FACTBOX - Europe's CO2 Emissions Trading Scheme
Date: 28-Nov-05
Country: EUROPE
Under Kyoto, Europe is committed to an overall reduction in greenhouse gas emissions of eight percent from 1990 levels by 2008-2012. Europe sees emissions trading as the most cost-effective way to meet those goals.
WHICH INDUSTRIES ARE COVERED?
The scheme sets limits on CO2 emissions from about 12,000 industrial plants and power stations. Sectors covered include power generation, steel-makers and other energy-intensive industries. Transport, a big polluter, is not covered.
-- Current plans are to run the scheme over two phases: 2005-07 and 2008-12. The second phase coincides with the period when Europe must meet its Kyoto targets.
HOW DOES THE SCHEME WORK?
At the start of each phase, national governments allocate free CO2 allowances to those covered by the scheme. The number of allowances issued, which has to be approved by the European Commission, sets the CO2 limit.
-- Agreement on the limits for phase one involved much political wrangling and lobbying. Nearly a year after the launch, not all countries have finalised an approved limit.
-- Agreeing limits for phase two is expected to be even more difficult as CO2 reductions will have to be steeper in order to comply with Kyoto.
-- Each year, companies must monitor their CO2 emissions and have the amount verified by an auditor. At year-end, companies must submit allowances to cover every tonne of CO2 emitted.
-- Companies which exceed their limits must cover the additional CO2 by buying extra allowances from companies which have undershot and have spare allowances to sell. Failure to do so results in a fine of 40 euros per tonne in phase one and 100 euros in phase two. Companies must also buy the missing credits.
-- Companies are permitted to earn some of their allowances by investing in climate-friendly projects in developing countries, or in other European countries where there is high potential to curb emissions -- mainly eastern Europe.
WILL PHASE TWO BE DIFFERENT?
-- Rules for phase two allow governments to allocate some allowances through an auction process rather than handing them out, but it is unclear whether this option will be taken up.
-- There are also provisions to widen the scope to include other greenhouse gases and additional industry sectors in phase two. Inclusion of the aviation sector has widespread backing.