Emissions Trading: On The Eve Of Kick-off Of The Scheme European Commission Cleared 5 More Plans

Environment Commissioner Stavros Dimas said: “These decisions leave us four plans short. We will process these outstanding plans as soon as possible in order to make sure that also these Member States can take part fully in the European emission trading scheme, which has now formally started. The fact that a few thousand plants don’t know their allocations yet should be resolved as soon as possible. As allowances have to be allocated by Member States before the end of February, we must resolve the outstanding issues as soon as possible. With these decisions the new Commission has ensured consistency with the decisions taken earlier in 2004.”

Assessment of the plans

The national allocation plans show how many CO₂ emission allowances Member States plan to allocate for the 2005-2007 trading period, and how many each plant will receive. The Commission's task is to scrutinise the plans against eleven allocation criteria listed in an annex to the Emissions Trading Directive^[2]. The most important criteria seek to ensure that the plan fits in with the country's overall strategy to reach its Kyoto target. Other criteria relate to non-discrimination issues, EU competition and state aid rules and technical aspects. The Commission may accept a plan in part or in full. If it accepts a plan unconditionally, the Member State can take a final allocation decision.

In the cases assessed so far, the Commission has requested changes in three areas of general importance:

• if the volume of allowances for the 2005-2007 trading period does not allow the country to meet its Kyoto target during the first commitment period 2008-2012
• if the volume of allowances for the 2005-2007 trading period is inconsistent with assessment of progress towards the Kyoto target, i.e. the allocation exceeds projected emissions
• if a Member State intends to make so-called "ex-post adjustments" to allocations i.e. it plans to redistribute allowances among the participating companies during the 2005-2007 period. This would create uncertainty for business and hamper the market exchange of allowances.

In each case where changes are necessary, the Commission has indicated the steps to be taken by the Member State to make the plan acceptable to the Commission.

Cleared allowance volume and plants

See also:

IP/04/862 and IP/04/1250 and MEMO/04/44
Climate change policy at:

http://europa.eu.int/comm/environment/climat/emission.htm

NAPs at:

http://europa.eu.int/comm/environment/climat/emission_plans.htm

Annex

Information about individual decisions

Cyprus: Plan accepted with no changes required following an amendment by Cyprus in December 2004. All companies qualify for trading. Compared to the notified plan, Cyprus has specified the quantities to be allocated to each installation in the power sector.

Hungary: Plan accepted following amendments by Hungary in December 2004. All companies qualify for trading. Compared to the notified plan, Hungary has removed intended ex-post adjustments.

Lithuania: Plan accepted without further changes required, following amendments by Lithuania in early December 2004. All companies qualify for trading. Compared to the notified plan, Lithuania has inter alia reduced the total number of allowances by 3.9 million over the trading period, and adapted the access rules to the new entrant reserve.

Malta: Plan accepted without changes. All companies qualify for trading.

Spain: Plan conditionally accepted. All companies listed in the plan do qualify for trading. Spain has to complete the list of installations to include the same set of installations covered in all other allocation plans approved so far. The Spanish authorities have not covered installations that produce energy but which are not connected to the electricity grid. They estimate that such installations would account for a small share of the emissions covered by the present Spanish national allocation plan.

Status after the latest decisions:

The Commission has now concluded the assessment of a total of 21 plans: Austria, Belgium, Cyprus, Denmark, Estonia, Finland, France, Germany, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovak Republic, Slovenia, Sweden, Spain and the UK.

The assessment of the plans of the Czech Republic, Italy, Greece and Poland is ongoing.

General approach:

The Commission has requested changes to plans, both prior to the conclusion of the assessments and in the assessment decisions, in three cases of general importance:

1. Excessive allocation - if the allocation chosen by a Member State for the 2005-2007 trading period jeopardises the achievement of its Kyoto target. This contravenes criterion (1), which requires consistency with each Member States' path to Kyoto;
2. Excessive allocation - if the volume of allowances for the 2005-2007 trading period is inconsistent with assessment of progress towards the Kyoto target, i.e. the allocation exceeds projected emissions
3. Ex-post adjustments - if a Member State intends to make so-called "ex-post adjustments" to allocations. This means it plans to intervene in the market after the allocation is done, and redistribute the issued allowances among the participating companies during the 2005-2007 trading period.

Ex-post adjustments would disrupt the market and create uncertainty for companies. For example, if a company faced the possibility that the government might take away allowances if it reduced its emissions, it would be hesitant to reduce them in the first place, and/or it would hesitate to sell its surplus allowances. If (other) companies at the same time thought they could receive additional allowances for free from their governments, they would pursue this route rather than turn to the market and buy allowances.

Ex-post adjustments contravene criterion (10), which envisages that a Member State has to decide up-front, before the trading period starts, about the quantity of allowances allocated to each installation’s operator. (Article 11 of the Directive would also be contravened, but this is not the legal basis for the rejection.) This initial allocation decision may not be re-visited. This means no allowances may be re-allocated by adding to, or subtracting from, the quantity determined for each operator on the basis of a government decision or a pre-determined rule after the allocation decision.

^[1] 1 allowance covers 1 tonne of CO₂

^[2] Directive 2003/87/EC, OJ L 275, 25.10.2003, p. 32.