The European Union prides itself on its leadership in the fight against climate change. Even before the entry into force of the Kyoto Protocol, it had adopted a proactive approach, the cornerstone of which was the organisation of an Emission Trading Scheme (ETS) and the high point the energy-climate change package adopted in December 2008.

ETS 2003: FIRST STEP

The Kyoto Protocol entered into force in February 2005, but the EU, which ratified it in April 2002, had already set about developing the legislative and technical instruments needed. In 2003, it put in place an ETS (Directive 2003/87/EC), a system that led to the start-up of the world’s first carbon market, in 2005.

The ETS Directive, amended in 2004 by the ‘Projects’ Directive (2004/101/EC), aimed at linking the Kyoto project mechanisms – Joint Implementation (JI) and Clean Development Mechanism (CDM) – to the EU ETS, was also supplemented with two regulations. The first establishes rules for monitoring and reporting of emissions (Decision 2004/156, replaced by Decision 2007/589); the second creates a standardised and secured system of registries for emissions registration (Regulation EC 2216/2004 amended by Regulation EC 916/2007). After becoming fully operational, the ETS experienced certain start-up problems, including an overly generous initial allocation of free allowances that gave industry little incentive to reduce emissions and led to a ridiculously low carbon price. In November 2008, the ETS Directive of 2003 was amended again to include aviation as from 2012 (Directive 2008/101/EC – see separate article).

‘3X20’ OBJECTIVE

The energy-climate change package, adopted in December 2008, is based on a threefold objective endorsed in March 2007 by the European Council. Given the principle that the average global temperature rise must be kept to 2°C, the EU set the objective of:

1. 20% reduction in greenhouse gas emissions by 2020, or 30% if an international agreement is concluded

2. 20% increase in energy efficiency by 2020

3. 20% share of renewable energy in the Union’s total energy consumption by 2020 (currently 8.5%) and a 10% share of biofuels in total vehicle consumption by 2020.

Six legislative texts translate these objectives into obligations for all member states.

The new ETS Directive: Directive 2009/29/EC extends the system already applying to energy and heavy industry (steel, cement, chemicals, glass and lime) to new industrial sectors, such as aluminium, ammonia production and petrochemicals, and covers two other gases in addition to CO ₂ (nitrous oxide and perfluorocarbons). The aim is a 21% reduction by 2020 of emissions from these industrial sectors compared with 2005 levels. The directive provides for the total auctioning of emissions allowances from 2013. In practice, this will be the rule from that date only for the energy sector (with numerous derogations for Eastern European countries). This paying system will be phased in for energy-intensive industry, which will receive 80% free allowances in 2013, a volume that will be cut back to 30% in 2020, with 100% auctioning becoming the rule in 2027.

Sectors exposed to the risk of carbon leakage (ie relocations) will be eligible for 100% free allowances until an international agreement is concluded. A benchmark condition applies, however: eligible industries must use the best available technologies assessed on the basis of the ten companies showing the best ecoperformance. These exposed sectors have to be identified before 31 December 2009 and member states approved a list of the sectors concerned on 18 September 2009. By 30 June 2010, the Commission will evaluate, in the light of the Copenhagen results, whether or not this list should be updated and whether it is necessary to apply protective measures for these sectors.

Lastly, the directive provides that at least 50% of quota auctioning revenues must be allocated by member states to climate change mitigation or adaptation activities, development of clean technologies, fight against deforestation and assistance for adaptation in developing countries.

Effort sharing:Decision 406/2009/EC defines the efforts to be made by each member state to reduce emissions from sectors not covered by the ETS (construction, transport with the exception of aviation, agriculture, waste and small industrial installations). Its objective is a 10% reduction of these emissions from 2005 levels by 2020. National objectives are set in terms of per capita GDP and countries with the lowest per capita GDP benefit from a transitional adaptation period and an additional 10% share of the total volume of quotas. Another 2% share of total quotas is reserved for the nine Eastern European countries. Member states may also buy emissions credits from clean development projects implemented in third countries (CDM established by the Kyoto Protocol) to the amount of at most 50% of Community emissions during the period 2013-2020 (ETS) and 3% for sectors not covered by the ETS (certain member states can go up to 4%).

Renewable energy:Directive 2009/28/EC on promotion of the use of energy from renewable sources makes provision for raising the share of renewable energy to 20% of the member states’ energy mix and increasing use of renewables in transport. It adjusts this obligation by setting binding objectives per member state. The directive establishes rules on transfers of statistics between member states, joint projects by member states and third countries, guarantees of origin, administrative procedures, information, training and access to the electricity grid for energy produced from renewable sources. It also defines very strict sustainability criteria for biofuels and bioliquids.

Carbon capture and storage:Directive 2009/31/EC on carbon (CO ₂) capture and storage lays down the legal framework for the safe exploitation of this technology in Europe. It states that the volume of quotas available (under the ETS) to finance innovative CCS technologies is €300 million “within the framework of a fair geographical distribution of demonstration projects” (at €30/tonne of CO ₂, that comes to €9 billion). This measure is expected to lead to the launch of nine or ten demonstration projects by 2015 and will test this technology. The directive also imposes on new power stations with capacity of more than 300 MW to check whether storage sites exist, whether transport infrastructures are reliable and whether it is technically and economically feasible to equip plants with CCS systems on an ex post basis. This technology, notes the text, may also receive financial support under new state aid rules.

In addition, there are two legislative texts that are not strictly speaking part of the energy-climate change package, but are closely related to it given their objectives and were adopted the same day.

Fuel quality: Directive 2009/30/EC sets a target of a 10% reduction by 2020 of greenhouse gas emissions from the production cycle for fuel used in transport. This 10% effort should break down as follows: a binding reduction target of 6% from 2010 levels by 2020, with an interim objective of a 2% reduction by 2014 and a further 4% by 2017; an additional reduction of 2% must be obtained through the use of electric vehicles or technologies limiting greenhouse gas emissions. Emissions credits could also be acquired under the CDM to allow a further reduction of around 2%. The directive provides that reductions may be obtained through the use of biofuels, alternative fuels and by reducing gas flaring at production sites. It also incorporates the sustainability criteria listed in the Renewable Energy Directive.

Emissions of CO ₂ from cars: Regulation (EC) 443/2009 limiting CO ₂ emissions from passenger cars obliges automotive manufacturers gradually to lower CO ₂ emissions from new vehicles to 130 gr CO ₂/km by 2015 (65% of the fleet in 2012, 74% in 2013, 80% in 2014 and 100% in 2015). It also defines a new long-term objective of 95 gr CO ₂/km for 2020 and sets up a sanction mechanism, which is also progressive, for overruns of emissions limits (see separate article).

The cornerstone was the organisation of an Emission Trading Scheme (ETS) // Decision 406/2009/EC defines the efforts to be made by each member state to reduce emissions from sectors not covered by the ETS