Greenhouse Gas Control Policies in the European Union

May 7, 2012, 1:38 pm
Source: Crs

See also Overview of Greenhouse Gas Control Policies in Various Countries

Overall Greenhouse Gas emission target and timing

[1]Under the Kyoto Protocol, the European Union (EU) agreed to reduce GHG emissions of its 15 Member states in 1997 (EU-15) in aggregate by 8% below 1990 levels during the first commitment period of 2008-2012. (There is no collective target for the EU-27, the current 27 Member states of the EU.) In 2007 and 2008, EU-15 GHG emissions were approximately 5% and 6%, respectively, below 1990 levels. In November 2009, The European Commission projected that the EU-15 will surpass its obligation to reduce GHG emissions under the Kyoto Protocol.[2] The EU-15 will have reduced their domestic GHG emissions to about 7% below 1990 levels during 2008-2012. Plans by EU-15 Member states to acquire international credits through the Kyoto Protocol’s three market-based mechanisms would provide another 2.2% GHG reduction, while acquisitions by operators in the EU Emission Trading Systems may provide an additional 1.4% GHG reduction, and enhancement of carbon removals by sinks may offer another 1.0%. With additional policies and measures, the Commission projects that the EU-15 may be around 13% below 1990 levels in 2008-2015.

For the post-Kyoto period (beyond 2012), the European Council adopted on April 23, 2009 the “20-20-20” Policy”—a climate and energy package to require by 2020:

  • a 20% reduction in GHG emissions from 1990 levels,
  • a 20% share of renewable energy in the European Union’s final consumption figures (including a 10% share in each Member State’s transport sector), and
  • a 20% reduction in energy consumption.[3]

The legislation also committed to scale up the GHG emission reduction target to 30% if other developed countries make comparable efforts under a new international agreement. The purpose is to limit the global temperature rise to no more than 2°Celsius above preindustrial levels.

Principal Policy Instruments

  1. Expansion of current European Union Emissions Trading Scheme (EU ETS).[4]

  2. Effort-sharing relationships among Member States to reduce emissions in sectors not covered by the EU ETS. It will be left to Member States to define and implement policies in such sectors, although a number of EU-wide measures in areas such as efficiency standards, passenger car emission standards, and a landfill directive for waste disposal will contribute. The European Community infringement procedures and mechanisms for corrective action under the effortsharing decision are to be put in place to monitor progress.[5]

  3. Regulations stipulating mandatory national targets for the overall shares of energy from renewable sources in gross final consumption of energy, taking into account differing starting points for each Member.[6] It will be left to Member States to determine renewable share allocation among sectors.

At the national level, several EU Member states also impose carbon emission fees to some degree. Carbon fees exist in Denmark, Finland, and Sweden; they have been proposed to begin on Jan. 1, 2010 in France. Spain and Ireland reportedly have also signaled that they may consider domestic carbon fees in addition to EU and other national policies.[7] In addition, on October 5, 2009, an EU Taxation Commissioner revealed that in early 2010 the European Commission plans to propose an expansion of existing energy taxation in order to charge CO2 emission fees as well.[8] The new carbon tax would cover sectors not under the EU ETS (see below), such as agriculture, households, and transport. The proposal explicitly is intended to help the EU achieve compliance with its law to reduce GHG emissions to 20% below 1990 levels by 2020. All taxation proposals, to pass into law, require unanimous agreement of the 27 EU Member states, which may be difficult to achieve, and the assent of the European Parliament.

