By Jonathan Stearns
Dec. 13 (Bloomberg) -- European Union negotiators agreed to let energy and manufacturing companies import 11 percent more emission credits through 2020 to reduce the cost of stricter domestic caps on pollution blamed for climate change.
The accord between European Parliament and national government representatives allows United Nations-backed credits created through energy-efficient projects in developing countries such as China to cover an estimated 1.554 billion metric tons of EU emissions in 2008-2020 rather than 1.394 billion tons as proposed by the European Commission in January. UN permits are cheaper than EU allowances and can be used as an alternative for compliance under the emissions-trading program.
The negotiators reached the deal today in Brussels, Philippe Ray, a spokesman for the French government, which holds the EU’s rotating presidency, said by telephone. The accord must be rubber-stamped by the 785-seat EU Parliament and national governments when they vote on broader emissions legislation underpinning the EU’s goal to cut greenhouse gases by a fifth in 2020 compared with 1990.
The provision on imported credits is part of a draft EU law to tighten annual carbon-dioxide curbs on electricity, steel, paper and other industries now in the EU emissions-trading system by 11 percent on average in 2013-2020 compared with 2008-2012. The system, the world’s biggest greenhouse-gas market, requires companies that exceed their quotas on CO2 discharges in the EU to buy permits from businesses that trimmed emissions.
Floors and Ceilings
In raising the ceiling on EU imports of UN credits, the accord among negotiators also narrows national differences in access to this market. Under the original proposal by the commission, the EU’s regulatory arm, the right to UN permits in 2008-2020 would range from zero for Estonia to 20 percent for Germany.
The agreement sets an 11 percent floor for companies with limits below that level and lets businesses with higher ceilings keep those, building on an existing plan to restrict the use of imported credits in 2013-2020 to unexhausted quotas fixed for 2008-2012.
The accord among negotiators to boost the overall level on imported credits by 160 million tons is a compromise because the EU Parliament’s environment committee voted in October to raise the ceiling by 168 million tons, or 12 percent, according to a negotiating paper.
The ceiling would apply as long as no international agreement has been reached to replace the global Kyoto Protocol, which expires in 2012. The right of EU companies to use UN credits would increase in the event of a new global accord.
Imported Credits
Meanwhile, the use of imported credits by companies in the emissions-trading system in 2008-2020 will represent a maximum 50 percent on average of their reduction efforts below 2005 levels.
Today’s accord among negotiators also establishes specific rights to use UN credits for three industries that will be newcomers to the emissions-trading system in 2013: aluminum, chemicals and airlines.
The level for aluminum and chemical companies, due to join the system in 2013, will be about 4.5 percent of their verified emissions in 2013-2020.
The amount for airlines, which will join in 2012 under a different law that has already been approved, will be around 1.5 percent in 2013-2020. The EU has already set a limit for carriers in 2012 of 15 percent.
On a separate part of the draft law on emissions trading in 2013-2020, the negotiators agreed to allocate fewer of the allowances that make up the shrinking EU CO2 quotas for free, backing a compromise struck yesterday by EU leaders.
Settled
The aim is to move toward permit auctions while giving relief to eastern European electricity producers that rely on coal and to steel, paper and other industries across the EU that face an economic slump.
Allowance auctions for existing eastern European power plants will start at 30 percent in 2013 and rise to 100 percent in 2020. All other EU utilities will face full auctioning starting in 2013, as proposed by the commission.
The auctioning rate for manufacturers will start at 20 percent in 2013 -- the level proposed by the commission -- and rise to 70 percent in 2020. The commission had sought 100 percent auctioning for manufacturers in 2020.
On a third element of the draft legislation, the negotiators endorsed yesterday’s decision by European heads of government to set aside 300 million EU emission allowances from a planned reserve for new plants to subsidize projects that aim to store CO2 underground. Companies including Vattenfall AB and Royal Dutch Shell Plc have called for government aid to develop the costly technology.
The EU Parliament is due to vote on the whole draft law on Dec. 17 in Strasbourg, France.
To contact the reporter on this story: Jonathan Stearns in Brussels at jstearns2@bloomberg.net
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