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EU Emissions Trade Flawed

Torsten Schäfer (ncy)
April 5, 2007

As experts in Brussels wrangle over the wording of a UN report on the impact of global warming, the EU's own climate policy is stagnating. Even the emissions trade, once held up as a model to be emulated, is floundering.

Europe has a long way to go to reach its CO2 emissions targetsImage: Bilderbox

EU Environment Commissioner Stavros Dimas focused his ire on Australia at the start of a meeting of the UN's Intergovernmental Panel on Climate Change (IPCC) this week. He called on the world's second-biggest producer of carbon dioxide (CO2) to finally ratify the Kyoto protocol, which aims to reduce emissions of the greenhouse gases that scientists say are primarily responsible for global warming.

Australian Prime Minister John Howard's response was brusque: "You've got the spokesman for a group of countries lecturing us about not having signed Kyoto, yet the great bulk of the countries on whose behalf he speaks are falling well behind their Kyoto targets and are doing less well than Australia in meeting them," he told Australian Broadcasting Corporation radio.

"Our answer to the spokesman for the European Union is look to your own affairs, get your countries complying with the targets you've proclaimed," he said.

Stavros Dimas, Pressekonferenz
Dimas' house could be in better shape, tooImage: AP

Dimas' spokeswoman, Barbara Helfferich, was keen to rebuff the criticism. "We said what needed to be said. And the EU will in any case comply with its Kyoto targets," she told DW-WORLD.DE.

But Howard had a point.

The EU is far from attaining the targets it agreed to by ratifying the Kyoto protocol. The 15 older EU states are obliged to reduce their greenhouse-gas emissions by eight percent by 2012 in comparison to 1990 levels, while the newer members of the bloc agreed to different targets. But it was recently revealed that the EU had only achieved 1.6 percent by 2005. In 2006, the countries carbon dioxide emissions actually increased by 1.5 percent above the previous year's level.

Flawed emissions trade

Critics lay some of the blame on the EU's emissions trade, which allows companies to pollute as long as they have the necessary certificates, which can be traded. The idea was that businesses would invest in environmentally friendly technologies to cut emissions if their only other option was to pay for a limited number of expensive licenses to pollute.

But the emissions trade has so far failed to bring about a decrease in CO2 pollution.

The EU issued too many certificates, according to Hans-Jürgen Nantke, head of the emissions trade office at Germany's Federal Environmental Agency.

"That's why the prices hit rock bottom," he said.

EXX nimmt Betrieb auf
Pollution is cheap at European energy exchangesImage: dpa

A ton of CO2 cost nearly 30 euros ($40) in spring 2006 at the European Energy Exchange in Leipzig. Today the price stands at less than one euro. Buying the right to pollute has become so cheap because the European Commission, the EU's executive arm, made mistakes when it estimated CO2 emissions. In 2006, Europe's industries were able to emit 50 million tons more CO2 than they ought to have.

Since the prices for certificates were so cheap, businesses didn't necessarily see the need to invest in new technologies that would produce fewer emissions.

"When prices were higher, that happened," said Verena Graichen, an expert on environmental protection at the Institute for Applied Ecology, a German think tank.

German power companies, for example, had shut down old lignite coal power plants in favor of more environmentally friendly anthracite coal plants although the latter were more expensive to run, she said.

Better the second time around?

"Unfortunately the emissions trade doesn't work very well, but we can't change anything anymore," conceded Dimas' spokeswoman Helfferich.

Instead, she suggested looking to the future. In 2008, the second phase of the emissions trade, which continues until 2012, is set to begin. In order to meet the Kyoto targets, the European Commission has mandated a much lower number of emission certificates be issued.

Lebensqualität? Der Ausstoß aus den Schloten des Braunkohlekraftwerkes Frimmersdorf
Industry needs more encouragement to cut emissionsImage: dpa

"From 2008 to 2012, we will fulfill four Kyoto percent," Helfferich predicted and referred to dozens of EU projects concerning climate protection as well as the emissions trade, which she said would then work "significantly better."

Current prices for emissions certificates won't have an effect on their cost in the future, since the price will be recalculated in 2008. However, their greatly reduced number has already had an influence on today's market: "futures," that is, options on certificates that will be traded in the future, already cost between 16 and 17 euros per ton.

But critics say the EU should alter the plans for the second phase of the emissions trade. Instead of issuing the licenses to pollute largely for free in 2008, industry should have to buy them from the start.

"Companies don't receive machines for free," pointed out Nantke of Germany's Environmental Agency.