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Round-up: EU's new ETS law in detail
(18 Dec 08) After a week of political drama, the European parliament approved rules for the third phase of the EU ETS on Thursday, endorsing EU leaders' "final compromise" reached on 12 December. ENDS offers the following summary of key points in the finalised EU ETS directive:
- The number of emission allowances will be capped so as to deliver a 21 per cent cut in industrial emissions during the whole period 2013 to 2020 compared with 2005. The annual EU ETS emissions cap will fall linearly by 1.74 per cent each year. This factor will be reviewed by 2025.
- During the trading period EU allowances will increasingly have to be auctioned rather than being distributed free-of-charge.
- The power sector will have to buy 100 per cent of allowances from 2013.
- However Poland and some other eastern states have won concessions enabling certain power stations to get up to 70 per cent of allowances for free in 2013, declining to zero in 2020. Eligible plants will be those poorly integrated into the European electricity grid or those that individually provide more than 30 per cent of national electricity in countries with relatively low GDP.
- Outside the power sector, all participants will have to buy at least 20 per cent of allowances from 2013, rising to a minimum 70 per cent in 2020 (rather than 100 per cent as proposed by the Commission, "with a view to reaching" 100 per cent by 2027.
- Industrial sectors and sub-sectors considered at significant risk of carbon leakage based on criteria agreed by EU leaders will be eligible to receive up to 100 per cent of allowances free from 2013 until an international climate agreement is concluded, when the situation will have to be reviewed.
- Free allowances will be allocated on the basis of best-in-class technology benchmarks. The commission has estimated that more than 90 per cent of manufacturing emissions would qualify. Sectors exposed to carbon leakage are to be identified by end December 2009 by the commission, six months earlier than it first proposed.
- Eighty eight per cent of allowances to be auctioned each year will be distributed to member states according to their EU ETS sector's emissions in 2005 or the average of 2005-7, whichever is higher.
- Ten per cent will be distributed to poorer member states for "solidarity and growth", as proposed by the commission. Two per cent will be given to countries whose greenhouse gas emissions in 2005 were at least 20 per cent below their Kyoto base year emissions, i.e. ex-Communist countries.
- Half of all auctioning revenues should be used to finance climate mitigation and adaptation measures in Europe and the developing world, but without a binding commitment. This is a greater proportion than the commission proposed, but less than the parliament demanded.
- Half of EU ETS participants' emission reduction effort from 2008-20 may be covered by international carbon credits. There are no binding quality criteria for clean development mechanism (CDM) credits but buyers must report on their quality.
- In the event that the EU commits to a 30 per cent emission cut from 1990 to 2020 in the context of a new international climate agreement, half of the extra effort required by EU ETS installations may be covered by international credits, as the commission proposed.
- Up to 300m allowances in a new entrants reserve will be available until the end of 2015 to fund demonstration projects for commercial carbon capture and storage and of innovative renewable energy technologies. Plants fitted with CCS will be regarded as not emitting any greenhouse gases.
- The scope of the EU ETS will be expanded to bring in new sectors and gases as proposed by the commission.
- More smaller industrial installations will be excluded from the EU ETS under the compromise text than as per the commission's proposal - the threshold for exclusion has been raised from 10,000 tonnes CO2 emissions per year to 25,000.
- The commission must propose including shipping in the scheme from 2013 if there is no international climate agreement by the end of 2011.
- Allowances will be allocated centrally by the European commission, rather than by member states through national allocation plans (Naps).
Follow-up: European parliament, and full text of EU ETS directive as adopted by the European parliament on 17 December.
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