Published online 30 January 2008 | Nature 451, 504-505 (2008) | doi:10.1038/451504a

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Europe spells out action plan for emissions targets

Heavy industry set to pay for allowances under carbon-trading scheme.

Power plants in Europe will no longer receive free allowances for their greenhouse-gas emissions.Power plants in Europe will no longer receive free allowances for their greenhouse-gas emissions.TRAVELPIX/GETTY

Power stations in Europe will have to pay for permits to release carbon dioxide as soon as 2013, the European Commission announced last week. But although heavy industries will be included in the European Union's emissions trading scheme (ETS), the commission stopped short of making sectors such as steel and paper pay for their permits.

“Finally, we move from targets to tools.”


Commission president José Manuel Barroso proposed a package of market-based and regulatory measures to the European Parliament and Council of Ministers in Brussels on 23 January. He says that the package will bolster the European Union's leading role in tackling climate change and secure its future energy supply. If approved, the proposals could become law in the European Union's 27 member states as soon as 2009.

“This is a strong proposal — stronger than I would have expected — and a very positive step forward in terms of climate protection,” says Michael Grubb, a specialist on climate-change policy at Imperial College London.

The details of the plan for how to cut greenhouse-gas emissions across the European Union by at least 20% by 2020 were hotly contested in Brussels. At the plan's core is an amendment of the ETS, first introduced in 2005, which has so far failed to facilitate a shift to low-carbon technologies. To give the ETS some teeth, the commission proposes a sweeping reform: most importantly, that power plants and energy-intensive industries will no longer receive a generous allocation of emissions 'allowances' free of charge. Instead, they will have to buy all allowances at auctions organized by the member states. Heavy industries that face strong international competition, including steel, aluminium, concrete and paper, will still get free allowances — although a consultation in 2011 will review this exemption.

Under current rules, which will remain valid until 2012, the 10,000 or so facilities that participate in the ETS get free emissions allowances from national packages that governments negotiate for every year. If a plant emits in excess of its free allocation, though, it must buy additional allowances on the emissions market. An allowance to emit one extra tonne of CO2 in the 2008–12 trade period last week cost around €21 (US$31) on Europe's carbon-future markets.

SOURCE: EUROPEAN COMMISSION
SOURCE: EUROPEAN COMMISSION

Because national governments have in the past tended to over-allocate free allowances, the commission suggests doing away with national allocation plans and introducing instead a single cap throughout the European Union that is based on historic emissions and expected trends. “Centralizing the allocation of emissions rights may prove the most contentious point in the proposals,” Grubb says. “But I think there is limited [room for] manoeuvre for the member states to unpick these proposals — they are in a weak position, given how they have behaved in the past.”

In addition, the overall number of emissions allowances will be substantially reduced during the third trading phase, which starts in 2013. The commission suggests putting 1,974 million tonnes of tradable emissions allowances on the market in 2013, compared with 2,080 million tonnes today, and then reducing this yearly to 1,720 million tonnes by 2020. This would mean that emissions by all participants in the ETS — which account for around half of the European Union's total CO2 emissions — would be reduced by 21% relative to 2005. The price of emissions allowances is expected to rise as they become scarcer, making it increasingly profitable for plant owners to switch to cleaner fuels, or to invest in clean-energy technologies such as carbon capture and storage.

The commission's proposals got cross-party support in the European Parliament last week, even though the cost of the package is estimated at €90 billion or 0.6% of gross domestic product in 2020. “There is a cost, but it is manageable,” Barroso told parliament. “Implementing the package will cost €3 per week per EU citizen. Inaction will cost them €50–60 per week.” The commission estimates that “by 2020 a household's overall energy bill would rise by an average of €150 per year”.

“Finally, we move from targets to tools,” says Lena Ek, a Swedish member of the Liberal Democrat party. British parliamentarian Graham Watson called the package “the most important act of the Barroso commission so far”.

Auctioning emissions allowances could generate state revenues of up to €50 billion per year. At present, roughly the same sum is tantamount to a windfall profit for the power industry, which has passed on to consumers the 'costs' of emissions trading. The commission has not specified how member states should use the extra money, but does suggest that climate and energy research should benefit.

“Energy research and development in the European Union is shamefully low,” says Ottmar Edenhofer, an economist at the Potsdam Institute of Climate Impact Research in Germany. “The proposed scheme will increase pressure on industry to develop low-emissions technologies. The revenues from auctioning emissions rights should be channelled into research and innovation.”

The emissions market is volatile and has reacted nervously to political interference in the past, but experts say that the scheme will benefit from the amendments. “Industry, banks and investors need planning reliability,” says Stefan Kleeberg, a carbon-market analyst with the 3C group near Frankfurt, Germany. “Knowing the post-2012 trading rules early will stabilize the market and will ultimately make it more efficient.” Realistically, a price of €24–30 per tonne of CO2 can be expected at auctions, he says.

Other proposals include sectors not covered by the ETS, such as transport, agriculture and buildings, which will on average have to reduce emissions by merely 10% of 2005 levels by 2020. Wealthier member states will need to cut more emissions than poorer countries.

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In addition, the overall share of renewable energy in the European Union's final energy consumption is to increase from 8.5% to 20%, with specific targets for each member state. Countries that fail to deliver the legally binding target might face financial penalties.

The commission also calls for a 10% biofuel component in vehicle fuel by 2020. As excessive production of raw materials for biofuels has sparked serious environmental concerns, it will outline stringent sustainability criteria for their use. 

See Editorial, page 499 .

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