Europe getting ready to trade emissions. A multi billion Euro market within a few years

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To reduce the use of greenhouse gasses and prevent climate change, the European Union is moving into the final phase before starting the world’s first multinational emissions trading scheme, by 1 January 2005.

This month, before 31 March, the national administrations must present to the European Commission allocation plans setting the details of how to operate the new system. But so far not one single plan is ready, the Commission has admitted. Only a few countries such as Ireland, Denmark and the UK are believed to be up to the task, while Spain and Italy are reported to have severe difficulties in getting ready.

The ambitious EU scheme is the first multinational emissions trading scheme in the world and is considered a forerunner to the international emissions trading scheme under the Kyoto Protocol climate change treaty. Some 12,000 European steel factories, power plants, oil refineries, paper mills, glass and cement installations will be under the new scheme and offered free emission quotas.

If they want to increase emissions above this level, they are forced to buy extra quotas from other companies. It is hoped this will reduce the total use of greenhouse gasses and motivate companies to develop and install modern technology.

The Commission admits that the current situation within member states is tense as companies try to get the biggest quotas possible for free. If member states hand out too much, they risk having no quotas left for other sectors such as transport and private consumption, which might join the emissions trading scheme later on.

Countries also risk not having room for new production and being accused of state subsidies if they give too much away to their national industries.

The emissions trade market in Europe is expected to be a multibillion euro market within a few years. The Commission has estimated that one tonne of Carbon dioxide emissions will be traded between five and 35 euro. The market will set the exact price, very much as in share or currency trading. All deals are to be registered in a central database.

The Commission is still confident that the trading scheme will be implemented in due time and the Brussels authority is ready to clamp down immediately on member states who don’t get their national allocation plans ready by the end of this month.

The emissions trading scheme will account for about a third of total greenhouse gas emissions and close to half of the most important greenhouse gas, carbon dioxide. Other sectors, such as aluminium producers, chemicals industry, aviation and the transport sector are expected to be brought in later.

Kyoto commitments

The directive committing member states to emissions trading was adopted in July 2003. It will help the EU to live up to its commitments under the United Nations Climate Change protocol, the Kyoto Protocol. But the EU’s emissions trading scheme will take effect whether the international


climate protocol enters into force or not. The ten new EU member states are also to be part of the new scheme and must hand in their allocations plans by 1 May, when they become members of the European Union.

Relatively big quotas will be available for the Eastern European countries because the base year used for allocation of quotas to member states was
1990 and at that time most Eastern European industries were producing according to low Soviet environmental standards. The European Union has committed itself to reduce the greenhouse gas emissions under the Kyoto Protocol. In 2012, the emissions must be eight percent lower than in 1990.

The European emissions trade scheme is modelled after an American model: the American Clean Air Act Amendments of 1990, which established a sulphur dioxide cap-and-trade system in the US.