Pollution: European Parliament to discuss European Commission’s proposal for EU emissions trading scheme, October 2002

The European Parliament will hold its first reading on 10 October 2002 of the European Commission's proposed Directive aimed at establishing an EU framework for emissions trading and an EU-wide market for emissions.

The European Commission presented the proposal in October 2001 as part of a major package of initiatives to combat climate change. including a a proposal for the EU to ratify the Kyoto Protocol - an act which the EU completed on 1 June 2002. The European Commission believes that establishing an internal EU system for emissions trading offers the most cost-effective way to achieve the Kyoto target on greenhouse gas emissions whilst ensuring the proper functioning of the internal market and preventing distortions of competition that might arise from separate national emission trading schemes.

The main features of the European Commission's proposal are:

• Emissions trading in the EU should start in 2005

• A first phase should cover CO2 emissions from large industrial and energy activities

• In 2004 the European Commission will consider an extension of the Directive to other sectors and greenhouse gases

• Each installation covered by the Directive will have to apply to the competent authority in its Member State for a permit allowing it to emit greenhouse gases

• On the basis of the permits, Member States shall allocate emission allowances to each installation every year. Allowances will be reduced over time to ensure that emissions are reduced

• Emissions allowances will be traded, although no operator of an installation will be forced to trade

• By 31 March each year, the operator will have to surrender a number of allowances equal to the emissions of its installation in the preceding calendar year

• Harmonised penalties would be set to be paid by operators for not surrendering a sufficient number of allowances

• From 2005-2007, Member States shall allocate allowances free of charge according to a national allocation plan to be approved by the Commission. For the 2008-2012 period, the Commission shall specify a harmonised method of allocation at a later stage

• Member States will set up national registries to ensure the accurate accounting of the holding and transfer of allowances, and the Commission will designate a Central Administrator at Community level to keep an independent record of allowances

The Commission proposal has been examined in detail by the European Parliament's Economic and Monetary Affairs Committee. The rapporteur, Portuguese MEP Jorgue Moreira da Silva, is expected to broaden the scope of the proposal - suggesting that the emissions trading scheme should apply to other gases than just the carbon dioxide targeted in the Commission's proposal and that the scheme should be extended to other industries, including chemical and aluminium producers.

In addition, a proposal to allow British firms to opt out of the EU emissions trading scheme is also likely to debated by the European Parliament. The opt out would allow companies such as British Airways, Barclays Bank and Shell who all participate in the current UK scheme to continue trading emission 'credits' until 2006.

Although the European Parliament is expected to support the proposal, which will be put to environment ministers later in October, the European Commission is against the UK opt out. Despite having authorised the UK scheme in November 2001, it indicated that the scheme would need to be brought in line with any future EU wide trading scheme. Whilst the current UK trading system targets emissions at the point of consumption, the EU scheme would target those at the point of generation. The European Commission believes that if the two schemes run side by side then emissions may either be counted twice or not at all. It also fears that if the UK opt out is agreed, other countries might seek exemptions, which would undermine the system overall.

European Commission:
	23.10.01:	Press release: Commission approves UK emission trading scheme [IP/01/1465]
	Proposal for a Directive establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC [COM(2001) 581]
	DG Environment: Emissions Trading
	Secretariat General: Prelex: Progress of COM(2001)581 through decision-making process
European Parliament:
	Report on the proposal for a Directive establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC [A5-0303/2002]
Climate Action Network Europe:
	Homepage
	Emissions Trading in the EU
Centre for European Policy Studies:
	Homepage
	Greenhouse gas emissions trading in Europe: Conditions for environmental credibility and economic efficiency [October 2002]
European Sources Online: Financial Times:
	10.10.02:	Britain may be able to opt out of EU gas emissions trading scheme
European Sources Online: Financial Times:
	24.10.01:	EU to start emissions trading scheme in 2005
European Sources Online: Topic Guides:
	The Environmental Policy of the European Union

Helen Bower
Compiled: Thursday, 10 October 2002

The European Parliament will hold its first reading on 10 October 2002 of the European Commission's proposed Directive aimed at establishing an EU framework for emissions trading and an EU-wide market for emissions.