Covered Gases and Sectors

The only greenhouse gas covered under the original 2003 EU ETS was CO2. The expanded EU ETS to take effect in 2013 will add N2O emissions from nitric, adipic, and glyoxalic acid production, and PFC emissions from the aluminum sector. Gases not stipulated in the EU ETS, but defined as “greenhouse gases” in Annex II of DIRECTIVE 2003/87/EC include CH4, HFC, and SF6. These gases will be controlled under guidelines for sectors not covered by the EU ETS. Sectors originally covered in the 2003 EU ETS were: power and combustion installations (exceeding 20 megawatts (MW)); petroleum refineries; coke ovens; metal ore production installations; iron and steel production installations (exceeding 2.5 tons of product per hour); factories for cement (exceeding 50 tons per day), glass (exceeding 20 tons per day); ceramics including tiles, bricks, stoneware, porcelain (exceeding 75 tons per day); and production of pulp, paper and board (exceeding 20 tons per day). The expanded EU ETS will increase the scope of covered sectors beginning in 2013 to include primary and secondary aluminum production facilities; ferrous, ferro-alloy, and non-ferrous metal production facilities; mineral wool and gypsum plants; ammonia, petro-chemical and chemical plants including carbon black organics, nitric acid, adipic acid, glyoxal, organic chemicals (exceeding 100 tons per day), hydrogen (exceeding 25 tons per day), soda ash, and sodium bicarbonate. Additionally, certain categories of aviation will be incorporated into the ETS involving commercial flights departing or arriving in a territory of a Member State.[9] In the EU ETS, Member states decide a National Allocation Plan (NAP), subject to review by the EU, to give emission allowances to individual plants. In the first pilot trading period, some Member states allocated more emission allowances than needed to companies, so that revisions to the scheme in Phase III, beginning in 2013, have been adopted to avoid over-allocation, including increasing rates of auctioning allowances. Sectors not covered by the EU ETS but covered by adopted legislation include transport, housing, agriculture, and waste (see the following discussion).

Allocation of GHG reductions to various sectors

The European Union’s programs call for a 21% reduction in EU ETS sector emissions compared to 2005 and a 10% reduction in non-EU ETS sector emissions compared to 2005. This is expected to achieve an overall reduction of 14% compared with 2005, which is equivalent to a reduction of 20% compared with 1990. The EU ETS covers electricity generation and the main energy-intensive industries—power stations, refineries, iron and steel, cement and lime, paper, food and drink, glass, ceramics, engineering, and vehicles. Initially, countries allocate allowances to covered sectors, but limited auctioning of permits is planned for the future (e.g., maximum 10% of allowances are auctioned in Phase II).

Phase III ETS: Emissions from sectors covered in the EU ETS will be cut 21% from 2005 levels by 2020. A single EU-wide cap on emissions will be set for EU ETS covered sectors. Allowances will be allocated on the basis of rules harmonized across Member states. The tentative annual cap figure will begin at 1,974 million tons CO2 in 2013 and decrease annually. The total number of allowances (one allowance equals permission to emit one ton) in 2013 will begin at the average total quantity issued for the 2008-2012 period and will decrease annually at a rate of 1.74%. Free allocation of emission allowances will be progressively replaced by auctioning allowances by 2020. Auctioning will begin in 2013 at 20% and gradually rise to 70% in 2020 and to 100% in 2027. Power producers must acquire all allowances at auction in order to prevent windfall profits (following experience under the pilot trading period). Member States that are highly dependent on fossil fuels and/or States insufficiently connected to the grid (these include Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland and Romania) are allowed to apply for a derogation procedure of reduced auctioning rates for power production of 30% in 2013, gradually rising to 100% in 2020, as long as producers invest in clean technologies to the market value of the permits. Furthermore, less affluent states (the 10 above plus Greece and Portugal) will receive an increased amount of emission permits to auction amounting to 12% more than their actual share to assist in revenue generation. Each Member state will be allowed to determine use of revenue with a suggested investment of 50% toward clean technologies and pollution abatement.

Non-ETS: Sectors not covered by the EU ETS are transport, housing, agriculture and waste. The 2009 Directive proposes to cut emission in these sectors by 10% EU-wide from 2005 levels by 2020. Targets will be mandated according to each Member states’ relative wealth (based on GDP per capita and economic growth prospects) with figures ranging from -20% to +20%. Targets are binding on Member states and are enforceable through the usual EU infringement procedure.[10] If a country exceeds its annual objective, it must implement corrective measures, and will be penalized via a deduction from the following year’s CO2 allowance. Several flexibility measures are available including the possibility of trading emission cuts across countries; carrying forward (“banking”) extra emission reductions; and using a limited amount of credit from developing countries (through an offsets mechanism similar to the Kyoto Protocol’s Clean Development Mechanism).

