Date: 19 October 2006
 
Speaker: Mogens-Peter Carl, Director-General, DG Environment, European Commission
 
Climate change is no doubt the most important subject the world community faces not only in the next few years but for the next 50years and even beyond. Over time we may need even more draconian measures. If we leave it for long, the needed measures will become more expensive.
 
To avoid full-scale disaster greenhouse gas (GHG) emissions need to stop increasing in the next 20 years. There is a growing consensus that by 2050 GHG emissions should be significantly below 1990 levels. This requires a basic and radical shift in our actions.
 
The Commission has proposed the EU emissions trading scheme (ETS) five years ago. Initial three years are a learning phase for the traders, governments and the Commission. In the next few days the Commission will publish a formal review of the scheme which will cover the period after 2012.
 
Why is the EU ETS so important? First, it is the means to reduce GHG emissions in the most efficient manner or least costly instrument for achieving the medium- and long-term emission reductions which we have accepted to impose on ourselves. Second, it is a key driver of international carbon trading and provides a foundation for a global carbon market. Currently, over 160 countries, with over 90% of the global population, can engage in the emerging carbon market either through emissions trading schemes or through the Kyoto Protocol’s project-based mechanisms. It is an important example for others. US states are interested in the EU ETS. California has approached the Commission to find ways to set up a comparable scheme. Third, the ETS is one of the most important drivers for technology transfer. Developed countries must take lead but emission growths in developing countries must be also tackled. This requires transfer of capital for large-scale investment. There are huge Clean Development Mechanism (CDM) projects in which several member states are effectively engaged. CDM enables developing countries to get ‘state of art’ technology. They are hugely interested in development of these technologies.
 
The first phase of the EU ETS provides data and statistics. The Commission now has necessary and concrete information, especially verified emission data for 2005. In the next few weeks the Commission will draw conclusions and decisions about the second phase National Allocation Plans (NAP2s). We have to keep the ETS simple and predictable, even simpler and more predictable.
 
The review process has been also launched in the context of European Climate Change Programme (ECCP). The Commission plans to look at issues under four areas: the scope of the scheme; further harmonisation and increased predictability; compliance and enforcement; and links to third countries. Some modification can kick in for the post-2012 period. First, on the scope of the scheme, the Commission intends to consider streamlining the coverage of emission sources. There is divergence in member states’ interpretation of combustion installations. The review will look at expanding the coverage of the scheme to non-CO2 gases such as N2O and CH4. Second, harmonisation and predictability are key issues. Member states propose the number and distribution of allowances for a period. New installations have expressed their fear about distortion in intra-community competition. The Commission plans to explore alternative option of a single EU-wide cap as well as the option of separate national caps after 2012. It also explores possibilities for auctioning as well. Third, so far experience with compliance and enforcement has been good. Fourth, there is a plan to consider extending arrangements for linking the EU ETS to other mandatory emissions trading schemes. Such schemes should have absolute caps and reduction commitments.