Verbatim report of proceedings

Tuesday, 5 September 2006 - Strasbourg

15. Emission allowance trading scheme: national allocation plans (2008-2012) (debate)

  President. – The next item is the Council and Commission statements on the greenhouse gas emission allowance trading scheme: national allocation plans (2008-2012).

  Stavros Dimas, Μember of the Commission. (EL) Mr President, climate change is the most important environmental problem that our planet faces. If the actions which we have targeted to address it do not bring about results, then the change will have very unfortunate economic and social consequences on a global scale in the future.

That is why the Kyoto Protocol was signed and ratified within the framework of the UN Framework Convention on Climate Change, making provision for a 5.2% reduction in emissions of carbon dioxide and other greenhouse gases by developed countries and, within these frameworks, the European Union has undertaken to reduce emissions by 8% compared with 1990 levels.

In order to achieve this target in the period from 2008 to 2012, we have taken various measures at Community and national level. Many of these measures are provided for in the first and second European programme on climate change. The main measure which we have provided for and which went into operation on 1 January 2005 is the Community trading scheme for greenhouse gases, especially carbon dioxide.

With this scheme, we provide for the cheapest efficient method of reducing greenhouse gases in the medium and long term. The scheme covers approximately 50% of carbon dioxide emissions in the European Union. It covers approximately 11 500 000 undertakings and industrial and other installations and today constitutes the biggest gas trading scheme in the world. It is without doubt the only international scheme and many countries have joined this scheme, which covers numerous sectors of economic activity.

The success of the Community trading scheme is of major significance because it will be able to form a base and we aim to use it as a core scheme in order to create an international greenhouse gas trading scheme.

This is one effective way of reducing emissions of greenhouse gases globally and, in particular, for us to help ensure that developed countries such as the United States, the number one country for greenhouse gas emissions in the world, accounting for one quarter of all carbon dioxide emissions, contribute to this reduction and, of course, for us to also find any which way that is acceptable to developing countries, which are also emitting more and more greenhouse gases.

You will have all read in the newspapers about what has been happening recently in California, with the initiative taken there for a scheme similar to the European trading scheme for carbon dioxide and other greenhouse gases to start operating there in 2009. The same applies, but specifically only to companies that generate electricity, in seven north-eastern states of the United States and it would appear that pressure is already being exerted from below on the federal government to start debating the question of a global greenhouse gas trading scheme.

I must emphasise that there can be no doubt about the European Commission's determination to maintain and improve this scheme in order to achieve the reduction in emissions of greenhouse gases required in order to stabilise concentrations of these gases in the atmosphere.

Last spring, the undertakings covered by the Community scheme, in keeping with their obligation, notified their emissions of carbon dioxide verified by independent auditors and, for the first time, we have a cohesive set of real values audited by independent agencies of emissions of carbon dioxide in the European Union.

Actual emissions were lower than many expected. At this stage, the following conclusions may be drawn:

First, as far as monitoring, the submission of reports and verification are concerned, the scheme is operating very well. The results of the 2005 audit show that undertakings complied to a satisfactory degree with the basic obligations which derive from the trading scheme. The scheme infrastructure is operating smoothly.

Secondly, market-based mechanisms are a success and the Community emission allowance trading scheme appears to already be bearing fruit.

Thirdly and perhaps most importantly, the Member States can – and must – expect the sectors covered by this scheme to make a much greater contribution towards reducing emissions, especially if it is borne in mind that the European Union as a whole is not yet on track to honour its undertakings on the basis of the Kyoto Protocol.

As you know, the Member States must notify their national allocation plans which, as a whole, also determine the upper limit for the entire European Union for the 2008-2012 trading period, which coincides with the first commitment period in accordance with the Kyoto Protocol.

By yesterday, the Commission had received 10 national allocation plans representing approximately half of the total allowances approved by the Commission during the first trading period. These countries are Germany, Estonia, Lithuania, Ireland, Latvia, Luxembourg, Poland, Slovakia, the United Kingdom and, yesterday, Greece.

