Key Notes

Climate change: Kyoto Protocol and trade emissions - Europe must take the lead

Background: Importance of the subject - European added value

Climate change is having an impact on the environment and the daily lives of numerous communities. World-wide, the 1990s were the warmest decade in over a century, as can be seen also from the summer temperatures in recent years in many European regions. Many European Union countries are no longer able to cope with the extreme weather conditions which are occurring with increasing frequency, such as heatwaves or floods, which have disastrous consequences in economic and human terms.

If nothing is done, by 2100 the average global temperature may have increased by 5.8°C and the sea level rise by 88 centimetres compared to 1990. The repercussions on the ecosystem and the economy would be unimaginable. It is therefore one of our greatest challenges today to counter such developments and the European Union has always been committed on this front: It believes that the Kyoto Protocol is of vital importance, being the main international framework within which to combat climate change.


I. What does the European Union do?

To combat climate change globally, the European Union is acting on various fronts. Particularly, the European Union has always supported the ratification of the Kyoto Protocol, which lays down binding limit values for greenhouse gas emissions in industrialised countries and provides for new implementing mechanisms based on the law of the market, such as trading in emission allowances, joint implementation and the 'Clean Development Mechanism'.

• The Kyoto Protocol commits the European Union to reducing its greenhouse gas emissions by eight per cent between 1990 and 2008-2012. The Kyoto Protocol was ratified by the European Union and its Member States on 31 May 2002 and it will enter into force once Russia has ratified, since it must be ratified by a number of industrialised countries representing 55% of the total volume of carbon dioxide emissions in 1990. Until now, 120 Parties have ratified the Kyoto Protocol representing more than 2/3 of the world's population.
• Joint Implementation (JI) and the Clean Development Mechanism (CDM) are mechanisms created by the Kyoto Protocol to enable governments to meet part of their greenhouse gas reduction commitments by developing emissions reduction projects in other countries

II. What has the EPP-ED Group achieved?

The proposal for a directive on emission allowance trading reached Parliament in 2002 and was adopted at second reading in July 2003. The rapporteur responsible for this dossier is Mr Moreira Da Silva, of the EPP-ED Group. It is an extremely important and highly technical draft law which stems from the European Union's obligation to reduce its greenhouse gas emissions and comply with the provisions of the Kyoto Protocol at a lower cost, by creating a European Union emissions market.

The emissions trading scheme will be implemented in 2005 and will involve thousands of firms with a high energy consumption (steelworks, electrical power stations, oil refineries, paper mills, glass factories, cement works, etc.) in an enlarged European Union. It will allow the European Union to reduce its costs by 35% in order to fulfil its commitments under the Kyoto Protocol. The Member States will allocate CO2 emission allowances to the firms concerned. Those companies which do not consume their entire allowance may sell their credits to those which are likely to pollute more. The latter may then exceed the allowance limit allocated to them by purchasing any extra allowances available on the market.

The first step to be taken before this mechanism can enter into force is therefore the establishment of the allowances to be allocated to each sector and each firm. The scheme will be implemented in two phases: 2005-2007 and 2008-2012. The Member States will allocate 95% of allowances free of charge for the first period and 90% for the second period. This means that initially up to 5% of allowances will be auctioned off, reaching a maximum of 10% in the second period. The Member States must now draw up national plans and submit them to the Commission by April 2004 at the latest. From 2005 all the installations concerned must hold a permit authorising them to emit greenhouse gases. The functioning of the mechanism at Community level can be monitored on the basis of the reports submitted to the competent authorities at the end of each year, and penalties imposed in the event of any infringement.

This mechanism will thus greatly encourage investment in innovation and in the use of clean technologies. Those who are able to produce by polluting less will be able to benefit economically by selling their unused allowances. In the medium term, these companies will be able to recoup the cost of their investments and will have lower production costs which, in turn, will make them more competitive on the market. However, those firms which do not have sufficient liquid assets to make the appropriate investments, may continue to produce by buying emission allowances and will have more time to bring themselves into line with market requirements. Consumer demand itself will, in time, move increasingly towards 'cleanly' produced goods and will encourage companies to produce more ecologically and economically. From 2008 the Member States will be able to extend the scheme to emissions of other greenhouse gases, such as methane, nitrous oxide and hydrofluorocarbons.


III. What are our goals for the future?

The EPP-ED Group considers the implementation of this emissions trading scheme in the EU to be the most appropriate action to take in this new carbon economy era in order to combat pollution and climate change. Having played a leading role in the management of this dossier in Parliament, the EPP-ED has always considered it essential that, first and foremost, the following four principles be complied with:

• European Union action to reduce greenhouse gas emissions should maintain a balance between the emissions trading scheme and other policies and measures, such as the promotion of renewable energies, energy efficiency, organic agriculture and public transport, as well as implementing energy and carbon dioxide taxes in transport and investing in research into new types of engines and fuels;
• emission reduction policies should cover all economic sectors across the board. It will thus be essential to develop and implement other legally binding Community instruments for other industrial sectors (e.g. the chemical and aluminium sectors), as well as for the service, agriculture and domestic sectors. One sector which should be included at a later stage is the transport sector (in which emissions are expected to increase by more than 50% over the next ten years);
• quantified reduction commitments and timetables should be linked to common coordinated policies and measures concerning climate change;
• environmental objectives included in the common coordinated policies on climate change should be achieved without distorting the internal market.

Emission allowance trading is therefore only part of the solution to reduce greenhouse gas emissions, but it is surely one of the most important, innovative and courageous measures that has so far been taken in the Community and the rest of the world. Once again, the European Union has shown that it is a forerunner in the fight against the decline of our planet and the guardian of the well-being of its citizens and of the environment in which they live.


Amarylli GERSONY, Adviser