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Carbon emissions: tough love from Brussels

THE EU has cut carbon dioxide (CO2) emissions allowances under Europe's Emissions Trading Scheme (ETS) in an attempt to achieve its Kyoto Protocol targets. The European Commission has ordered nine out of 10 governments to cut their proposed limits for the ETS' second phase, which runs from 2008 to 2012, by an average of 7%. In total, proposed allocations have been reduced by 46.86m tonnes of CO2 (tCO2) a year to 860.1m tCO2; the UK is the only country out of the 10 not to have its proposed cap reduced.

EU officials hope its tougher stance will restore credibility to the scheme, which has suffered because national governments, which allocate allowances to energy-intensive industrial plants within their own borders, were too generous with their own industries in the first phase, from 2005 to 2007. The excess of permits led to a slump in the price of carbon last year, removing incentives for industrial plants to become less wasteful with energy and removing the market signals needed to encourage long-term investment in green technologies.

First-phase allocations were also criticised for being unfair on countries that had imposed relatively tough limits, such as the UK. The Confederation of British Industry welcomed the cut in allowances. Deputy director-general John Cridland said: "Our worry was that the UK's ambitious approach to reducing emissions was not being matched by other EU countries, putting our companies at a competitive disadvantage."

The 10 proposed National Allocation Plans (NAPs) – those of Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the UK – account for around half of the allowances in the ETS. Environment commissioner Stavros Dimas claimed the decision shows "Europe is fully committed to achieving the Kyoto target and making the ETS a success." The Commission had assessed national plans in a "consistent way to ensure equal treatment of member states and create the necessary scarcity in the European carbon market", he added.

However, some analysts said the 7% reduction may not be sufficient to lower emissions in line with Kyoto requirements, especially because the energy-intensive industries that are covered by the scheme account for just half of the EU's emissions.

Jayesh Parmar, a partner at Ernst & Young, a consultancy, says the "slightly tighter" targets were "a move in the right direction". But he adds that the "strategic issue" of establishing a consistent approach to reducing emissions across the EU ETS countries remains unsolved. The fairness of the way the cap-and-trade scheme is applied in different countries – for example, in terms of the mechanism for establishing the baseline from which CO2 emissions must be cut – has been frequently called into question.

Meanwhile, the Commission has started infringement procedures against Austria, Czech Republic, Denmark, Hungary, Italy and Spain for not submitting their NAPs yet. The deadline was 30 June.n

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