Emissions trading

"Climate change is the gravest challenge facing mankind and emissions trading is the most effective policy instrument for tackling it." Presenting plans to review the EU emissions trading scheme (ETS) last November, European Environment Commissioner Stavros Dimas had no doubt about the importance of his plans.

Emissions trading rolled into action on 1 January 2005. It allows companies to buy and sell permits to emit carbon dioxide (CO2), the greenhouse gas most often linked to global warming.

The ETS affects more than 12,000 industrial installations across the EU member states, which together are responsible for almost half of European CO2 emissions. Electricity, oil and steel companies are among those trading under the scheme.

The first trading period ends on 31 December this year, and will be followed by a slightly longer trading period from 2008-12. The review will cover post-2012 trading.

The communication presented by Dimas before Christmas will be followed in October by proposals for legislation. The review is set to tackle problems that have emerged since trading began two years ago.

These include the length of the trading period, which critics say is too short to allow for proper planning and investment. The Commission will also consider extending trading both to other gases, such as methane from coal mines, and to new industry sectors.

Industry could also be asked to bid for more permits under third round trading. Under the existing scheme only about 3% of permits are auctioned off, with the rest handed out free of charge at the start of the year.

But top of the list is the problem of over-allocation. Government quotas on the number of trading permits up for grabs in the first round were accused of almost derailing the ETS last year when it emerged that there were more permits than emissions.

Dimas has made it clear the Commission will not let this happen again. Twelve national allocation plan (NAP) proposals for emission permits in the second round have so far been assessed in Brussels. They have all been sent back to governments with a request for changes.

Dimas has declared there is no room for negotiation. "We all agree it’s better to have individual unhappiness than collective unhappiness by weakening the ETS," he told environment ministers in December.

It remains to be seen whether or not governments will listen. But the Commission has won praise in green quarters for being tougher than the previous Brussels administration, which was widely criticised for approving generous emission permit quotas.

In part this change reflects the increasing importance of climate change in EU politics. Politicians are as keen today to talk about reducing CO2 emissions and halting global warming as they were five years ago to discuss protecting jobs and combating terrorism.

But Dimas’s unconventional background for an environment official has also served him well. Years spent working in Greece’s trade, industry and economics departments mean he is well placed to make the most of the ETS.

"He understands the objective of emissions trading is to create scarcity on the market," explains Mahi Sideridou of environmental group Greenpeace. "That hasn’t always been the case in the Commission. The NAP decisions could have gone further, but on the whole Dimas seems to understand why we need emissions trading."

Now he just has to get the rest of the European Union on his side.

"Climate change is the gravest challenge facing mankind and emissions trading is the most effective policy instrument for tackling it." Presenting plans to review the EU emissions trading scheme (ETS) last November, European Environment Commissioner Stavros Dimas had no doubt about the importance of his plans.

• Primary Source