EU Trade in CO2 emissions: 2005 launch deadline at risk

This paper focuses on the questions that remain to be answered for the timely transposition by the Member States of the EU emissions trading directive into national law.

EU Trade in CO2 emissions: 2005 launch deadline at risk

In July 2003, the EU adopted a directive on trading in greenhouse gas emissions. Its essential goals are to gain experience of this still-new environmental policy instrument, and to keep down the cost of achieving emission reduction targets set under the Kyoto Protocol. Trading is to begin in 2005.

Individual member states are currently in the process of transposing the EU emissions directive into national law. By the end of March 2004, each country is to submit its national allocation plan (NAP) to the EU. The NAP indicates the initial level of emission credits provided to those installations taking part in trading. All NAPs must then be harmonised at EU level. In parallel to this, the organisational and institutional framework conditions of the trading system must be established.

For the author, the timetable for the lead-up to emissions trading is extremely ambitious. This view stems largely from the many grey areas and unanswered questions that remain, as well as the limited time available for solving massive problems in the initial allocation of credits.

The still-unanswered questions include the following: how many emission credits will be issued? How can emissions from each installation be measured in a reliable, comparable and transparent way? Which base year is relevant for which installation? Which criteria can be used as reliable proof of emission reductions in years gone by (early actions)? How is emissions trading to be harmonised with other environmentally-motivated policy measures in individual member states?

The author sees harmonising the NAPs of the EU member states as the greatest of the upcoming challenges. This is because of the relatively high degree of freedom in allocating emission credits, and the differing degrees to which EU countries have achieved their individual emission reduction targets.

It will become clear in the near future that when it comes to implementing the (theoretically very convincing) instrument of emissions trading in practice, the devil is in the detail. It is to be hoped that politicians and industry can work together to create suitable framework conditions for its successful launch. The timetable for introduction can hardly be achieved. While this is regrettable, it should not call into question the entire concept of emissions trading.

Read the full analysis on the

Deutsche Bank Research website.