First step for EU emissions trading

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Europe-wide trade in CO2 emissions could be a reality by 2005 following the European Commission's announcement last month that it is to propose a trading directive in the second half of the year. The directive is to be negotiated and adopted in the 15 member states during 2002 and 2003, and will be implemented in 2004 and ready for the first year's trade in 2005.

According to Peter Vis, the European Commission's principal administrator on climate change, the scheme will distinguish between emissions permits, which will be site specific and non-transferable, and emissions allowances, which will be fully transferable across the EU. The commission will determine how and for what value the member states allocate allowances. At the end of each year actual emissions will have to be covered by allowances and companies without sufficient allowances to cover their actual emissions will be fined per tonne of excess CO2 by the member state and will be expected to make up the short fall.

The Commission is pushing for an early start to European emissions trading in the belief that "learning by doing" is the best way to prepare for the start of international emissions trading in 2008, as specified in the Kyoto protocol. Under the protocol, Europe will have to reduce total green house gas emissions by 8% on 1990 levels.

With electricity and heat production accounting for 30% of Europe's CO2 emissions, while CO2 itself accounts for 80% of the EU's greenhouse gas emissions, the scheme will initially target this sector but will eventually be extended to cover other sectors and all greenhouse gasses. "A lot of schemes are being nurtured in several countries at present and some are waiting to see what the EU plans to do," says Vis. At present, Denmark is the only countrywith an emissions allowance trade, while Britain and the Netherlands are also looking to set up national schemes before 2005.

One of the so-called flexible mechanisms included in the Kyoto protocol, emissions trading does not reduce emissions, but provides incentives to find the lowest cost of achieving a given amount of emissions reductions. Thus the various national systems must be compatible; the implementation of the EU system will ensure a single price for CO2 across Europe, says Vis. He was speaking at a recent Emission and Green Certificates Trading Conference.

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