BioEd Online

The first year of the European Union's emissions trading system, a scheme by which industries can buy and sell 'carbon credits' to stay under their yearly quota of greenhouse gas emissions, has yielded a surprise. On 15 May, the European commission released data showing that Europe's major industries actually emitted 44 million tonnes less CO₂ in 2005 than they were allowed.

The European Union's (EU's) 'cap and trade' system was introduced in January 2005 as a means to cut greenhouse gas emissions at low economic costs. If an individual company emits more gas than envisaged it must buy extra emission allowances on the market. If a company owns more allowances than it needs, it can sell them.

The system is meant to provide incentives for producers to invest in clean technologies, and for the electricity sector to switch from coal to less carbon-rich energy sources, such as natural gas.

But it is unlikely that 2005's shortfall in emissions is due to industry making great strides to clean up its act, says Barbara Helferich, a spokeswoman for the European commission. "It is more likely that we have miscalculated the amount actually needed and therefore over-allocated emissions rights," she says.

Market meltdown

The new market has experienced some growing pains, and with a lack of data underlying the scheme the price of carbon has been fluctuating wildly. Rumours of surplus allowances hit the market in late April, causing prices to plunge from €31 to €12 per tonne. They dropped to a record low of €8 per tonne on Friday 12 May, but recovered on Monday when the reality fell short of the rumours.

Critics say that the allocation of emission rights must now be significantly tightened for the 2008-2012 trade period, to avoid a market meltdown.

"Only then can the EU hope to meet its climate change targets," says Ruta Bubniene, policy officer at the Brussels-based Climate Action Network Europe.

Hand outs

The commission had initially allocated a total of 1,830 million emission allowances, each worth the equivalent of one tonne of CO2, to 9,400 power plants and other energy-intensive companies throughout Europe. But the installations altogether emitted only 1,785 million tonnes in 2005, according to their independently verified accounts. Some countries, namely Cyprus, Luxemburg, Malta and Poland, failed to report any data due to technical difficulties, but they represent such a small percentage of European emissions that the overall shortfall is unlikely to change when these final numbers roll in.

Germany and France had the largest surpluses of allowances, falling under their budget by 21.4 million tonnes and 19.4 million tonnes, respectively. Britain and Spain topped the list of countries that went over their limits, with the United Kingdom going 33 million tonnes over, and Spain 18.9 million tonnes.

The United Kingdom had previously complained that it suspected its limit was too low (see ' UK battles stringent limits on emissions'). Five British power generators are now suing the European commission over its decision to reject the country's bid to boost allocation by 20 million tonnes.

Cutting down

The EU, unlike the United States and Australia, has signed the Kyoto protocol on climate change, which foresees a 5% cut in greenhouse gas emissions by 2012 compared with 1990 levels. Britain, Germany, France, Sweden and the Netherlands are currently on target, but some EU countries, including Italy, Spain, Austria and Finland, are substantially behind.

Some hope that the EU system might become the nucleus of a future global emissions trading scheme. Discussions about the post-2012 future of the Kyoto protocol have today begun in Bonn, Germany (see ' Canada's role at climate talks draws fire').

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