The remaining Member States have not yet notified their national plans to the Commission. However, ten of them are already available as preliminary plans within the framework of public consultation. They come from the following Member States: Austria, Belgium, Bulgaria, Cyprus, Finland, France, Italy, the Netherlands, Portugal and Spain.

The national allocation plans notified are currently being evaluated by the Commission. As you will understand, the Commission cannot make any material comment at this stage.

As far as our more general approach to this matter is concerned, I shall be clear: the Commission will use every political and legal means at its disposal to ensure that national plans comply both with the commitments made within the framework of the Kyoto Protocol and with the actual data on verified emissions for 2005. This will safeguard scarcity on the market, as well as terms of equal participation for undertakings.

More importantly for those Member States which are not close to achieving the targets based on the Kyoto Protocol, the national plans must be used in order to help achieve the required reductions. More importantly, the Member States with the worst performances must distribute fewer allowances in relation to the first trading period. Our job will be to guarantee a strict and fair evaluation of all plans.

Finally, I wish to assure you that the Commission attaches a great deal of importance to all the Member States submitting their national allocation plans for the second trading period as quickly as possible and we have already sent a letter, a sort of preliminary warning, to the countries which are delaying, before starting infringement proceedings.

If the Member States fail to send the information requested of them, the Commission will examine the possibility of taking further action. I trust that this will not be necessary and that, within the next few days, within the next month, the Member States will send in their greenhouse gas allowance trading allocation plans.

  Paula Lehtomäki, President-in-Office of the Council. (FI) Mr President, ladies and gentlemen, the Council shares the Commission’s view that the emissions trading scheme in the European Union is one of the cornerstones of the EU’s policy on climate. It is this very instrument that has helped the European Union to be able to demonstrate its leadership in the response to the challenge of climate change. Coal prices will be a fundamental element in our efforts to stimulate the development and adoption of environmentally friendly technology.

As with all new schemes, emissions trading has also experienced growing pains in its initial stages. That is why we need to evaluate carefully how the scheme might be improved further, so that it can fulfil its aim of reducing greenhouse gases cost-effectively. The Commission’s forthcoming evaluation report will make this possible.

A huge project is now underway to draft other national allocation plans. Member States are drawing them up, and it will be the Commission’s job to evaluate them. This is clearly stated in the Emissions Trading Directive adopted by the Council and the European Parliament three years ago.

In the spring this year we gained a lot of valuable experience from the reports on emissions data for 2005. Now we have to consider how we can improve the scheme’s transparency on the basis of that experience. If the scheme is a transparent one, we are in a better position to ensure that market data is available to all players in a coherent and coordinated form at the same time.

In parallel with the process relating to the allocation plans, the Finnish Presidency will be launching a review of the Emissions Trading Directive. It is of particular importance that the scheme can help give a clear signal to operators that low-carbon, environmentally friendly technology is a worthwhile investment.

  Avril Doyle, on behalf of the PPE-DE Group. – Mr President, I welcome the Commission and the Presidency to this debate. I have to ask why there was this last-minute inclusion on the agenda last Friday, without the proper teeing-up among the various political groups. Was it purely technical, to comply with your obligation to revert to Parliament by 30 June, even though you are a couple of months late? But I will move on as time is too precious to waste.

The PPE-DE Group fully supports the emissions trading scheme and our objectives under Kyoto and agrees with the need to keep downward pressure on every one of the 25 Member States to meet their targets in relation to greenhouse gases, as agreed under Kyoto. Please take that as a given.

I note what the Commissioner has just said concerning the conclusions of the 2000 review: ‘the system works well, the results were good, the system is up and running’. Commissioner, I do not know whether this is a PR exercise and we do not really want the truth to get out to those who might be listening. I completely support a fully effective ETS, as do all my colleagues, but the system is not working well. I know these are early days, which is a genuine caveat for anything we say after what has been a very short 18-month review period. The theory is good, but the practice has been awful and has not matched the theory at all. We need to look at this situation urgently.

