1、Congressional Research Service The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RL33581Climate Change: The European Unions Emissions Trading System (EU-ETS)July 31, 2006Larry ParkerSpecialist in Energy PolicyResources, Science, and Industry DivisionClimate Change:
2、 The European Unions EmissionsTrading System (EU-ETS)SummaryThe European Unions (EUs) Emissions Trading System (ETS) is a cornerstoneof the EUs efforts to meet its obligation under the Kyoto Protocol. It covers morethan 11,500 energy intensive facilities across the 25 EU member countries, includingo
3、il refineries, powerplants over 20 megawatts (MW) in capacity, coke ovens, andiron and steel plants, along with cement, glass, lime, brick, ceramics, and pulp andpaper installations. Covered entities emit about 45% of the EUs carbon dioxideemissions. The trading program does not cover emissions of n
4、on-CO2greenhousegases, which account for about 20% of the EUs total greenhouse gas emissions. Thefirst trading period began January 1, 2005. A second trading period is scheduled tobegin in 2008, with a third one planned for 2013. In deciding on its trading program,the European Commission (EC) adopte
5、d a “learning-by-doing” approach to preparethe EU for the Kyoto Protocols emission limitations. The EU does not have majorexperience with emissions trading, and the EC felt that an initial program beginningin 2005 would give the EU practical familiarity in operating such a system.At first glance, it
6、 would appear that the EU may have little difficulty meetingits Kyoto Protocol requirements during the second trading period. The anticipateddeficit between the second trading period for the original 15 Member States can becovered by trading with the 10 newer Member States that anticipate a surplus.
7、 Also,credits are likely to be available through Joint Implementation (JI) and CleanDevelopment Mechanism (CDM) projects sanctioned under the Protocol.However, there are other considerations. The availability of surplus creditscreated via JI and CDM is restricted by the EC requirement that such cred
8、its be“supplemental” to a countrys domestic efforts. Each country is to spell out what“supplemental” means in its National Allocation Plans (NAPs) for the second tradingperiod. Individual countries are likely to define that term differently restrictingallowance trades and purchases in some countries
9、.Another consideration is the overall commitment of the Kyoto Protocol. Asnoted earlier, the ETS covers only a percentage of the overall greenhouse gasemissions in the various Member States of the EU. Some sectors not covered by theETS may grow faster than sectors covered by it, creating difficultie
10、s for compliance.In particular, the transportation area is already a source of concern.A final consideration for the ETS is its suitability for directing long-terminvestment toward a low-carbon future the ultimate goal of any climate changeprogram. It is too early to tell whether the ETSs market sig
11、nal and individualcountries NAPs will move investment in the appropriate direction. The early signsare not particularly encouraging, with the 2005-2008 NAPs producing an over-allocation of allowances and one major Member State (Germany) attempting to directits second NAP toward carbon-intensive, coa
12、l-fired electric-generating facilitiesrather than low-carbon alternatives. Reluctance by countries to redirect their NAPsand an inconsistent price signal from the ETS make the long-term effect of the ETSuncertain.ContentsOverview 1Implementing the ETS: National Allocation Plans 4Results From the Fir
13、st Year 5Emissions Levels 5Market Activity, Prices, and Impact .8Use of Clean Development Mechanism (CDM) and Joint Implementation (JI) .11Issues 12Tightening of Emissions Caps .13Harmonizing NAPs .16New Entrants 18Definition of Affected Units 19Expansion of Coverage 20Conclusion 20Appendix: Norways
14、 Trading System.22List of FiguresFigure 1. CO2 Market: Even If No “Big” News Highly Volatile .9Figure 2. CO2 Market: Large Price Changes in Very Short Amount of Time.10Figure 3. There is a Very Long-Term Correlation Between CO2 and Electricity Price: Link Via Marginal Producer 11List of TablesTable
15、1: Cost of Reaching Kyoto Target to EU Member States in 2010 3Table 2. Summary Information Per Member State 6Table 3. Importance of EU ETS Topics .13Table 4: Comparison of 1stand 2ndTrading Period ETS Caps.14Table 5: NAP Harmonization Issues 17Table 6: International Supply of Emissions Credits and A
16、llowances .211Six gases are included under the Kyoto Protocol: carbon dioxide, methane, nitrous oxide,hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. The United States has notratified the Kyoto Protocol and, therefore, is not covered by its provisions. For moreinformation on the Kyoto
17、 Protocol, see CRS Report RL30692, Global Climate Change: TheKyoto Protocol, by Susan Fletcher.2Norway, a non-EU country, also has instituted a CO2trading system (described inAppendix A). Various other countries and a state-sponsored regional initiative located inthe northeastern United States invol
