Dimas learns carbon-trading lessons

Bulgaria, Portugal and Romania will next month become the last three EU countries to have their proposals for carbon dioxide (CO2) emissions trading assessed by the European Commission. All three countries are expected to be asked to make changes to their national allocation plans (NAPs) before trading begins on 1 January 2008.

The deadline for submitting a proposal was 1 January this year for Romania and Bulgaria, and 30 June 2006 for all other member states. Only Estonia met the deadline.

Twenty of the 24 member states whose NAPs have already been assessed were told to reduce their proposed CO2 carbon trading permits for 2008-12. Only Denmark, France, Slovenia and the UK had their CO2 caps approved.

The exact timing of the NAPs announcements has not yet been finalised. Portugal is likely to hear a decision in the first two weeks of October, with Romania and Bulgaria waiting until later in the month.

The EU’s emissions trading scheme (ETS) divides permits for greenhouse gas emissions between more than 10,000 heavy industry installations in the sectors responsible for about half of all emissions in the Union. These include oil refineries, paper, glass and cement production.

Each permit is worth one tonne of CO2 equivalent. The first round of emissions trading began on 1 January 2005 and runs until the end of this year.

Stavros Dimas, the environment commissioner, said that the Commission had learnt its lesson from the 2005-07 round of emissions trading. Over-allocation of emissions permits over this period led to a market crash in April.

"Our decisions on second round trading will create the necessary scarcity to keep prices at a reasonable high," said Dimas. "The 24 NAP decisions already published will mean a major reduction in greenhouse gas emissions: 6.5% below 2005 levels.

"This will make sure countries invest in the long-term technologies needed to reduce future emissions," said the commissioner.

The cuts in proposed 2008-12 permits demanded by the Commission range from 0.3% for Spain (from a proposed 152.7 million tonnes per year to 152.3m tonnes/year), to 55.5% for Latvia (from a proposed 7.7m tonnes/year to 3.43m tonnes/year).

Even the four countries that had their caps approved were asked to make minor changes to their NAPs.

Slovenia and Denmark must reduce the number of emissions permits that companies are allowed to buy from other countries. France will have to provide more technical information on the treatment of new entrants to the trading scheme and the UK has to amend its plan to cover Gibraltar.

Environmentalists have welcomed Dimas’s tough line on the second round of NAPs, which has helped trading prices rise to more than €20 this month.

Delia Villagrasa of WWF, the conservation group, said that she hoped a series of legal challenges launched by member states would not intimidate the Commission into taking a softer approach for the last three naps. Latvia, Estonia, Hungary, Slovakia, Poland and the Czech Republic have started legal action against the Commission’s decisions on their NAPS, which they say ignore the energy situation in many eastern European countries.

Villagrasa also warned that even the NAPs accepted by member states could fail to make a dent in emissions, if installations buy their CO2 permits from emission-reduction projects in poor countries. These ‘clean development mechanisms’ (CDMs) allow industrialised countries to pay for emission reductions in the developing world, rather than cutting domestic levels of CO2.

"Countries with CDM projects do not have greenhouse gas emission caps," said Villagrasa. "This means that, if EU countries make all their emission reductions through CDMs, global emissions could actually go up."

A spokeswoman for Dimas said that the Commission was working to ensure that the use of CDMs is not abused, as part of an ETS review, to be presented on 5 December.

Bulgaria, Portugal and Romania will next month become the last three EU countries to have their proposals for carbon dioxide (CO2) emissions trading assessed by the European Commission. All three countries are expected to be asked to make changes to their national allocation plans (NAPs) before trading begins on 1 January 2008.