The idea was that at the end of each year the amount of carbon dioxide actually emitted had to match the amount of emission permits a company surrendered to its government. That was to keep pressure on companies to decrease their emissions. What has happened? In the first year, 2005, the actual carbon dioxide emissions of 21 countries were 44 million tonnes short of the amount of CO2 emissions permits allocated by the 21 governments in question. That resulted in absolutely no downward pressure to reduce emissions and in a very volatile carbon credit market that fluctuated from EUR 31 per tonne down to EUR 8 per tonne and back up to EUR 16 per tonne. I agree that we need a properly functioning carbon credit market. We need industry to buy into what we are saying. We need credibility, in practice as well as in theory. Could you please detail any amendments you are proposing in the directive before the second period of NAPs?

By the way, Ireland also submitted its NAP on 13 July and you did not mention its name in the countries that you read out. I would like you confirm that it has done so. Perhaps they are telling me whoppers in my home country!

  Dorette Corbey, on behalf of the PSE Group. – (NL) Mr President, Commissioner, Mrs Halonen, I am pleased with this debate. I am also pleased to hear that the emission allowance trading system is working well in the eyes of the Commissioner and the Council. Our group has put its heart and soul into bringing this directive about, and that is why it is important that it works well. Nevertheless, I would like to make a few observations and, like Mrs Doyle, I have a number of doubts.

First of all, it is unfortunate that only nine countries have submitted their plans now. It is good to know that the Commission is on the case, but disappointing that only nine countries are ready on time.

Secondly, I think that Member States have been too generous in their recent allocations, and that is why the Directive on emission allowance trading has had too little effect.

Another political problem that particularly catches the eye is the windfall profits which electricity companies have made. Electricity companies have been allocated free allowances, which they managed to sell on to the energy-intensive industry and to consumers too, and that, is of course, hard to stomach at a time when electricity companies are increasing their profits in any case.

Commissioner, I should like to see a full assessment of this directive, and I think that we should also, given this generous allocation and the windfall profits for electricity companies, ask whether it would not be preferable by far to switch to an auction system instead of the grandfathering system we have at the moment.

  Chris Davies, on behalf of the ALDE Group. – Mr President, we all knew that this was going to be an exercise in learning by doing and that we would not get it right first time – and indeed we did not get it right first time! The issue of more allowances than there are emissions obviously risked undermining the credibility of the whole scheme, but now we are on the second round of the process and we need to have learnt those lessons.

I am grateful to the Commissioner for coming here and naming by implication those Member States which have failed so far to meet the deadline for the submission of these plans. We are not going to go anywhere if Member States do not actually produce the goods they have promised to produce. I hope that the Minister will put this on the agenda of the Environment Council on 23 October. Now that we can see the ministers on television I look forward to seeing the embarrassment as you point your finger at them, Minister, one by one, and ask them for an explanation as to why those plans have not been submitted.

All too often these plans are coming in late and they are coming in lax. The Commission has got to be fair, but it has to be tough. Parliament expects you to ensure that these national allocation plans meet the goals required of the emissions trading scheme, and many Member States which are genuinely committed and have submitted their plans already will be backing you and want you to ensure that there is a level playing field and that the others fall into line.

Whatever they may say, many Member States are looking for an escape route from the emissions trading scheme. It is up to you to make sure that the exit doors are all closed.

  Claude Turmes, on behalf of the Verts/ALE Group. – Mr President, as Greens we are pretty much on the same line as our colleagues. We are at a critical moment: the cheating is over. What France, Poland and Germany have done with over-allocations cannot continue. However, I will use my speaking time to point out another issue, namely that of market distortion.

If you look at the German allocation plan, there is a special clause for RWE, which gets four years of an old power plant allowance. On the other hand, they have completely emptied the new entrants. The German power market is already completely dominated by four companies. The German second allocation plan has a hidden agenda – not to allow gas power plant investment in Germany, because that is exactly what those four big companies are afraid of. Therefore, the Commission’s Directorate-General for Competition has to be fully involved in the review.

You made another point: why do we do this – to put a price on CO2 or in order to have investments in efficient technology? You have to look at the Polish and German allocation plans. What do they do? For a coal power plant investment in Germany, they give 14 years of full allocations. There is no price incentive at all to switch from coal to gas, which was the cheapest option available in Europe to cut down CO2 emissions.