The transportation sector has legally-binding standards for CO2 emissions from new passenger cars to apply as of 2012 in order the meet the 20% emission reduction by 2020.[11] Reductions are required to achieve 120 grams carbon dioxide per kilometer (CO2/km) for 65% of fleet in 2012, 75% in 2013, 80% in 2014 and 100% starting in 2015. A target of 95 grams CO2/km is set for 2020. Enforcement is set through financial penalties against the car manufacturers depending on how far their fleet exceeds the targets.[12]

A renewable energy mandate sets mandatory national targets for each Member state in accordance with each country’s different starting points. The purpose of mandates is to provide certainties for investment. Each country will report to the European Council by June 2010 regarding how each Member has allocated the renewable target among transport, electricity, heating and cooling sectors. A 10% target for renewable energy in the transportation sector is set at the same level for all countries.

Regulations and exemptions specific to trade-sensitive sectors

The climate and energy package in the 2009 Directive provides that the risk of “carbon leakage”[13] may be reduced by allotting free carbon allowances to businesses exposed to “significant risk of carbon leakage” (SRCL) by the cost of compliance with the EU ETS. (The European Commission must adopt a list of sectors deemed exposed to a significant risk of carbon leakage no later than December 31, 2009. A draft list was proposed in September 2009, discussed below.) However, any free allowances will not be decided until 2011. The list may be revised before 2014, based on reanalysis of trade figures, and identification of countries that make firm commitments to reduce their GHG emissions.

If international negotiations on climate change in Copenhagen do not lead to a comprehensive international agreement, several criteria permit an EU ETS-covered industrial sector to allege SRCL:

  • if the industry can demonstrate that purchasing permits increases its costs (more than 5% of gross value added) and faces international competition (non-EU trade intensity above 10%), or
  • if the industry can demonstrate that purchasing permits significantly increases its costs (more than 30% of gross value added), or
  • if the industry faces international competition (non-EU trade intensity above 30%), then it can qualify for the free allocation of allowances.

Free allocation of permits typically will not be at 100% of needs for SRCL facilities, however. Free allowances will be adjusted according to Community-wide ex-ante benchmarks so as to ensure incentives for GHG reduction. The benchmarks will be set at the average performance of the 10% most GHG emissions-efficient installations in a sector in 2007-2008. Only the most efficient businesses in a sector, therefore, have a chance to receive all of their allowances free. If a business emits more than this benchmark allocation, it will need to acquire allowances up to its actual emissions.

As of September 2009, EU analysis assessed the industries and productions potentially exposed to carbon leakage risks. Assuming that 100% of allowances were auctioned (which will not occur initially), the analysis concluded that 146 sectors (out of 258) and five additional product categories meet the EU’s criteria for being exposed to SRCL.[14] Outside of these sectors, 13 subsectors and products may be exposed to risk: food processing industries; industrial gases; nonmetallic mineral products; glass fibers (filament glass fibers); and, colors and similar preparations for ceramics/glass etc.[15] The EU analysis estimates that the listed sectors now constitute about 75% of GHG emissions covered by the EU ETS.

An alternative approach to issues of competitiveness in trade sensitive sectors put forward by the European Commission is the integration of importers into the EU ETS. Under an integrated emission trading regime, foreign producers would purchase emission certificates for their imports according to the emissions produced. In a speech in London on January 21, 2008, the President of the European Commission, Jose Manuel Barroso, said: “I think we should also be ready to [ ... ] require importers to obtain allowances alongside European competitors, as long as such a system is compatible with WTO requirements....” Beyond these measures, French President Nicolas Sarkozy, with possible interest from German Chancellor Angela Merkel, has indicated interest in potentially charging carbon levies against imports from countries that do not meet stringent environmental standards. (See fact sheet on France.)

 

caption Figure A-1. Comparison of International Fuel Economy and GHG Standards. Source: Feng An, “Revised Chart for World Standards,” Innovation Center for Energy and Transportation
(iCET) (2009). Available at http://www.icet.org.cn.

 

 

caption Figure A-2. Standardized Comparison of Select Vehicle Efficiency Standards Internationally (standards as of mid-2009). Source: Feng An, “Revised Chart for World Standards,” Innovation Center for Energy and Transportation (iCET) (2009). Available at http://www.icet.org.cn.

