Climate Change

A global problem requiring a global solution

An improved EU emissions trading scheme

Emissions trading (1) is a system whereby an absolute cap is placed on the total quantity of greenhouse gases allowed to be emitted by certain sectors in the economy. Parties are then free to trade in rights to emit within that cap. Advantages of this system are that governments place a limit on total emissions, giving greater environmental surety, and that the scheme provides flexibility to companies, so emissions are achieved at the lowest cost to the economy.

The EU ETS is the cornerstone of the EU's strategy for fighting climate change. It is the first international trading system for CO 2 emissions in the world and has been in operation since 2005. As of I January 2008 it applies not only to the 27 EU Member States, but also to the other three members of the European Economic Area - Norway, Iceland and Liechtenstein. It currently covers over 10,000 installations in the energy and industrial sectors which are collectively responsible for close to half of the EU's emissions of CO2 and 40% of its total greenhouse gas emissions. An amendment to the EU ETS law agreed in July 2008 will bring the aviation sector into the system from 2012.

Auctioning is both more allocatively efficient and consistent with the 'polluter pays' principle. It is also widely acknowledged that power companies across Europe reaped windfall profits during the first phase of the EU ETS after they received emissions permits free of charge. Instead of receiving emission allowances for free, businesses covered by the system will have to buy a progressively higher share at auction. From 2013 around 50% of total allowances will be auctioned and the goal is to reach full auctioning by 2027. However, in the absence of a satisfactory global climate agreement, certain energy-intensive sectors whose competitiveness is judged to be at risk would continue to receive up to 100% of their allowances for free, provided they used state-of-the-art technology.

From 2013, new industrial sectors such as ammonia, petrochemicals and aluminium will be added to the ETS and the current system of fixing 27 national caps on emissions from the ETS sectors will be replaced from 2013 by a single EU-wide cap.

Emissions from sources not covered by the European emissions trading scheme

Importantly, as part of the Climate Change and Energy Package, member states have taken on binding targets to cover greenhouse gas emissions not captured in the ETS out to 2020. Individual countries within the EU have implemented and will continue to implement measures to increase efficiency and limit emissions in concert with the ETS. EU-wide initiatives such as efficiency standards for cars, product energy consumption labeling schemes and building standards also target sectors not covered by the ETS.

Renewables target

To ensure that the EU target of obtaining 20% of energy consumption from clean, renewable sources by 2020 is met, differentiated national targets have been agreed based on national wealth and renewables potential. The targets range from a renewables market share of 10% for Malta up to 49% for Sweden. Achieving this will both reduce greenhouse gas emissions and increase the EU's energy security.

For hard copy versions of Climate Change: a global problem requiring a global solutions, October 2009, please contact the Delegation on 02 6271 2777 or email delegation-australia@ec.europa.eu