The German and Polish allocation plans are scandalous. They destroy the whole system of incentives. Commissioner, you bear a great responsibility at the moment.

  Roberto Musacchio, on behalf of the GUE/NGL Group. – (IT) Mr President, ladies and gentlemen, this debate on emissions trading plays an important yet dangerous part in the issue of the Kyoto agreement. We are highly critical of what may turn into a mere trade in the right to pollute, on top of the harm done to countries suffering from underdevelopment. As we have heard, it is utterly ineffective in actually reducing emissions.

We need to be quite clear about this, above all on the eve of a conference of the parties, the thirteenth on climate, which, emblematically, is to take place in Africa, in Nairobi. We should not be setting up a pollution market, but promoting new environmental development based on cooperation policies that should allow the richer countries to produce while polluting much less and the poorer ones to be helped to develop with access to new environmental technologies.

This, then, is a substantial difference on which Europe must have a clear position when it takes part in the Nairobi conference: it needs to achieve a good balance between emissions trading and the promotion of truly beneficial cooperation policies.

  Peter Liese (PPE-DE). – (DE) Mr President, ladies and gentlemen, Commissioner, climate change is one of the most crucial challenges that politicians such as ourselves have to face. Although emissions trading was intended to be one of the principal instruments in meeting this challenge head-on, it has to be said that the results achieved to date from its initial stage are not really convincing.

It was planned that emissions trading should start on 1 January 2005, but there are many Member States in which that did not happen. The national allocation plans – including those approved by the Commission in the first phase – were not really ambitious, and what really did, of course, annoy businesses in the countries with fairly ambitious plans, was that the criteria for the grant of emissions certificates varied to a very considerable degree, so that, for example, a steelworks or a chalk plant got far more emissions certificates in one country than in another. These disparities were not merely a consequence of the burden sharing required by Kyoto; in some cases, they had been exaggerated, and that, of course, resulted in competition being distorted.

During the process of framing the resolution on emissions trading, which was done by codecision, this House argued in favour of very clear and precise rules, to which the Commission’s response was that these were quite unnecessary, and that things could be managed, and excesses avoided, by the use of competition law. I get the impression that the Commission needs to take another, rather closer look and prevent distortions of competition between the Member States and between enterprises within them.

As far as the next stage is concerned, the objective must not be – as it was in the first – that emissions trading should work more or less; on the contrary, it must work well. Distortions of competition must, in so far as is possible, be avoided, and, if European policy is to be credible, the maximum possible reductions in CO2 must be achieved.

  Karin Scheele (PSE). – (DE) Mr President, Commissioner Dimas has said that the national allocation plans have been submitted by only nine countries – although, if Mrs Doyle is right in what she claims, and Ireland has done so, by ten – and that only six of them did so by the end of June as they meant to. Our tardiness in matters such as these is particularly disturbing in view of the fact that we have in fact seen a renewed increase in emissions, above all in the old Member States. What can the Commission, the European Council and the Presidency of the Council do to bring pressure to bear in this area, going beyond merely drafting resolutions to actually putting them into effect?

The second point I want to make has to do with the substance of these national action plans. What I would like to know is how the Commission or the European Council can ensure that the national action plans are rigorous, that our Member States are required to meet the Kyoto Protocol's requirements, to comply with our own laws, and prevented from buying their way out of their obligations?

  Rebecca Harms (Verts/ALE). – (DE) Mr President, I would like us to take another look at the allocation plan submitted by Germany, and the reason why I want to do that is that Germany will, next year, be assuming the Presidency not only of the EU Council, but also of the G8, both of which presidencies are crucial in terms of climate protection and energy policy. It is Germany that will be in charge of the preparations for next year's – 2007's – next major UN meeting, and it will be in Heiligendamm that landmark decisions will be taken.

I do not believe that the sort of allocation plan that the Federal Republic has produced testifies to the German Government’s suitability for performing such functions. On the contrary, it is even now plain from the way in which certificates are to be allocated that certain major energy suppliers in Germany are going to use this trading of emissions as no more than yet another justification for price increases of the kind we have experienced already over the past year.

