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.
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.
- 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
- 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
- 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).
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