UK undermining EU CO2 trading scheme


Five months ahead of the start of the UK Presidency, Prime Minister Tony Blair is being criticised for undermining the EU emissions trading scheme by allocating too many carbon dioxide pollution permits to industry.

UK Prime Minister Tony Blair has pledged to use the UK Presidency of the EU and the G8 meeting of the world’s most industrialised nations to push for “a breakthrough” on climate change. In particular, he referred to the EU emissions trading scheme as “a powerful driver” to cut CO2 emission “without damaging the economy”.

The UK National Allocation Plan for CO2 emissions is currently being re-assessed by the Commission after the government raised its allocations to industry by some 20 million tonnes in October last year. Threats of legal action by the UK are now causing a stand-off between the government and the Commission.

The EU ETS officially started on 1 January 2005 without the UK, Poland, Italy and Greece, but actual trading will only begin on 28 February.

A new report published on 7 January by the UK-based Institute for European Environmental Policy (IEEP) and the Green Alliance criticises the UK carbon allocation process in the framework of the EU emissions trading scheme (EU ETS).

According to the report, there is growing concern about how the EU ETS is implemented both at EU and at UK levels. “There was significant criticism of the way the UK developed its National Allocation Plan, particularly the decision to increase the number of allowances issued”, says the report.

Similar criticisms apply to most other EU countries which are widely seen as over-allocating. “The scheme will only achieve its aims if emission allocations are limited, and this may not happen, as member states have been given considerable leeway in allocating allowances”.
As a result, the report questions: “it is not clear whether a significant price for carbon will emerge”. Low carbon prices on the EU market would reduce incentives for industry to cut emissions.

The report makes a number of recommendations:

* A thorough review by the Commission of the first phase of the EU ETS (2005-2007).
* Strengthen the NAP process for phase two “to ensure that there is not the same degree of overallocation of permits”.
* Develop NAPs early for the second phase (2008-2012). The UK should use its Presidency to do that.