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Beefing up the EU carbon trading scheme

Late last month the European Commission (EC) announced plans to strengthen the Europe Union’s (EU’s) existing carbon trading scheme, as part of its commitment to reduce the EU’s overall greenhouse gas (GHG) emissions by 20 per cent, compared to 1990 levels, by 2020.

The EU’s Emissions Trading Scheme (ETS) was launched back in 2005 as a key mechanism for helping the EU achieve its Kyoto Protocol goal of cutting GHG emissions by eight per cent by 2012. The scheme has arguably been a success, but projections, based on existing policies alone, are that a reduction of 7.4 per cent in carbon dioxide (CO2) levels could be reached by 2012 à‚— just below the Kyoto target. The current scheme expires in 2012, so the EC has said that the follow-up scheme will need to put emissions on a “much steeper reduction path” in order for the 20 per cent by 2020 target to be achieved.

The new scheme, which will come into force in 2013 and run to 2020, has capped the total EU industrial emissions in 2020 at 21 per cent below 2005 levels. Furthermore, the scope of the new scheme has been widened to include new industrial sectors, such as aviation and petrochemicals. This will please the power generation sector as it has called for the inclusion of other industries for some time. Another aim with the new scheme is to have a greater number of credits auctioned. Currently 90 per cent of pollution allowances are handed out free, however, it is anticipated that around 60 per cent of the total number of allowances will be auctioned by 2013, and that “full auctioning should be the rule from 2013 onwards for the power sector.” The latter may not sit well with power generators.

Interestingly, under the new scheme industrial GHG prevented from entering the atmosphere through the use of carbon capture and storage (CSS) technology are to be credited as “not emitted”, making CCS a “legitimate emission-mitigation technology fully recognized under the ETS”.

This decision may disappoint some, especially in the power generation sector, as another option open to the EC would have been to count the buried CO2 as an emission and grant it allowances that could be traded under the scheme. Thus, creating a novel revenue stream that would help offset some of the high capital investment of CCS. The EC has previously acknowledged the unfavourable economics of CCS technologies and has said that “additional incentives may be necessary” to address this.

Unfavourable economics or not, many of the large European power generators appear to be embracing CCS, with various pilot demonstration projects having been announced over the last 12 months. Take this month’s issue as an example. German utility giant E.ON and Siemens are to jointly develop a novel solvent-based process that will capture CO2 from the flue gases of power plants, while Aker ASA, the Norwegian industrial group, is to invest $160m in a large-scale facility to capture carbon from a gas fired power plant in Norway. Finally, Nordic power and heat supplier Fortum is to develop a CO2 capture pilot plant at the 565 MW Meri-Pori power station in Finland.

However, the Achilles’ heel of the commercial viability of CCS remains the question of the long-term storage of the captured carbon, which is at a much less advanced stage, and raises some public concern. However, this may be about to change as Kansai Electric Power Company of Japan is reported to have successfully injected a large amount of CO2 into deep coal beds. But, as with all emerging technologies it will be a case of waiting and seeing.

Best regards,
Heather Johnstone
Senior Editor