The European Parliament after eleven months of long and tumultuous debate among the various countries and constituencies reached an agreement called 20/20/20. By 2020 the EU plans to address climate change by achieving: a 20% reduction in greenhouse gas emissions, a 20% improvement in energy efficiency, and a 20% share for renewables in the EU energy mix. The EU plans to extend and amend its cap-and-trade program referred to as the EU Emissions Trading System or ETS to control greenhouse gas emissions as well.
A compromise was reached to address concerns by industry in the former communist countries that depend almost entirely on old coal-fired power plants for their electricity. The EU agreed to provide free carbon allowances to industries that face stiff international competition as a result of greenhouse gas reductions if they face a 5 percent increase in costs. The former communist countries will receive 70 percent of their carbon allowances without charge in 2013. The exemption will be fazed out over time and end in 2020, when all allowances in these countries must be purchased at auction.
The revised EU ETS will apply from 2013 to 2020 and is designed to reduce greenhouse gas emissions by 21 % of 2005 levels. The EU ETS is a "cap and trade" system: it caps the overall level of emissions allowed but, within that limit, allows participants buy and sell allowances as they require, so as to cut emissions cost effectively. The Community-wide quantity of allowances issued each year will decrease in a linear fashion, so as gradually to reduce the overall level of emissions each year.
The ETS currently covers over 10,000 installations in the energy and industrial sectors, which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas (GHG) emissions (the remaining 60 % will be covered by the 'non-ETS' Effort Sharing decision).
In the first and second ETS trading periods (2005 -2012) the great majority of allowances were allocated free of charge to installations. The revised directive establishes auctioning from 2013 in principle (as proposed by the Commission and backed by the Environment Committee), but includes several exceptions, as advocated by the European Council on 12 December 2008.
The "effort sharing" decision sets binding national targets for each EU Member State to reduce greenhouse gas emissions from non-ETS sources (e.g. road and sea transport, buildings, services, agriculture and smaller industrial installations), between 2013 and 2020. These sources currently account for about 60% of all EU greenhouse gas emissions. The decision aims to reduce these emissions by 10% overall between 2013 and 2020, so as to contribute towards the EU's overall aim of a 20% reduction in total greenhouse gas emissions by 2020. The effort sharing decision is the first of its kind worldwide.
The EU Parliament also approved a proposed directive providing for the legal framework for the new carbon dioxide capture and storage technology (CCS). To cut their CO2 emissions, industrial installations and power plants could in the future use this new technology to capture CO2 and store it "permanently and safely underground" in geological formations. Great Britain's Prime Minister Gordon Brown succeeded in winning a fund of 6 billion Euros to invest in technology to capture and store carbon dioxide from coal-fired power plants in underground formations. The fund will apparently be established by earmarking 300 million allowances for CCS.
A new regulation will set emission performance standards for new passenger cars registered in the EU. The compromise backs the Commission's proposed target of an average of 120g of CO2/km for the whole car industry by 2012, compared to the current levels of 160g/km. The regulation sets an average target of 130g CO2/km for new passenger cars to be reached by improvements in vehicle motor technology. It will be supplemented by additional measures to achieve a further 10g/km reduction, so as to reach the 120g/km target, through other technical improvements. The compromise introduces a long term target for 2020 for the new car fleet of average emissions of 95 g CO2/km.
Manufacturers will be given interim targets of ensuring that average CO2 emissions of 65% of their fleets in January 2012, 75% in January 2013, 80% in January 2014 and 100% from 2015, have to comply with each manufacturer's specific CO2 emissions target. In case the average emissions of CO2 exceed the targets, manufacturers will have to pay fines.
The revised fuel quality directive requires fuel suppliers to reduce greenhouse gas emissions caused by extraction or cultivation, including land-use changes, transport and distribution, processing and combustion of transport fuels (i.e. fossil fuels like petrol, diesel and gas-oil and also biofuels, blends, electricity and hydrogen) of up to 10% by 2020.
The adoption of post-2012 greenhouse gas reductions is a critical first step in the process of moving toward a global carbon cap and trade system. The EU has laid down the first step internationally to create the atmosphere for negotiations of a post-Kyoto climate change treaty. The negotiations in Poznan, Poland were to some extent inconclusive, but the Bush Administration was not going to make any commitments late in its administration and has not been willing to take steps to impose a greenhouse gas reduction program in the United States. 2009 could shape up to be the Year of Climate Change.
I will further discuss the other three developments in late 2008 that may lead to a global carbon-constrained economy.
