EU Risks Undermining Emissions Trading System

Member states are allotting more permits to pollute than industrial plants need.

Over 50 European economists and the World Wildlife Fund environmental group warned on Nov. 9 that EU governments risked undermining the basic economics of the bloc's innovative emissions trading scheme. The trading system, under which industrial polluters can buy and sell emissions quotas, is supposed to be the cornerstone of EU efforts to cut greenhouse gas emissions under the Kyoto Protocol.

However, the credibility of the scheme, which is still in its infancy, has taken a beating recently because member states are allotting more permits to pollute than industrial plants need. "Our analysis shows that allocations proposed at present are too lax, so they will not create adequate incentives either to cut back emissions or to fund investment that helps developing country emission reductions," said Cambridge University professor Michael Grubb.

After issuing more quotas than polluters could use in 2005, the European Commission found that most of the member states that have filed their allocation plans for the 2008-2012 period so far had once again handed too many emissions permits.

The commission has also already taken the first step towards legal action against Austria, Czech Republic, Denmark, Hungary, Italy, Portugal, Slovenia and Spain for ignoring an end June deadline to submit their national allocation plans.

In the statement signed by the European economists as well as EU Environment Commissioner Stavros Dimas, they said that governments needed to respect the basic economic principle of scarcity of supply in order to for the system to work. "Emission trading creates a price and therefore a cost to CO2 emissions. When smartly constructed, this policy instrument provides clear incentives for changes in business practices and technology investments," the statement said. "This requires scarcity in supply which must be presented by emissions caps set at a level that represents a significant departure from business as usual practices."

The EU's trading system is under close scrutiny abroad. California Governor Arnold Schwarzenegger for one is interested in setting up with a handful of east coast states a similar market in the U.S., which has refused to sign the Kyoto Protocol.

Copyright Agence France-Presse, 2006

TAGS: Regulations
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