Ministers eye emissions scheme overhaul

European environment ministers will call for wide-ranging changes to the EU’s flagship emissions trading scheme (ETS) next Thursday (28 June).

Changes recommended will include setting long-term carbon dioxide (CO2) emission reduction targets, forcing member states to auction off a minimum number of emission permit and changing the way in which permits are shared between companies.

The current trading system has seen major polluting industries buy and sell permits to emit carbon dioxide since 1 January 2005. It has been heavily criticised by industry groups, who say investors are being forced out of the EU through a lack of long-term certainty over emission reduction plans. Many companies have also complained that the current ‘grandfathering’ system, under which permits are shared among companies based on their historical emissions, means that the cleanest businesses lose out.

But environmentalists say that companies should be made to bid for emission permits, instead of being given them for free at the start of each trading period. The ETS today allows countries to auction up to 10% of their permit allocations but none has opted to do so.

The European Commission is scheduled to publish a summary of its four-month review process after the summer, with a proposed directive to update the ETS due in December.

Draft Council of Ministers conclusions ask the European Commission to consider "a minimum rate of auctioning…[or] a mandatory and increased percentage of auctioning…a long-term path for the overall reduction of greenhouse gases," and an assessment of alternatives to grandfathering, based on performance benchmarks. They also call for the EU’s ETS to be linked with international trading schemes, such as those in Canada and California.

A Commission environment spokeswoman said it was too early to comment on the final proposals for a directive. But environmentalists said the draft conclusions suggested governments are moving in the right direction.

"The Council conclusions should give direction to the Commission, almost all the key issues are here," said Mahi Sideridou of Greenpeace. "The only thing missing is how we can set an EU-wide emissions cap without an international emissions reduction target."

Governments in March agreed that the EU would aim to cut CO2 emissions by 30% by 2020 only if other rich countries sign up to binding targets. Without international backing, the EU target will be 20%.

Peter Botschek, director of energy policy at chemicals company representatives Cefic, said that his group would welcome a move away from grandfathering. But he warned that auctioning could only be the best allocation method if applied globally: "As long as this is limited to the EU, auctioning represents an unpredictable upfront payment for industry."

The December ETS directive could be published as part of a package of energy proposals, although Commission officials say no final decision has yet been taken. Other proposals in the package would include a renewable energy directive, a ‘burden-sharing’ agreement to divide the 2020 greenhouse gas emission reduction targets between 27 member states, and measures to protect the competitiveness of European energy-intensive industries.

• EU member states are still a long way from meeting their Kyoto Protocol commitments, according to the latest statistics on greenhouse gas emissions.

The annual report from the European Environment Agency (EEA) shows that, in 2005, greenhouse gas emissions in the 15 ‘old’ EU member states had fallen just 2% since the base year (1990 for most countries and gases). The EU15 have committed themselves to reducing emissions by 8% by 2012.

Emissions for the 15 countries fell 0.8% between 2004 and 2005: the first recorded decrease since 2001. The EEA says that this fall is largely due to an unusually mild winter and to significant reductions of emissions in Germany, Finland and the Netherlands.

Successful reduction measures in these three countries include a decreased use of coal for domestic electricity production - either through a switch to gas or an increase in imports - and the increased use of diesel cars in Germany. Overall, road transport emissions fell by 0.8%.

But Spain, Austria, Greece, Ireland, Italy and Portugal all saw emissions rise between 2004 and 2005.

Finland and France have already met their Kyoto commitments, whilst Germany, Greece and the UK are close to doing so.

Together, the 27 member states have seen emissions fall by 7.9% since the base year. But the 12 countries that joined the EU since 2004 do not have binding Kyoto emission reduction targets.

European environment ministers will call for wide-ranging changes to the EU’s flagship emissions trading scheme (ETS) next Thursday (28 June).