10.3: Kyoto compliance

(I) The EU's commitment

In 1997 the EU15 signed up to the Kyoto Protocol on the UN Framework Convention on Climate Change (UNFCCC). It agreed to cut Greenhouse Gas (GHG) emissions, of which carbon dioxide emissions are one of the most significant, by 8% by the 5-year commitment period 2008-2012 (taking annual average emissions over this period) compared with the base year 1990. The target is very ambitious & reflects the EU's position as one of the leading supporters of the Kyoto Protocol.

Under the "burden sharing" scheme of 2002, different member states were allocated different emissions targets. Germany, for example, agreed to a cut of 21% (possible because of the collapse of much of east Germany's industry) and the UK agreed to a cut of 12.5%. Spain, on the other hand, was permitted an increase of 15% and Greece an increase of 25%. On enlargement (2004), the new member states took different approaches. Six of the new states (including the Czech Republic) adopted a cut of 8% as their target, but Hungary and Poland have a target of -6% and Cyprus and Malta have no target. The table below shows the targets.

Data from 2004 (shown in the table below) indicate that, of the EU15, only France, Germany, Sweden and the UK were on track to meet their commitments under the burden sharing agreement. The other 11 were not: Ireland, Portugal and Spain by more than 20%; Spain by more than 30%. Seven of the 8 new countries are well within target - the exception was Slovenia. The EU15, as a whole, were well off target.

Greenhouse gas emissions in CO2-equivalents and Kyoto Protocol targets for the target years (2008-2012) +

+ Excluding "land use, land use change and forestry" (LULUCF) emissions and removals.

++ EU15, the burden sharing target.

The Distance to Target Indicator (DTI) shows the deviation between the hypothetical target in 2002 and the actual in 2002, on the assumption that reductions as a % of base year (1990) levels take place on a linear basis.

Source: Report Catching up with Community's Kyoto target under Decision 280/2004/EC of the European Parliament and of the Council concerning a mechanism for monitoring Community greenhouse gas emissions and for implementing the Kyoto Protocol COM (2004) 818 final, 20 December 2004.

(II) The Emissions Trading Scheme (ETS)

As part of the Kyoto process, EU environment ministers set up the Emissions Trading Scheme (ETS) which is a market to trade pollution permits for CO₂, the main "greenhouse" gas. The scheme caps the amount of CO₂ that certain industries can produce and allows companies to trade emissions rights within the EU. (In other words, the ETS is a "Cap and Trade" scheme.)

For example, firms that exceed their emissions limits can buy extra "allowances" from firms whose emissions are under target levels. In this context, "allowance" means the entitlement to emit a tonne of carbon dioxide or an amount of any other greenhouse gas with an equivalent global warming potential during a specified period.

The ETS began operating in January 2005. The first trading period ("phase") runs from 2005 to 2007, followed by a second phase that will run from 2008 to 2012. Further 5-year trading periods are expected subsequently. The ETS works on a "Cap and Trade" basis and is currently restricted to carbon dioxide emissions.

Under the ETS, Member States have to compile a National Allocation Plan (NAP) for each trading period. They have to decide a "cap" for total emissions allowances and then allocate the capped total (as permits) to selected individual plants and other "installations" according to predetermined criteria. The recipients of the permits can use their allowances for their own carbon dioxide emissions, sell their surplus allowances to others if they have any or, if they run short, buy the necessary allowances from others through the EU-wide market.

Emissions Trading Schemes can work successfully but the EU's ETS has attracted much criticism. The main problem concerns the allocation of emissions permits by Member States for 2005 to 2007. National Governments were, apparently, left to choose their own targets, with few restrictions from the Commission. The UK set stringent targets, whilst most of the other Member States, including Germany, did not. OpenEurope¹ calculated that UK firms paid nearly £½bn for extra permits from business rivals in other Member States in 2005, whilst German firms received nearly £300m. In addition, some British firms, especially electricity generating companies, reduced their emissions and hence output because they were short of permits. Inevitably this led to higher electricity prices in the UK.

There are other problems as well. According to OpenEurope member states handed out free permits for nearly 1,830m tonnes for 2005, whilst emissions were only 1,785m tonnes. The scheme, therefore, was not reducing emissions at all. When it was realised in April 2006 that many member states, especially Germany, had set over-loose targets the secondary market for emissions permits crashed.

Planning for the second trading period (2008 to 2012) is well under way. The EU claims that it will be tougher and fairer than the first. But the omens do not look encouraging. The UK Government has already submitted its plans with a tough 3% reduction target for carbon emissions. Germany's proposed plans are altogether less stringent.

Reference

1. OpenEurope, The high price of hot air: why the EU Emissions Trading Scheme is an environmental and economic failure, July 2006.

RL, February 2007