Friday, September 25, 2009

EU emissions trading - the wrangling continues

My environmental economics students will soon be getting to grips with the European Trading Scheme (ETS) as part of their course.

It is useful therefore to point out the continued political wrangling behind the ETS and how it never appears to get any easier.

Te environment invariably loses with every "wrangle".

Europe wrangles over carbon emissions quotas [Reuters]

BRUSSELS (Reuters) - France, Italy and several other European Union countries weighed their chances of haggling up their EU carbon emissions quotas on Thursday, one day after Poland and Estonia successfully challenged theirs in court.

The two east European countries won their appeal on Wednesday for more generous caps on industrial emissions in the Emissions Trading Scheme (ETS), the EU's main tool for ratcheting down gases blamed for climate change.

The ruling by the European Court of First Instance, the bloc's second highest court, threw European carbon markets into uncertainty and the International Emissions Trading Association (IETA) asked countries to refrain from challenging their own quotas.

European carbon markets closed 4 percent lower, leading to a two-day fall of nearly 9 percent.

"We call on all member states to hold back from attempting to make use of a loophole that simply has to be closed for the carbon market, and European climate policy, to continue on a sound footing," IETA said in a statement.

Poland was cautious about its victory on Thursday, weighing the possibility that any re-negotiated quota might be based on emissions data from 2008, a year when industry's emissions fell as it slowed down because of the economic crisis.

European Environment Commissioner Stavros Dimas confirmed that would result in little change to the cap. "It would appear unlikely that there would be any material difference concerning the total number of allowances," he said in a statement.

Elsewhere there was little sign of restraint, with Italy complaining about its quotas and Lithuania and the Czech Republic optimistic about their own pending court appeals.

European Commission spokeswoman Barbara Helfferich played down the chances of renegotiation.

"There is no way of increasing the allowances," she told Reuters. "The ceilings have been established already."


Lithuania and the Czech Republic, which are pursuing a similar appeal to Poland, were encouraged by Wednesday's court decision.

"We will need more carbon emissions due to shutting down Ignalina nuclear power plant at the end of this year, and switching electricity generation to fossil power plants," Stasile Znutiene, at Lithuania's environment ministry, told Reuters.

Italian Prime Minister Silvio Berlusconi had already written last week to the European Commission pointing out the country's difficulties with meeting carbon quotas, an Italian government spokesman said.

Italy did not ask to renegotiate the quota, but asked for "intervention to reach a shared solution," said Paolo Bonaiuti.

A shortage of carbon permits could cost Italy about 500 million euros ($736 million) in the short term, mounting to a total of 800 million by 2012, said another Italian government official.

Several European Union countries, including France, are also discussing the possibility of increasing carbon emissions permits in a reserve fund for new businesses entering the ETS, an EU diplomat said.

"The question of the reserve for new entrants is being asked in several EU countries, among them France, but at this point there is no formal demand of reviewing the allocation plan," the EU diplomat said.