEB also rejects offering industry extra emission rights through 
investment in "questionable" energy projects outside the EU. 
Instead, EEB is calling for "a robust penalty system for exceeding 
emissions limits to create a level playing field for those businesses that 
choose to invest in eco-innovation." 
The new Emissions Trading System proposals are detailed here. 
At the same time the Commission has proposed a new law, called a 
directive, setting standards for renewable energy and energy efficiency, 
and formalizing the 20 percent greenhouse gas emissions target by 2020. 
The directive includes a 20 percent increase in energy efficiency and a 20 
percent share of renewables in overall EU energy consumption by 2020. 
In addition, the law requires a 10 percent biofuel component in vehicle 
fuel by 2020 and sets sustainability standards for biofuels such as 
ethanol and biodiesel. 
The renewable energy law affects three economic sectors - electricity, 
heating and cooling and transport. It is up to the member states to decide 
on the mix of contributions from these sectors to reach their national 
targets, choosing the means that best suits their national circumstances. 
They will also have the option of achieving their targets by supporting 
the development of renewable energy in other member states and third 
countries. 
The minimum 10 percent share of biofuels in transport is applicable in all 
member states. "Biofuels tackle the oil dependence of the transport 
sector, which is one of the most serious issues affecting security of 
energy supply that the EU faces," the Commission said. 
Biofuels cost more than other forms of renewable energy and without a 
separate minimum target for biofuels, they will not be developed, said the 
Commission. "This matters because greenhouse gas trends are worst in 
transport, and biofuels are one of the few measures - alongside vehicle 
fuel efficiency - realistically capable of making a significant impact on 
greenhouse gas emissions from transport." 
While supporting the Commission's overall efforts to boost renewables, the 
EEB does not approve of their continued support of "a disputable biofuels 
policy, despite ever louder warning signals from many sides." 
Hontelez said, "Because of the variation in quality of different biofuels, 
in addition to the potential knock-on ecological impacts from biodiversity 
loss, soil degradation and water stress, the arbitrary 10% biofuels target 
the Commission stubbornly supports is unlikely to provide positive results 
for the environment." 
The EEB wants the specific biofuels target eliminated altogether. 
The Commission's analysis shows that achieving its renewable energy 
targets will result in savings of 600 to 900 million metric tons of CO2 
emissions per year "holding back the rate of climate change and sending a 
signal to other countries to do the same." 
Reductions in fossil fuel consumption of 200 to 300 million metric tons 
per year can be expected, the Commission said, most of it imported. 
The Commission anticipates a boost for high-tech industries, new economic 
opportunities and jobs will result from the new law. 
All this will cost approximately €13-18 billion (US$19.19 - $26.57 
billion) per year. 
"In terms of annual effects on GDP," said Dimas, "which is in any case a 
less than perfect measure of progress, the impact of cutting emissions by 
20 percent will be as low as 0.04 to 0.06 percent per year. 
"As for the benefits," he said, "the package is expected to deliver the 
kind of structural changes that Europe needs to remain competitive." 
"By taking the lead, Europe will be kick-starting the development of the 
low-carbon global economy that is vital to prevent climate change from 
reaching dangerous levels," said Dimas. "We are giving ourselves a first 
mover advantage in a new industrial revolution that will unleash a wave of 
innovation and job creation in clean energy and high-efficiency 
technologies." 

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