What is the European Emissions Trading Scheme?
Some key facts about the European Union's carbon market.
** The EU's carbon market is the 25-nation bloc's main weapon against climate change and is meant to put a price on emissions of carbon dioxide (CO2) and so motivate industry to look for clean sources of energy.
** CO2 is one of several greenhouse gases that trap heat in the atmosphere and are expected to contribute to potentially catastrophic climate change -- including droughts, floods and heatwaves -- by 2100, if emissions continue unchecked.
** CO2 is a by-product of burning fossil fuels like coal, oil and gas for power and transport. Alternative sources of energy like biofuels, wind, solar and nuclear have much lower or zero CO2 emissions.
** Europe's carbon trading scheme launched in 2005 and covers almost half of the European Union's CO2 emissions, from energy-intensive sectors including power, pulp, paper, ferrous metals, oil, gas, cement, lime and glass.
** The scheme is meant to drive down CO2 emissions and so help the EU meet its Kyoto Protocol target of cutting its greenhouse gas emissions by 8 percent by 2012 versus 1990 levels.
** The EU scheme works on a "Cap and Trade" basis -- each installation covered by the scheme gets a certain quota of emissions permits and they can buy or sell permits depending on whether they exceed or undercut that quota. There is an overall European quota cap which cannot be exceeded.
** Installations must surrender by 30 April each year the number of permits equalling their total emissions for the preceding calendar year.
** In its first phase from 2005-07, the European market allocated permits allowing 2.19 billion tonnes of carbon dioxide emissions per year from some 11,428 industrial installations across some 25 EU member states.
** In 2005 actual emissions were roughly some 1.97 billion tonnes, meaning there was a surplus of permits which sent carbon prices crashing in April and May this year, when the surplus was revealed.
** Emissions permits for December 2006 delivery traded at some 30 euros ($39.41) in April 2006, but subsequently crashed and were trading at 8.5 euros on the European Climate Exchange on Tuesday.
** On Wednesday the European Commission gets the chance to restore a higher carbon price for the second phase of the market from 2008-12 by rejecting member states' proposed future emissions plans, which most analysts say are too lax.
** According to the World Bank, the EU carbon market traded some 764 million tonnes of emissions permits worth $18.8 billion in the first nine months of 2006, versus 324 million tonnes worth $8.2 billion in the whole of 2005, the market's first year.