The failure of most EU governments to submit National Allocation Plans for emissions trading on time suggest that opposition to the scheme is strong. Siân Green examines the issues.

As the March deadline for the submission of National Allocation Plans (NAPs) for the European Union Emissions Trading Scheme (ETS) passed, only five countries had submitted their plans to the European Commission: Austria, Denmark, Finland, Germany and Ireland.

The remaining ten EU countries are expected to submit their NAPs in the coming weeks, and as a result the Commission is reported to be not too concerned about late submissions. Several countries – the UK, for example – have already drafted their plans.

The late submissions of NAPs, however, raises the possibility that some countries are having difficulty finalising their plans due to strong lobbying from industrial groups on one side and environmental groups on the other. The debate is highly polarised and governments are finding it difficult to strike a balance.

Germany’s NAP is a particular case in point. The debate resulted in a row between Environment Minister Jürgen Trittin (Green Party) and Economy Minister Wolfgang Clement (SDP). Trittin proposed cutting emissions from an annual level of 505m t in 2000-2002 to 488m t in 2005-2007 and to 480m t in 2008-2012. Clement, under pressure from the German industrial sector, rejected these proposals outright. It was only personal intervention by Chancellor Schröder that ensured a compromise deal could be reached before the NAP submission deadline, and on this occasion it was the industrialists which came out on top.

Germany’s NAP will allocate 503m t of CO2 credits to the industry and energy sector in the first trading period (2005-2007); in the second trading period (2008-2012), emissions in these sectors will be limited to 495m t. Out of the 17m t of CO2 emissions which Germany has to achieve by 2012 to meet its Kyoto Protocol commitments, 10m t will have to be borne by industry and the energy sector, and the remaining 7m t by private households and the transport sector.

Germany’s NAP was immediately criticized by environmental groups such as WWF. In a statement, WWF said that it was concerned about the influence of industrial lobbyists on NAPs. “If governments fail to set credible targets now, emissions will continue to rise and they will have to slash these even harder during the next phase of emissions trading in 2008,” said Dr. Stephan Singer, head of climate and energy policy at WWF. “This makes no sense environmentally or economically.”

WWF has highlighted the German NAP as being of particular concern. “Its plan asks big polluters to cut their CO2 emissions by a mere two per cent by 2012,” said WWF in a statement. “WWF also fears that the government will allow all new power stations to emit very high levels of CO2.”

“This is a surrender before the coal lobby,” said Singer. “Germany has turned from a climate policy leader to one which openly supports new coal fired power stations at the expense of cleaner energy.”

In this statement, Singer is referring to the fact that under the German scheme, plants built to replace older plants can transfer the emission values of the old plant to the new plant, with an additional 14-year exemption from reduction commitments. This is designed to incentivise investment but environmentalists are concerned about long-term exemptions from reduction commitments, and are also against the fact that new entrants to the market are treated equal to coal fired power plants, i.e. there is no incentive to move away from coal as a fuel.

Click here to enlarge image

Groups such as WWF would like to see more NAPs like that drafted by the UK (See PEi February 2004, Vol.12 Issue 2, p5). However, even the UK government is now reported to be under pressure from industry to re-think its strategy of planning greater emission reductions than required under Kyoto.

One of the main concerns of the energy and industry lobby is the impact that emissions trading will have on electricity prices, and therefore on competitiveness. In Germany in particular, there is real concern that due to various taxes and renewable energy incentive schemes, German electricity prices are among the highest in the EU. Speaking at a recent power generation conference hosted in Germany by ABB for its customers, Dr. Johannes F. Lambertz, member of the board, RWE Power, pointed out that due to taxes and renewable subsidies, electricity prices in Germany are now as high as they were prior to deregulation. Emissions trading is expected to add around 5-10 per cent to retail electricity prices.

Environmental groups reject the notion that an increase in electricity prices will affect the global competitiveness of EU industry, however. According to Singer, that majority of trade in energy-intensive goods by EU countries takes place within the EU, so the impact of price rises will be negligible.

Lambertz also pointed out that although Germany is required to reduce its CO2 emissions by 21 per cent on 1990 levels, it has already achieved a 19 per cent reduction. According to Singer, however, this is no reason not to set higher emission reduction targets in the NAP. Germany has, says Singer, given out a poor message to other countries. The country has the greatest potential to cost-effectively reduce emissions and overshoot its commitments. In addition, setting more ambitious targets would have had a positive effect on the emissions permit market.