Climate change: EU reaches agreement on emissions trading scheme, December 2002

The first international scheme for the trading of greenhouse gas allowances could be in place in the European Union by 2005 following a unanimous agreement of EU environment ministers at a Council meeting on 9 December 2002. The EU 'pollution market' is viewed as a key instrument in meeting the obligations of the Kyoto Protocol aimed at combating climate change.

The European Union ratified the Kyoto Protocol on 1 June 2002 and is therefore committed to reducing emissions of carbon dioxide (CO2) by 8% of their 1990 levels between 2008 and 2012. The creation of an EU emissions trading scheme was proposed by the European Commission in October 2001 as the most cost effective way to achieve the Kyoto target whilst ensuring the proper functioning of the internal market and preventing distortions of competition that might arise from separate national emissions trading schemes. The European Parliament approved the plan at its first reading on 10 October 2002 but with a number of amendments. 381 MEPs voted in favour of the scheme but called for mandatory participation by Member States from 2005 and stated that countries should not be allowed to use credits earned from implementing Kyoto Protocol projects that involve carbon sinks or nuclear energy sources in the emission trading scheme.

Under the agreement at the Environment Council, the following measures would be introduced:

• The scheme will be introduced in two phases. The first will run from 2005 until 2007 and the second will cover the period 2008 to 2012 to coincide with the first Kyoto commitment period.

• Polluters from six industries - energy, steel, cement, glass, brick making, paper and cardboard - will able to buy and sell emission quotas from the start of 2005

• Member States will be able to apply to the European Commission for temporary exclusions of certain installations and activities until 31 December 2007 and unilateral additions of certain activities and gases from 2008

• Polluters from six industries - energy, steel, cement, glass, brick making, paper and cardboard - will able to buy and sell emission quotas from the start of 2005. These quotas will only focus on CO2 initially but from 2008 member states may apply to include non-CO2 greenhouse gases in national trading

• Member States will grant greenhouse gas emissions permits to operators in the relevant industrial sectors, which will create an obligation to hold emission allowances equal to the actual greenhouse gas emissions of those operators

• Individual companies will be able to emit more than foreseen on condition that they can find another company that has emitted less than allowed and is willing to sell its spare allowances. If companies exceed their allowances then sanctions will be imposed on them

Both the United Kingdom and Germany succeeded in securing certain opt-outs from the scheme. British industries will be exempt until 2008 as long as the British government can show that domestic regulation is capable of achieving the same reduction in CO2 emissions whilst certain German companies will escape the scheme until 2007 as long as they reduce emissions by other methods.

The European Commission welcomed the agreement calling it 'a landmark decision for combating climate change'. Margot Wallström, the European Commissioner responsible for the Environment said that establishing an emissions trading scheme in 2005 would give the EU time to prepare itself before the Kyoto period began in 2008 and has proved to the rest of the world that the EU is capable of creating the world's biggest emissions trading scheme.

The agreement is also expected to be welcomed by environmental groups. According to the BBC, the WWF - formerly the World Wildlife Fund - has praised the deal but the organisation's climate campaigner, Stephan Singer, maintained that there was still work to be done:

'WWF is quite pleased that half of the cap and trade directives is behind us. The other half is for the cap (on firms' emissions) to be set at the national level'.

Once the Council of Ministers has formally adopted the proposal then it will be passed to the European Parliament for its approval at the second reading. If the EU succeeds in establishing an emissions trading scheme by 2005 then it will prove to the rest of the world that the EU is prepared to meet its commitments on the environment. It might also encourage the United States - responsible for 25% of global greenhouse gases - to rethink its position on the Kyoto Protocol. The Bush administration currently refuses to sign the treaty, questioning its scientific basis and suggesting that it would do too much damage to the US economy.

Links:
Council of the European Union:
	10.12.02:	Environment Council, Brussels [PRES/02/379]
European Commission:
	10.12.02:	Commissioner Wallström: 'EU cannot rely on a few Member States to reach Kyoto target' [IP/02/1835]
	10.12.02:	Emissions Trading: EU Environment Commissioner Margot Wallström welcomes Council agreement as landmark decision for combating climate change[IP/02/1832]
	DG Environment: Emissions Trading
BBC News Online:
	09.12.02:	EU agrees pollution market
	09.12.02:	EU greenhouse deal sets example
European Sources Online: Financial Times:
	10.12.02:	Carbon emission trading agreed
	06.12.02:	Greenhouse gas trading all set to balloon
European Sources Online: In Focus
	Pollution: European Parliament to discuss European Commission's proposal for EU emissions trading scheme, October 2002
	Climate change negotiations: From Kyoto to Marrakech
European Sources Online: Topic Guides
	The Environmental Policy of the European Union

Helen Bower
Compiled: Wednesday, 11 December 2002

The first international scheme for the trading of greenhouse gas allowances could be in place in the European Union by 2005 following a unanimous agreement of EU environment ministers at a Council meeting on 9 December 2002.