EU Kyoto linking directive agreed

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The council of ministers and European parliament have agreed on a text for the EU Kyoto linking directive. The law will set out ground rules for purchases of foreign emission credits by firms in the EU greenhouse gas trading scheme. The following is a summary of the outcome on the six outstanding issues:

CAP ON CREDITS

Under the deal, member states remain free to decide whether and how to limit the number of credits firms can buy abroad by investing in the Kyoto protocol’s so-called project-based mechanisms: joint implementation (JI) and clean development (CDM).

But governments will be required to report on how firms’ activities affect national commitments to ensure the mechanisms are used only to supplement domestic action. The Commission is also given room to introduce legislation preserving the supplementary principle at EU level if it feels this is warranted.

SINKS

Firms will not be allowed to use credits from land-use projects such as reforestation to meet their emission targets. But a complicated caveat appears to leave open the possibility of using these credits from 2008 if scientific uncertainties surrounding sinks can be lifted. This would be decided in a review of the directive due in 2006.

DAMS

Credits from investment in hydropower projects would be allowed, on the condition that the projects “respect” criteria drawn up by the World commission on dams. This nuanced wording is slightly weaker than the text wanted by the parliament.

NUCLEAR

As agreed internationally in the Kyoto talks, nuclear energy projects will not qualify for JI or CDM credits during the 2008-12 compliance period. The parliament wanted to strengthen this in the linking directive by excluding nuclear credits from the EU trading scheme even if they are allowed under Kyoto post-2012. But MEPs failed to have this agreed in the compromise text.

DOMESTIC PROJECTS

Some member states wanted to allow firms covered by the trading scheme to gain credits by investing in emission-reduction projects at home, in areas such as transport. The parliament was against this. Under the compromise, such domestic project credits are excluded for now but the issue will be included in the 2006 review.

REGIONAL TRADING SCHEMES ABROAD

The parliament wanted an explicit mechanism for firms in regional trading schemes in places like Australia and the US to buy EU market credits, even if their national governments have not ratified Kyoto. The possibility of a link remains in the deal, but only after the protocol enters force, and in a less politically provocative wording.

The deal, which was penned by rapporteur MEP Alex de Roo and council officials, was approved by a committee of senior member state diplomats on Wednesday afternoon. The European parliament will approve the package at its first reading in Strasbourg later this month; ministers will then rubber stamp the deal, allowing the law to enter force before the


summer, well in advance of the first trading day in January 2005.