Agreement reached on emissions trading scheme

The Environment Council has reached a unanimous political agreement on the European Commission’s proposed greenhouse gas (GHG) emissions trading directive.

The original proposal was published in October 2001, but further talks have taken place to reach final agreement on the scheme and several amendments have been introduced.

The main elements of the political agreement are similar to the Commission’s original proposal:

• that the scheme would begin in 2005 and would apply to all activities listed in Annex I of the proposal, including large power stations and refineries, and large factories that produce steel, cement, glass, ceramics and paper;

• operators of such plants would have to hold GHG emission permits and would be allowed to emit these gases up to a fixed allowance;

• the total amount of allowances and how these would be allocated is to be determined separately by each member state, but would be subject to the Commission’s approval; and

• emitting in excess of this allowance would incur a fine of €40/t of carbon dioxide equivalent before 2007 and €100/t from 2008.

The most notable of the amendments put forward by the Council is one relating to the controversial issue of how permits will be allocated. The Commission had originally proposed that the allowances should be allocated free of charge, known as grandfathering, in the first period, but that another method of allocation, possibly auctioning, would be used in the second.

However, the Council’s political agreement suggests a fixed method of allocation of at least 90% grandfathering in the second period, which means that each member state could auction up to 10% of allowances if it so wished.

Some NGOs have argued for a higher proportion of the allowances to be auctioned, in accordance with the polluter pays principle.

Other new articles, which are crucial to its acceptance by member states such as Germany and the UK, allow for the temporary exclusion until 2007 of certain activities and the pooling of plants, so that all the operations of a single company, or even sector, can trade as one.

The former clause should enable the UK and Germany to carry out their own policies in this area, so the UK scheme should now continue in its current form until 2007.

The agreement has been welcomed across the board. EU Environment Commissioner Margot Wallström hailed the agreement as a “landmark decision”, and NGOs and industry lobbyists also welcomed the agreement.

The proposal will now return to the Parliament for its second reading, which is expected to be a relatively smooth ride after the compromises agreed by ministers.

Further information

Proposal for a Directive of the European Parliament and of the Council establishing a framework for greenhouse gas emissions trading within the European Community and amending Council Directive 96/61/EC, COM(2001)581, available from: http://europa.eu.int/eur-lex/en/#

Environment Council Agreement available from: http://register.consilium.eu.int/

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