It is also clear from this allocation plan that Germany is neglecting to offer any incentives for conversion from coal to fuels that generate less carbon dioxide. That I regard as disgraceful and absolutely indefensible in terms of the ongoing debate about the climate. If the EU wants to do as it should and, in future, once more play a leading role where the protection of the climate is concerned, then the German state – which will, after all, bear vital responsibility for Kyoto and the post-Kyoto process – must be urged to mend its ways.

  Evangelia Tzampazi (PSE). – (EL) Mr President, I should like to welcome the Commission statement on the greenhouse gas allowance trading schemes. Climate change is having a major economic and social impact. Consequently, pollution must be made expensive.

One point which strengthens the credibility of the overall scheme is that of the declaration of emissions submitted by every undertaking to the competent national authority. There are undertakings that submit declarations certified by specialist agencies and firms, while others are not certified.

The Commission therefore has a huge responsibility to safeguard and strengthen the credibility of the trading scheme and we call on it to take the necessary initiatives to safeguard the new scheme from any such distortions.

I propose, in the run-up to the evaluation of the second national plans for 2008-2012, that the European Commission take the necessary measures in order to prevent Member States from granting excessively generous emission allowances to certain undertakings.

I also call on the Commission to supervise the strict application of the methodology provided for, so that emission factors are applied not to combustion installations as a whole but to each combustion unit.

  Satu Hassi (Verts/ALE). – (FI) Mr President, ladies and gentlemen, this is a question of the credibility of the EU’s climate protection policy. According to the Deutsche Bank, just five of the emission allowance allocations published by the Member States for the next phase fulfil the main criteria. We all know that, to protect the planet over the next few years, the largest developing countries have to be persuaded to agree to limit their emissions. How can we imagine them agreeing to that if the EU fails to live up to its own commitments under Kyoto? The United States of America is also watching what we do. Until now, EU action has encouraged Americans who want their own country to be involved in global climate protection, but if we betray our commitments under Kyoto, that will be a victory for the opponents of climate protection in the United States and elsewhere.

The Commission must now show determination and insist that the Member States of the EU comply with the key criteria in emissions trading. Unfortunately, one of the first Member States where the government has already bowed to the demands of a polluting company in the first phase of emissions trading is Finland. I appeal to the Commission not to allow this type of Finlandisation to spread.

  Paula Lehtomäki, President-in-Office of the Council. (FI) Mr President, ladies and gentlemen, first I would like to say thank you for this excellent debate, some points of which I wish, on behalf of the Council, to comment on.

Firstly, with regard to these levels of emissions, we should not draw over-hasty conclusions after just one year: we definitely need to examine the issue over a period of more than a year. For example, for us in Northern Europe yearly temperatures – whether or not it will be a cold or mild winter – and the state of the seas, lakes and rivers are highly significant, not just for energy consumption but also for energy production, and thus also for volumes of emissions. Things can therefore vary greatly from one year to the next because of this.

As has been said in this debate, the Member States are now engaged in allocation planning for the next phase, and, in addition to those countries whose proposals are already with the Commission, around 10 others have already published their own plans and are in the final stages of dealing with them at national level. The other Member States have not yet got quite so far, but I am very sure that they are making progress. It should be realised that these figures relate to 27 European countries, and not just 25.

It has been mentioned here that there are flaws in the emissions trading scheme, and accordingly it is very important that the Commission now evaluates its viability very thoroughly and from different points of view. We are expecting the Commission’s evaluation to materialise later this autumn, and perhaps quite soon. We nevertheless do agree that, despite the flaws, this scheme is absolutely necessary, and should be taken in the direction of its original objective, which is that it should act as a genuine incentive for the players involved to invest in carbon-free, environmentally friendly technology.

  Stavros Dimas, Member of the Commission. Mr President, I should like to thank all the speakers for their contributions to this afternoon’s discussion. We see that they are very concerned about this global problem and how the European Union is responding to it.

Before I continue, I should like to assure Mrs Doyle that this discussion was not used as a cover by the Commission, for the simple reason that it was Parliament and not us who asked for this debate. So it cannot be a cover-up. Also, concerning my failure to mention that Ireland submitted a National Allocation Plan, I have it in my papers. I said ten Member States and I thought I mentioned Ireland, but if you did not hear it, then you are right.

