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Europe: Jury still out on EU ETS

FIGURES indicating that carbon emissions from European industry fell in 2008 will have raised the spirits of those championing the EU Emissions Trading Scheme (EU ETS). But it is too early to declare the scheme a success, given the distorting effect of lower emissions caused by reduced demand for power during the global economic slowdown.

Preliminary European Commission data for the 85% of more than 12,000 installations registered in the EU ETS for which results had been included by publication in April indicated a fall in total emissions of more than 3%, after small rises in the previous two years. This sign that the EU ETS may be starting to have the desired effect will add momentum to the efforts of negotiators to reach a climate-change deal in Oslo later this year, following preliminary talks in the Norwegian capital in March. Wider use of emissions-trading schemes is being pushed by the EU and others as an essential component in any agreement.

But negotiators know the case in favour of carbon trading as an effective way to reduce the pace of global warming is far from proved. The constraining effects of the global economic downturn on power demand will have had some effect on 2008 EU ETS data, and can be expected to have an even bigger one in 2009. That constraint will disappear as the world's economies start growing again.

Nevertheless, EU officials, who are holding back official comment on the data until full results are published late this month, are likely to be pleased that figures for 2008 have shown an emissions decline, as it was the first year in which companies were not over-allocated carbon allowances – a measure used in previous years to help persuade firms to join the scheme at little immediate risk to their finances.

The preliminary data indicate that installations included emitted around 145m tonnes (around 7%) more carbon dioxide (CO2) in 2008 than the 1.98bn tonnes for which they had been allocated allowances, according to analysis by research firm Carbon Market Data. The European Climate Exchange CER futures contract for December 2009 settlement rose by nearly €0.50 to €10.92 on 1 April, when the data was released. While this was comfortably above the year's lowest close of €7.39, on 12 February, the market remains a pale shadow of that seen in August/September 2008, when the future topped €21.00. By mid-April, it was still trading just below the €11.00 level. However, downward pressure on European Union Allowance (EUA) prices is likely in the coming months, as reduced output from power stations and industrial plants prompts further falls in emissions, leaving more utilities with surplus allowances to offload onto the market.

The 12 biggest emitting installations in 2008 were coal-fired power stations, of which seven were German (see Table 1). But emissions from the biggest German polluters fell slightly over the year, partly because of a shift in fuel from lignite to bituminous coal, which produces less CO2. UK power stations fared less well in the survey, with emissions from the top-five edging up more than 2% to around 60m tonnes. The UK's top emitter was the Drax coal-fired power station – the fourth-biggest polluter in the EU.

The biggest emitter overall was the Belchatow power station in Poland, which pumped out 30.86m tonnes of verified emissions, a rise of 2.5m tonnes over 2007. The top-15 emitters, which included two iron and steel plants, produced 255.5m tonnes of CO2 between them – around 7.5% of total emissions from installations included.

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