GREENHOUSE GAS EMISSION TRADING WITHIN
THE COMMUNITY
(21093)
6915/00
COM(00) 87
| Green Paper on greenhouse gases emissions trading within the European Union.
|
| Legal base:
| — |
| Document originated:
| 8 March 2000 |
| Forwarded to the Council:
| 10 March 2000 |
| Deposited in Parliament:
| 29 March 2000 |
| Department:
| Environment, Transport and the Regions
|
| Basis of consideration:
| EM of 6 April 2000 |
| Previous Committee Report:
| None, but see paragraph 10.1 below
|
| To be discussed in Council:
| No date set |
| Committee's assessment:
| Politically important |
| Committee's decision:
| Cleared |
Background
10.1 At the Kyoto climate change conference
in December 1997, the Community agreed to take certain measures
to reduce emissions of a "basket" of six gases —
carbon dioxide, methane, nitrous oxide, and three so-called "industrial
gases" (hydrofluorocarbons, perfluorocarbons, and sulphur
hexafluoride). As was noted in the Commission's subsequent Communication
in June 1998[11],
emphasis was placed upon the need for flexible mechanisms, and
the Kyoto Protocol allows for "emissions trading" between
countries, under which a country which chooses to go beyond its
Kyoto target can "sell" the excess to those finding
it more difficult to meet their commitment. Similarly, many developed
countries are proposing to allow their businesses to participate
in emissions trading, and the Government says that work is in
hand to devise a domestic emissions trading scheme within the
UK, which is intended to be consistent with the system under the
Protocol, due to begin in 2008. The current document outlines
the Commission's thinking on an equivalent Community scheme, and
would comprise one of the measures mentioned in its separate Communication[12]
to the Council ("Towards a European Climate Change Programme"),
on which we are also reporting today.
The current document
10.2 In this Green Paper, the Commission
points out that a trading scheme will not only provide a "certainty
of environmental outcome", but will also, for any given reduction
in emissions, result in lower compliance costs for both buying
and selling companies. It thus enables market mechanisms to achieve
a pre-determined environmental outcome at the lowest cost. The
Commission also suggests that the wider the scope of the system,
the greater the potential for lowering costs, which it says points
to covering all six greenhouse gases, and all emission sources.
However, it recognises that there are "sound scientific and
practical reasons" why it might not be advisable to go that
far at this stage. It therefore concludes that a prudent approach
would be to concentrate on large fixed point sources of carbon
dioxide (which it says accounts for about 80% of the Community's
greenhouse gas emissions), and where monitoring and supervision
would be more feasible, but to be open to gradual extension in
terms of geographical, sectoral and gas coverage.
10.3 The document then goes on to discuss
the justification for a Community scheme, and some of the issues
to which this would give rise. In essence, it suggests there are
two principal arguments for a co-ordinated approach. First, to
avoid creating barriers to trade and distortions of competition,
which could damage the internal market. Secondly, greater cost
savings and administrative simplicity, though the Commission recognises
that there is a trade-off between this latter aim and maintaining
greater autonomy for Member States. It therefore sets out three
possible models, with varying degrees of Community intervention,
ranging from a Member State-driven scheme (where the Community
merely maintains oversight) to a harmonised approach (in which
all the essential elements would be agreed at Community level).
The middle option would be to develop a Community scheme, but
to leave Member States with some degree of choice as to whether,
and to what extent, they participate, and possibly some choice
in the key implementing rules, whilst minimising any distortions
of competition.
10.4 As regards the policy options for a
Community scheme, the Green Paper suggests that sectoral coverage
should be determined by environmental effectiveness, economic
efficiency, the potential effects on competition, and administrative
feasibility. It goes on to say that about 45% of carbon dioxide
emissions would be covered by concentrating on six sectors —
electricity generation, iron and steel, refining, chemicals, glass,
pottery and building materials, and paper and printing. It also
suggests that the different rates of progress among Member States
in developing emissions trading mean that a fully co-ordinated
Community scheme might not be feasible at this stage. Thus, in
the initial stages, it might be necessary instead to consider
either an "opt-in" arrangement (which the Commission
acknowledges would be highly complex to manage), or one under
which a Community framework would be established, with Member
States being able to "opt out" for a limited time as
regards certain sectors.
10.5 The Commission goes on to highlight
the problems that would arise over the initial allocation of emission
allowances as between trading and non-trading sectors, between
trading sectors, and between companies, and it places great stress
on the need to ensure an equitable burden between those within
any trading system, and those outside. It also emphasizes the
importance of the allocation method, where it sees the choice
as between auctioning (which it says would give all companies
the chance to acquire licences, and apply the "polluter pays"
principle) and allocation free of charge (which might be more
attractive to companies on cost grounds, but where it would be
difficult to find a suitable historical reference period). Finally,
the Green Paper stresses the need to determine how emissions trading
would relate to existing technical regulation, taxation and environmental
agreements, and the importance of compliance and enforcement.
The Government's view
10.6 In his Explanatory Memorandum of 6
April 2000, the Minister for the Environment (Mr Meacher) points
out that, since this is a consultation paper, with relatively
little in the way of specific proposals, it is not easy to draw
out policy conclusions for the UK, but that the work which has
already been done in this country on emissions trading "should
leave us well-placed to play a leading role in developing and
taking part in any European-wide trading scheme". However,
he adds that there are inevitably some concerns that the Commission's
proposals may not sit well alongside the existing policies which
have been announced in the UK, particularly as regards the indicative
list of sectors and gases identified by the Commission, and that
the UK would want to be assured that the proposal would fit with
international emissions trading under the Protocol, potentially
involving all developed countries. He also stresses that the Government
will be consulting widely before issuing its response to the Green
Paper, for which the Commission has set a deadline of 15 September.
Conclusion
10.7 Like the wider Commission Communication
on the measures needed for the Community to meet its Kyoto commitments
(on which we are also reporting today), this document provides
only a fairly general analysis, and is intended essentially as
a consultation exercise ahead of any attempt to implement an emissions
trading scheme within the Community. Moreover, the questions on
which the Commission is seeking views demonstrate that, whatever
the theoretical attractions of such a scheme, a great deal depends
on the (as yet unspecified or unresolved) detail. Consequently,
although we are clearing the document, it is nevertheless of sufficient
importance to draw to the attention of the House. We would
also like the Minister to let us know if the Government's consultation
exercise should throw up any major concerns not already identified
in his Explanatory Memorandum.
11 (19217) 9443/98; see HC 155-xxxv (1997-98), paragraph
8 (22 July 1998). Back
12
(21092) 6914/00; see paragraph 9 above. Back
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