Looking further ahead, concerning the review, I am now preparing a high-quality review of the European Union emissions trading scheme to identify improvements to be made beyond 2012. This could not be done before because until 30 June 2006 we had not even received the actual emissions. The emissions were reported on 15 May 2006, but some countries sent their actual emissions on 30 June 2006. So how could we have the review before we received the actual emissions?

Later this year, following the adoption of the European Union emissions trading system review report in the coming weeks, the Commission will activate a stakeholder group under the auspices of the European Climate Change Programme to intensify the debate on the review. I firmly believe that we need to focus the review debate early in the process to ensure a high-quality outcome. The priority issues to be tackled in the review are, therefore, the harmonisation and extension of the scope of the directive, further harmonisation and more predictability of the cap-setting and allocation process – including consideration of competitiveness, more robust compliance and enforcement of the rules and the linking to trading schemes in third countries and increased involvement of developing countries.

The Commission has already confirmed its intention to address aviation’s climate change impact through emissions trading. There are a number of good ideas to make emissions trading more effective, including giving longer-term certainty on allocations and increasing harmonisation in a number of areas.

We need more time to discuss and further develop these valuable ideas. I am therefore aiming for the Commission to present a legislative proposal in the course of 2007.

Here I should like to give a short answer regarding the concern expressed about power companies making windfall profits by pricing in the cost of allocations, although they receive them for free. Some companies have done that. The electricity price rose, not only because of the emissions trading system, but mainly because of high fuel prices and because of the lack of competition in the power and gas market – a lack of liberalisation. However, as one colleague mentioned, perhaps auctioning could be a solution, along with liberalisation, so we would avoid having windfall profits by power companies with consumers paying a higher price for electricity. According to the directive, auctioning is permitted for the second trading period, up to 10%. That is going to be one of the issues that will be discussed during the review period of the directive.

Looking back, we can say that the infrastructure for emissions trading is sound and the market in allowances is developing rather well. In the first year of operations, 2005 – at least according to World Bank data – 320 million allowances are reported to have been traded via market intermediaries, valued at more than EUR 6 million. So, no one can say that the emissions trading system has failed.

In 2006, the monthly trading volume has increased steadily, with volumes of 80 to 100 allowances in a busy month. A number of organised exchanges across Europe are offering platforms for trading allowances and a number of other market intermediaries, such as brokers, are also active in the market.

I would like to say a few words about the so-called ‘over-allocation’ of allowances to installations that are covered by the emissions trading system. It is a fact that we had about 3% more allowances allocated than actual emissions. That could be for various reasons, one of which could be that companies’ installations reacted to the emissions saving system and the obligations arising from the system, and they have made the most obvious and easiest reductions in emissions by improving energy efficiency, for example, or through other easy-to-take measures. It was the case in Germany that we had a real reduction in emissions of carbon dioxide from installations. Another reason could be the very mild winter that we had in 2005, which reduced the cost of heating, and – perhaps the main reason – the companies participating in the system were over-optimistic about their business growth and over-estimated their emissions, while the Member States were complacent in accepting their figures.

But, during the second trading period, we have made it quite clear to all Member States that the 12 criteria of the directive should be kept, especially for those countries that did not contract to achieve their individual quota target, which will contribute to the overall target for the European Union. Also, the actual emissions that we have now should be taken into full account.

I am going to be tough but fair with Member States regarding the national allocation plans and am very glad for the support for this approach that has been obvious from your contributions today.

The onus is firstly on governments to propose plans to the Commission which ensure that the European Union emissions trading system delivers its contribution to achieving our quota targets. At the same time, all stakeholders should engage in the process of improving and expanding the European Union scheme, so as to secure a global carbon market that can deliver the emissions reductions necessary to tackle climate change.

I would like to thank you for the rich debate with encouraging and important contributions and for your continued support for the fight against global warming and the threat posed to future generations.

IN THE CHAIR:MRS KAUFMANN
Vice-President

President. The debate is closed.