Industries doubt success of EU CO2 trading - study
Date: 13-Aug-04
Country: NETHERLANDS
Representatives of 204 European businesses said in the survey, carried out by Ernst & Young (ERNY.UL: Quote, Profile, Research) , that they were concerned about the lack of a robust and transparent EU regulatory framework and doubted the effectiveness of the scheme.
EU governments have outlined proposals to cut emissions of carbon dioxide under the trading scheme, which allows companies which exceed their CO2 limits to buy emissions permits - effectively the right to pollute - from firms which end up within their targets.
Permits can be traded, thus setting up a secondary market and offering a financial incentive to reduce pollution. Each EU member must agree its CO2 limits and how to allocate them between sectors, with ceilings set on a firm-by-firm basis.
"There is a strong degree of scepticism about the likely impact and effectiveness of the initial phase of the EU emissions trading scheme," Ernst&Young's study said.
"One consequence of the widespread scepticism and uncertainty ... is that many companies are currently under-prepared," it said.
Half of the businesses say they have dealt with the emissions trading for 2005 in detail, while nearly a quarter admit they have done little or nothing to prepare.
For investment to be encouraged and critical decisions to be made, survey respondents point to the need for much bigger regulatory certainty and clarity beyond the initial phase of trading in 2005-2007.
The EU has yet to work out a detailed plan for the second phase of emissions trading in 2008-2012. Initially, the scheme will cover only CO2 emissions and exclude transport and the aluminium industry.
The survey respondents, representing businesses from the seven EU countries with the biggest CO2 emissions, said they expected the carbon market to be illiquid with low prices.
Businesses say CO2 trading will have the greatest impact on the energy sector, particularly power generation, where companies would have to close down or replace existing plants with new ones to meet the EU targets.
The surveyed companies predicted that the launch of carbon trading would hike natural gas prices by around 20 percent over the next two to three years and raise wholesale electricity prices by 15 percent.
The EU scheme, the first international trading system for CO2 emissions in the world, involves some 12,000 installations or plants across the EU, including power stations, steel-makers and other energy-intensive industries.