18、ving several states are developing mandatory cap-and-trade system programs, but are not operating at the current time. For a review of theseemerging programs, along with other voluntary efforts, see International Energy Agency,Act Locally, Trade Globally (2005). 3P.L. 101-549, Title IV (Nov. 15, 199
19、0).Climate Change: The European UnionsEmissions Trading System (EU-ETS)OverviewClimate change is generally viewed as a global issue, but proposed responsestypically require action at the national level. With the 1997 Kyoto Protocol now inforce, countries that ratified the protocol are developing app
20、ropriate implementationstrategies to begin reducing their emissions of greenhouse gases.1In particular, theEuropean Union (EU) has decided to use an emissions trading scheme (called a “cap-and-trade” program), along with other market-oriented mechanisms permitted underthe Protocol, to help it achiev
21、e compliance at least cost.2The decision to useemission trading to implement the Kyoto Protocol is at least partly based on thesuccessful emissions trading program used by the United States to implement itssulfur dioxide (acid rain) control program contained in Title IV of the 1990 CleanAct Amendmen
22、ts.3The EUs Emissions Trading System (ETS) is a cornerstone of the EUs effortsto meet its obligation under the Kyoto Protocol. It covers more than 11,500 energyintensive facilities across the 25 EU Member countries, including oil refineries,powerplants over 20 megawatts (MW) in capacity, coke ovens,
23、 and iron and steelplants, along with cement, glass, lime, brick, ceramics, and pulp and paperinstallations. Covered entities emit about 45% of the EUs carbon dioxide emissions.The trading program does not cover emissions of non-CO2greenhouse gases, whichaccount for about 20% of the EUs total greenh
24、ouse gas emissions. The first tradingCRS-24More information, including relevant directives, on the EU-ETS is available on theEuropean Unions website at http:/europa.eu.int/scadplus/leg/en/lvb/l28012.htm. 5Pew Center on Global Climate Change, The European Union Emissions Trading Scheme(EU-ETS): Insig
25、hts and Opportunities (no date), available at http:/www.pewclimate.org/docUploads/EU%2DETS%20White%20Paper%2Epdf.6Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003establishing a scheme for greenhouse gas emissions allowance trading within theCommunity and amending
26、 Council Directive 96/61/EC.7Commission of the European Communities, Green Paper on Greenhouse Gas EmissionsTrading within the European Union (presented by the Commission), Brussels, COM(2000)87 final (Mar. 8, 2000), p. 10.period began January 1, 2005. A second trading period is scheduled to begin i
27、n2008, covering the period of the Kyoto Protocol, with a third one planned for 2013.4Under the Kyoto Protocol, the then-existing 15 nations of the EU agreed toreduce their emissions by 8% from 1990 levels under a collective arrangement calleda “bubble.” By 2001, collective greenhouse gas emissions i
28、n the EU were 2.3%below 1990 levels, mostly the result of a structural shift from coal to natural gas inthe United Kingdom and the incorporation of East Germany into West Germany.Several countries, including Ireland, Spain, and Portugal, experienced emissionsgrowth of over 30% during this period.5In
29、 light of the Kyoto Protocol targets, theEU adopted a directive establishing the EU-ETS that entered into force October 13,2003.6The importance of emissions trading was elevated by the accession of 10additional central and eastern Europe countries to EU membership in May 2004.Collectively, these 10
30、countries greenhouse gas emissions dropped 22.6% from1990-2001, with only Slovenias emissions increasing during that time (10.4%). Thisexpansion of the EU trading zone to 25 countries greatly increases the opportunitiesfor cost-effective allowance trades.In deciding on its trading program, the Europ
31、ean Commission (EC) adopted a“learning-by-doing” approach to prepare the EU for the Kyoto Protocols emissionslimitations. The EU does not have major experience with emissions trading, and theEC felt an initial program beginning in 2005 would give the EU practical familiarityin operating such a syste
32、m. The EC also wanted the most comprehensive programpossible. As stated in its “Green Paper”:The wider the scope of the system, the greater will be the variation in the costsof compliance of individual companies, and the greater the potential for loweringcosts overall. This argues in favour of a com
33、prehensive trading scheme acrossdifferent Member States covering all 6 greenhouse gases and sinks, andencompassing all emissions sources.7Economic analysis conducted by the European Commission confirms thepotential cost-saving available from a comprehensive trading scheme. As shown inTable 1, a comp
