Germany set to clash with EU on CO2 pollution quotas

Government plans to grant generous carbon pollution permits to Germany’s industry under the second phase (2008-2012) of the EU’s emissions trading scheme could face rejection by the European Commission.

The German government on Wednesday (28 June) submitted a plan to the European Commission aiming to achieve further cuts in carbon dioxide emissions under the second phase of the EU’s CO2 emissions trading scheme (EU-ETS).

The plan defines individual emission ceilings for energy-intensive industrial plants and power utilities for the trading period 2008-2012. It is meant to be in line with Germany’s target to reduce CO2 emissions by 21% compared to 1990, the reference year of the Kyoto Protocol. 

The German government said it plans to cut CO2 emissions by 6% compared to the period 2000-2002. But it would only mean a reduction of 0.63% compared with 2005, experts said.

If the figure is confirmed, it would mean the plan could face rejection by the European Commission. In a set of guidelines published in January, the Commission said the EU as a whole should aim for a 6% emissions reduction compared with the first trading period (2005-2007).

“We are not commenting on the plans until we have studied them in detail,” said the Commission’s environment spokesperson Barbara Helfferich. She indicated that every aspect of the plan needed to be assessed including a potential increase in the number of installations covered by the scheme. 

“If more plants are covered, then it will have to be taken into account. We have to see what the precise circumstances are,” Helfferich said.

But the government also suggested leaving out of the system the potential new power plants to be built between 2008 and 2012. Those plants would be freed of CO2 reduction commitments for a period of 14 years, a move which it said is meant to encourage much-needed investments in power generation capacity.

In May, Germany handed in CO2 emissions data which showed it was left with 21 million tonnes unused allocations since the launch of the ETS in January last year. Data for the entire EU indicated that there was 44.1 million tonnes extra CO2 pollution credits in 2005, according to the Commission. The news sent carbon prices plummeting.

However, Angela Merkel’s coalition also ruled out making use of an option that allows it to auction up to 10% of permits, a solution which would have helped keeping carbon prices up. So far, only Ireland, the Netherlands, Lithuania and the UK are planning to auction part of the emission allowances, but at a level much lower than 10%.

"With its new allocation plan Germany, for the first time, will treat industry and energy plants differently. Energy suppliers will receive 15 % fewer emission certificates for free than before," the government said in a statement.

"Thereby, it is taken into account that the electricity suppliers already calculate the market value of the allocated certificates into the electricity price. These artificially added costs are passed on to the customers. Thereby, energy companies make billions in additional profits. Allocating fewer certificates leads to a partial skimming of these additional profits." 

The Greens in the European Parliament were outraged at the news. "The German government has bowed to the ruthless lobbying of big electricity suppliers", said MEPs Rebecca Harms and Claude Turmes. "Instead of supporting the use of renewable energy technologies, this plan provides incentives for the construction of new polluting coal plants," they said. They call on the Commission to the commission to "vehemently oppose the German proposal", as it runs counter to the climate intentions of the emissions trading scheme.

EU member states have until 30 June to submit their CO2 allocation plans for the second trading period of the EU emissions trading scheme (EU-ETS), which covers the period 2008-2012. 

Under the ETS, some 12,000 power utilities and energy-hungry industrial installations have been able, since 1 January 2005, to buy and sell permits to emit carbon dioxide, covering about 40% of the EU's total CO2 emissions.

EU countries define a CO2 cap for each plant covered by the scheme, in line with their commitments to reduce emissions of global warming gases under the Kyoto Protocol. Companies that emit less than their individual allowance can make a profit from selling their surplus on the market. The system thereby creates an incentive for big polluters to invest in cleaner technologies. The limited number of pollution allowances is aimed at keeping prices high enough for the system to continue being worthwhile.

The ETS is the EU's flagship policy to fight climate change and meet its Kyoto pledge to reduce emissions of global warming gases by 8% by 2012.

  • The Commission has three months to approve or reject the plan

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