Tackling climate change through the EU ETS

The rest of the climate change package was voted through the Parliament's Environment Committee yesterday in what was referred to in the press as "Super Tuesday".

The Environment Committee backed the rest of the Commission's climate change proposals in a series of votes on three separate reports:
(1) reviewing and updating the EU emissions trading scheme (ETS),
(2) effort sharing among the member states to meet the EU’s greenhouse gas reduction commitment in sectors not covered by the EU ETS (such as transport, buildings, services, smaller industrial installations, agriculture and waste) and agriculture and waste) with specific, binding national targets
(3) stimulating the uptake of CO2 carbon capture and storage.

EU Emissions Trading Scheme
The EU ETS was launched in January 2005 as a "cap and trade" system: it caps the overall level of emissions allowed but, within that limit, allows participants to buy and sell allowances as they require in order to cut emissions cost-effectively. It currently covers over 10,000 installations in the energy and industrial sectors

The report, drafted by the Irish Fianna Gael MEP Avril Doyle, was adopted by 44 votes in favour, 20 against and one abstention.

The Committee endorsed the Commission's plans to cut greenhouse gas emissions by 20% by 2020 and by 30% if a new international agreement is reached at the UN Climate Change conference in Copenhagen in December 2009. The SNP fully supports the EU’s sustainable energy targets though if anything we believe the EU should be more ambitious given the Scottish Government’s target for cutting greenhouse gas reductions by 80% by 2050.

Key amendments adopted include:
The power sector should be obliged to obtain 100% of CO2 permits at auction after 2013.

Energy-intensive industries should be required to obtain 15% of emissions permits at auction in 2013, with a gradual phase-in towards 100% auctioning by 2020 (a 5% decrease compared to the Commission's initial proposal for a 20% auctioning requirement). Sectors eligible for 100% free emissions allowances should be identified only after the conclusion of international climate talks in Copenhagen in December 2009.

500 million spare emissions allowances, normally reserved for new entrants into the EU ETS scheme, should be made available as an incentive/financing measure for large-scale commercial carbon capture and storage (CCS) demonstration plants.

The Commission should ensure that contracts for the construction of 12 large-scale demonstration plants are let before the UN meeting in Copenhagen in December 2009.

The threshold for installations affected by the EU ETS should be raised from 10,000 to 25,000 tonnes of annual CO2 emissions.

100% of Member States' auction revenues should be set aside or 'ring fenced' for climate-related purposes, whereby half of the money should be earmarked for developing countries. The remaining auction revenues would be used to fund clean energy technologies and other climate change-related investments inside the EU, thereby helping Member States to adapt to climate change or to fund research and development.

Installations should be able to achieve at least 40% of their targets through the financing of emissions reductions projects in developing countries under the Kyoto Protocol's Joint Implementation and Clean Development Mechanisms (JI/CDM), but stricter rules on the validity of CDM projects would need to be respected.

Support for the extension of the scope of the current ETS (which covers for example power stations, oil refineries and factories making cement, glass, lime, bricks, ceramics, and pulp) to include new industries (e.g. aluminium and ammonia producers and petrochemicals) and two further gases (nitrous oxide and perfluorocarbons).

Up to 5% of emissions reductions could be obtained through the preservation of forests in developing countries under the condition that an international climate deal is in place.

This report ran into all sorts of difficulties with the EPP group (European People’s Party – comprises the Christian Democrats and the Tories) split over the issue of companies having to buy permits to pollute from 2013. There was a lot of pressure from the industry lobby concerning the Commission’s proposals which were being endorsed in the draft Doyle report with concerns raised by the German and Polish delegations of the need to support giving companies “free allowances” in the ETS – the argument being that this was necessary to protect them from competition by producers operating in countries where pollution is cheaper. I was glad to see in the end that the Environment Committee rejected attempts to water down the ETS. If we are to be serious about tackling climate change then Europe needs to lead by example in ensuring there is as strong a scheme as possible.

There were also questions over what should happen with auction revenues. The Commission’s position, which was supported by the rapporteur, Avril Doyle, is that these revenues should be invested back into the national coffers of the member states. While our group supported proposals to keep 50% of revenues from auctioning in a dedicated fund to reduce greenhouse gas emissions, including helping the least developed countries mitigate and adapt to climate change, we also backed the earmarking of the other revenues for investing in climate change measures such as promoting renewable energy technologies.

With the French Presidency determined to get an agreement on the whole climate change package under its watch, it means intensive negotiations on the Parliament's side to ensure as much of the Parliament's position as possible remains intact and that will all depend on what happens during the debate and vote in Strasbourg later in December.