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Last Updated: Thursday, 30 November 2006, 01:05 GMT
EU embarks on tough carbon cuts
Incineration plant (Getty Images)
Many countries are still seeing their carbon emissions rising
The EU has set tough carbon limits under the European Trading Scheme's second phase, to the consternation of some of the 10 states involved.

To make the scheme effective in tackling climate change, the EU has cut member states' carbon permits by 7% on average from 2008-2012.

Germany, a major polluter, said the stricter limits were unacceptable and would push electricity prices up.

Critics have accused nations of making carbon allowance levels too high.

The European Trading Scheme (ETS) aims to cut emissions by 8% from 1990 levels.

'Level playing field'

"Today's decisions send a strong signal that Europe is fully committed to achieving the Kyoto target and making the ETS a success," said EU Environment Commissioner Stavros Dimas.

This view was echoed by Michael Grubb, head economist of the UK's Carbon Trust: "They have done a lot to create a level playing field."

Britain was the only nation to see its planned carbon limit accepted by the EU.

Meanwhile, reactions from member states whose proposed limits were rejected were less positive.

Lithuania, which has been told to reduce its emissions by half, was "very upset" by the limits, while Slovakia also thought its new cap was too low.

Price rise?

By creating a market for carbon, firms are meant to have a financial motive to cut emissions.

Heavy polluters, notably power firms, are now obliged to own the right to emit each metric tonne of carbon dioxide they produce.

Depending on their needs, they can buy or sell permits. Trading carbon should enable firms to cut emissions at the lowest price.

If limits are tightened, then carbon credits, which can be bought or sold, will gain in value.

But if it is more expensive for firms - for example, pollution-intensive power companies - to buy credits, there is a worry they might pass on this cost to the end consumer.

The German industrial group VDEW said the stricter targets could hamper new power generation projects.

Helping hand

Critics argue that, even with the new lower limits, the plans are unlikely to help reduce pollution and the emissions of greenhouse gases.

According to Tony Ward, Energy Director at Ernst & Young, the cuts imposed by the EU "will make little material difference to the reduction of Europe's carbon emissions against a backdrop of accelerating global emissions.

"The move is small and is unlikely to encourage the necessary substantive behavioural change," he said.

Guenter Verheugen, the EU's Industry Commissioner, also warned that Europe's competitiveness could be affected if the targets were too strict.

The latest emissions plans concern 10 member states: the UK, Ireland, Germany, Greece, Latvia, Lithuania, Luxembourg, Malta, Slovakia and Sweden. France has withdrawn its plan for carbon allowances and will submit a tougher outline in a number of weeks, a French environment ministry spokeswoman said.

Blueprint?

The ETS scheme is the largest of its kind and was developed by the EU as a way to meet targets under the Kyoto Protocol.

The treaty was designed to tackle global warming by setting limits on greenhouse gas emissions - but was never ratified by two major industrialised nations, the US and Australia.

Other trading schemes have looked to Europe's carbon system, which is worth some 7.2bn euros ($9.4; 4.8bn), as a template.

Even though the US and Australia failed to ratify Kyoto, they have both developed voluntary trading initiatives.

While the ETS currently covers large polluters - such as power firms and oil refineries - in time it is set to include emissions from the airline industry, among others.

Member states which want to challenge Wednesday's new limits have two months to do so in a European court.


SEE ALSO
Carbon emissions show sharp rise
27 Nov 06 |  Science/Nature
Europeans face fuel 'price surge'
28 Nov 06 |  Business
Carbon trade 'to save' rainforest
23 Oct 06 |  Business
Carbon trading's real colours
16 May 06 |  Business
Concerns over EU carbon trading
15 May 06 |  Business
Q&A: The Carbon Trade
20 Apr 06 |  Business



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