34、rehensive trading program is estimated by the EC to reduce Kyotocompliance costs to EU countries by 3 billion euro, or one-third over a compliancescenario that does not include trading among Member countries, and by 0.9 billionCRS-38The first political decision noted by the authors was the exclusion
35、 of process emissionsfrom the chemical industry from the ETS. Catherine Boemare and Philippe Quirion,Implementing Greenhouse Gas Trading in Europe: Lessons from Economic Theory andInternational Experiences, Centre International de Recherche sur lEnvironnement et leDeveloppement, CNRS/EHESS, France (
36、June 2002), p. 5.9Commission of the European Communities, Green Paper on Greenhouse Gas EmissionsTrading with the European Union (presented by the Commission), Brussels, COM(2000)87 final (Mar. 8, 2000), p. 10.euro, or 13% below the estimate cost of compliance with the trading schemeultimately chose
37、n by the EC.Table 1: Cost of Reaching Kyoto Target to EU Member States in 2010(in billions of 1999 euro)No TradingAmong EUMember States EU-wideTrading AmongEnergyProducersEU-wide TradingAmong EnergyProducers andEnergy-IntensiveIndustriesEU-wide TradingAmong AllSectors9.0 7.2 6.9 6.0Source: EC Green
38、Paper (Mar. 8, 2000), p. 27.For a variety of reasons, the EC chose a trading system with limited coveragerather than a comprehensive system covering all sources and gases. Some Europeananalysts have noted that EU politics played an important role in preventing seriousconsideration of a comprehensive
39、 program. As noted by Boemare and Quirion:A significantly wider coverage could have been provided only by an upstreamsystem, which had been excluded by the European Commission at thebeginning of the process. The reason was again political: an upstream schemewould have too much looked like a tax.8Not
40、 surprisingly, this reason was not employed by the EC in explaining itsdecision to create a less comprehensive trading scheme at this time. As stated by theEC:. there are sound scientific and practical reasons why the Community might notwish to establish a comprehensive scheme at this stage. There a
41、re considerableuncertainties surrounding the emissions of the fluorinated gases HFC, PFC, SF6and the absorption of carbon dioxide by sinks. Allocating allowances,monitoring emissions and enforcing compliance of small mobile emitters, suchas private cars, raise complex technical and administrative is
42、sues.9For determining the size of the trading program, the EC looked at five criteria:(1) environmental effectiveness, (2) economic efficiency, (3) the potential effects oncompetition, (4) feasibility, and (5) existence of alternative policies and measures.CRS-410Commission of the European Communiti
43、es, Green Paper on Greenhouse Gas EmissionsTrading with the European Union (presented by the Commission), Brussels, COM(2000)87 final (Mar. 8, 2000), p. 1311International Energy Agency, Act Locally, Trade Globally (OCED/IEA, 2005), p. 7412Commission of the European Communities, Directive 2003/87/EC,
44、 available athttp:/ec.europa.eu/environment/climat/emissions_plans.htm It felt that starting with a relatively small number of economic sectors and sourcesthat contribute significantly to total emissions and for which trading could reducecost significantly would “substantially” satisfy these criteri
45、a.10As noted, the sixsectors chosen emit about 45% of the EU15s CO2emissions (which are about 80%of the EUs total greenhouse gas emissions). The coverage for individual countriesvaries widely; only 20% of Frances greenhouse gas emissions are covered, comparedwith 69% of Estonias emissions.11Implemen
46、ting the ETS: National Allocation PlansNational Allocation Plans (NAPs) are central to the EUs effort to achieve itsKyoto obligations. Each Member of the EU must submit a NAP that lays out itsallocation scheme under the ETS, including individual allocations to each affectedunit. For the first tradin
47、g period, each country had to prepare a NAP by March 31,2004 (May 1, 2004 for the 10 new EU Members). NAPs for the second period weredue June 30, 2006. These NAPs are assessed by the EC to determine compliancewith 11 criteria (12 for the second period) delineated in an annex to the emissionstrading
48、directive.12Criteria include requirements that the emissions caps and othermeasures proposed by the state are sufficient to put it on the path toward its Kyototarget, protections against discrimination between companies and sectors, along withprovisions for new entrants, clean technology, and early
49、reduction credits. For thesecond period, the NAP must guarantee Kyoto compliance.For the first period, the EC approved most of the necessary NAPs by the end of2004. The last NAP was approved June 20, 2006 (from Greece). In general, theprimary problem the EC found with NAPs that resulted in revisions were excessiveallocation of allowances and state efforts to permit “ex-post adjustments” to theirallocations. Excessive allocation problems resulted from states that left a gap in howthey would achieve their target, to be filled with measures to be defi
