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Emissions trading

September 23, 2009

The European Union's cap-and-trade system for curbing CO2 emissions has been threatened by its own Court of First Instance, which found that it had imposed illegitimate quotas on Poland and Estonia.

Factories spewing smoke
Eastern European countries want more permits to allow for economic growthImage: picture-alliance/ dpa

The court found that the EU commission had overstepped its powers in forcing the two member states to accept strict limits in carbon dioxide emissions, after the two countries complained their quotas were too low.

In 2006, Poland and Estonia submitted their emissions plans for the years 2008 to 2012 to the commission. Poland gave itself an overall target of 285 million tons of carbon dioxide per year, while Estonia set itself a target of 24 million tons. Arguing that it needed to account for future economic growth, Poland's self-imposed target was more than 40 million tons higher than its total industrial emissions in 2006. Estonia's target was almost double its 2006 emissions.

Power station at night
The EU's carbon trading system is in need of reformImage: picture alliance/dpa

EU-imposed cap

In 2007, the commission ruled that the plans did not fulfil the potential for emissions cuts, and ordered Poland to curb its emissions by more than a quarter, and Estonia by nearly half. That decision has now been overturned by the EU court.

EU spokeswoman Barbara Helfferich said that Wednesday's ruling meant the EU Commission would have to redraft the plans for the two countries.

Under the complex cap-and-trade system, countries receive a set number of pollution permits to sell to heavy industry and electricity producers. Factories that want to release more greenhouse gases must buy permits while cleaner plants can make money by polluting less and selling permits they don't need. The number of permits a country receives depends on plans which the states must submit in advance.

The system was thrown into disarray in 2005, the first year of emissions trading, when prices of permits collapsed because EU states had handed out more permits than the amount of greenhouse gases their industries pumped out.

The EU court must also decide on similar cases involving Bulgaria, Romania, Latvia, Lithuania, and the Czech Republic, effectively calling into question the way the entire system is run and potentially undermining the price of emissions permits across Europe.

Editor: Michael Lawton