10 October 2002 – The European Parliament will today undertake its first reading of the Commission proposal on emissions trading in the EU.

Under the Kyoto Protocol, which the EU has agreed to ratify, the EU has committed itself to reducing greenhouse gases by 8 per cent from 1990 levels. The Protocol foresees the use of four flexible mechanisms in order to reduce the costs of meeting the targets. One of them is greenhouse gas emissions trading.

In October 2001, the Commission presented a proposal for a framework directive on greenhouse gas emissions trading within the European Community. The UK, Denmark and the Netherlands have already started pilot projects on emissions trading.

The European Parliament will today discuss the draft report on the EU emissions trading scheme. The Economic and Monetary Affairs Committee report proposes to extend the emissions trading scheme to a broader range of industrial sectors, including also the chemicals and aluminium producers. Moreover, it wants to apply the trading scheme to other greenhouse gases (the Commission’s proposal only targets carbon dioxide).

In an open letter to the EU environment ministers on 4 October, four environmental NGOs (BirdLife International, Climate Action Network Europe, Friends of the Earth Europe and WWF) urged the EU to create an effective system of emissions trading, consisting of the following elements:

* mandatory participation from 2005;
* challenging and mandatory sectoral caps for all participants;
* uniform EU auctioning as the method for allocating permits;
* a rigorous and transparent compliance system;
* exclusion of Kyoto trading and project credits from EU trading;
* compatibility with other domestic measures such as ecotax reform or support for renewable energies.

A recent report by the German Wuppertal Institut indicated that German companies were on the whole positive about the EU’s proposed emissions trading scheme, but lacked enough knowledge on the details of the proposals. Especially small and medium sized businesses were uninformed about the Commission proposals. Opinions differed on when trading should begin and whether it should be mandatory or voluntary.

A CEPS report on emissions trading, presented at the European Parliament on 1 October, concluded that there is no ideal method of allocating allowances. “The method finally chosen will not fundamentally affect both the environmental integrity and economic efficiency as long as two principles are followed: i) encourage early movers in the way that allowances are allocated and ii) minimise distortions within the internal market and impacts on competitiveness on internationally trading companies.”