 

References

  1. ^This section was prepared by Richard K. Lattanzio, Analyst in Environmental Policy, with input from Larry Parker, Specialist in Energy and Environmental Policy and Jane A. Leggett, Specialist in Environmental and Energy Policy, Congressional Research Service
  2. ^http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/1703&format=HTML&aged=0&language=EN&; guiLanguage=en.
  3. ^See {COM(2008) 13 final}; {COM(2008) 16 final}; {COM(2008) 17 final}; {COM(2008) 18 final}; {COM(2008) 19 final} at http://ec.europa.eu/environment/climat/emission/pdf/com_2008_16_en.pdf.
  4. ^(2003/87/EC); see http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/628&format=HTML&aged=0&; language=EN&guiLanguage=en. Also see CRS Report RL34150, Climate Change and the EU Emissions Trading Scheme (ETS): Kyoto and Beyond, by Larry Parker.
  5. ^Each Member State is responsible for the implementation of Community law (adoption of implementing measures before a specified deadline, conformity and correct application) within its own legal system. Under the Treaties (Article 226 of the EC Treaty; Article 141 of the Euratom Treaty), the Commission of the European Communities is responsible for ensuring that Community law is correctly applied. Consequently, where a Member State fails to comply with Community law, the Commission has powers of its own (action for non-compliance) to try to bring the infringement to an end and, where necessary, may refer the case to the European Court of Justice. For additional information, see http://ec.europa.eu/community_law/infringements/infringements_en.htm
  6. ^Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009.
  7. ^See, for example, Andres Cala, Europe Warming to Carbon Tax, Energy Tribune. “Spain and Ireland, which until recently were considered unlikely candidates to follow suit because of their high unemployment rates, are also weighing adding similar levies next year. Ireland’s Finance Minister, Brian Lenihan, said recently that the government would not raise taxes to finance next year’s budget, with the single exception of a carbon tax.... Spain’s Prime Minister Jose Luis Rodriguez Zapatero, which has announced a fiscal reform to raise more money to control a rampant deficit, called the carbon tax an “interesting” proposal and added carbon taxes will inevitably be applied by most countries.” 23 Sept. 2009. http://www.energytribune.com/articles.cfm?aid=2354
  8. ^http://news.bna.com/deln/DELNWB/split_display.adp?fedfid=15354499&vname=dennotallissues&fn=15354499&; jd=a0c0y8h5r1&split=0; http://www.reuters.com/article/GCA-GreenBusiness/idUSTRE59544A20091006.
  9. ^See CRS Report R40090, Aviation and Climate Change, by James E. McCarthy.
  10. ^http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/misc/107136.pdf.
  11. ^Directive 2009/33/EC of the European Parliament and of the Council of 23 April 2009.
  12. ^http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/misc/107136.pdf.
  13. ^If one or more countries requires carbon controls that add to production costs in businesses that compete internationally, it is possible for “carbon leakage” to occur if production in the controlled countries declines because purchasers instead buy increased supply from uncontrolled producers in other countries. Though emissions may decline from the controlled facilities, they may increase at uncontrolled facilities, thereby leading to “carbon leakage.” This would offset the benefits of the emission controls.
  14. ^Of the 146 sectors, 117 have trade intensity > 30%; 27 have both estimated CO2 costs >5% and trade intensity > 10%; and two sectors have CO2 cost above 30% and trade intensity < 10%. Hans Bergman, “Sectors Deemed to be Exposed to a Significant Risk of Carbon Leakage—Outcome of the Assessment” presentation to Working Group 3 Meeting, 18 September 2009.
  15. ^http://ec.europa.eu/environment/climat/emission/carbon_en.htm.

The first version of this article was drawn from  R40936 An Overview of Greenhouse Gas (GHG) Control Policies in Various Countries by Jane A. Leggett, Richard K. Lattanzio, Carl Ek, and Larry Parker, Congressional Research Service, November 30, 2009.

 

Disclaimer: This article is taken wholly from, or contains information that was originally published by, the Congressional Research Service. Topic editors and authors for the Encyclopedia of Earth may have edited its content or added new information. The use of information from the Congressional Research Service should not be construed as support for or endorsement by that organization for any new information added by EoE personnel, or for any editing of the original content.

 

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(2012). Greenhouse Gas Control Policies in the European Union. Retrieved from http://www.eoearth.org/view/article/51cbedec7896bb431f694c43

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