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Changes to EU Emissions Trading Scheme

DATE: 24.06.2011

 

In April 2009 the European Union adopted a package of measures intended to amend and strengthen the framework of climate change legislation – and which promises to have a significant effect upon the operations of the powergen sector. 

Directive 2009/29/EC “improves and extends” the greenhouse gas emission allowance trading scheme of the EC, by incorporating new objectives to reduce the overall greenhouse gas emissions of the EC by at least 20 per cent below 1990 levels by 2020, and by 30 per cent in the event of satisfactory international agreement being reached. 

Under the amended scheme, individual Member States will no longer be responsible for distributing allowances pursuant to national allocation plans – as occurs at present. Instead, following the end of the current allocation plans after 2012, a uniform European cap on emissions allowances will be administered by the EC. This cap will decrease in a linear manner on an annual basis, with the rate of linear decrease to be reviewed in 2020.   

The free allotment of emission allowances is to be withdrawn from the powergen sector following the end of the current allocation plan, and is to be replaced by an auction mechanism, the details of which are to be finalised by June 2010. 

It is noteworthy that the climate change regime has attracted the attention of the Irish Commission on Taxation, which recommended in its 2009 Report the imposition of a carbon tax on fossil fuels, at a rate which approximates the price of carbon emission allowances. There now appears to be a clear commitment on the part of the Irish Government to introduce a carbon tax in the Budget to be delivered in late 2009. This tax is expected to be levied on carbon emissions other than those already covered by the EU allowance trading scheme - an exception that will avoid the "double carbon taxation" of carbon-emitting activities.

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