Revision of the EU's Emissions Trading Scheme

Implications: The article reflects the lack of consensus on Kyoto amongst EU Member States.

Lack of consensus on targets also translates, more importantly, into lack of consensus on Clean Development Mechanisms.

Lack of consensus on Clean Development Mechanisms freezes important Emissions Trading projects such as reforestation, tropical forest management, carbon sinks in developing countries. 

Analysis: The question regarding emissions cuts is not how much, but how.

One way is the Emissions Trading Scheme (ETS), set out in EU Directive 2003/87 which will be revised in October of this year.

Clean Development Mechanisms (CDM), such as reforestation projects are linked through the Linking Directive, but carbon sinks are clearly out of the current Directive.

Member States will fight for different revisions, depending on national policy on Climate Change. Spain and Italy for example favour a new ETS which promotes CDMs in developing countries (especially in Latin America and North Africa). This would allow local industry to continue within a business as usual scenario and offset CO2 emissions through CDMs.

It also generates new opportunities for new ETS service companies, which the Spanish government has already highlighted as key in its Climate Change Strategy.

Other EU Member States will argue that extending CDMs to carbon sinks and reforestation, will create competition distortions with some EU Member States forced to make greater efforts to cut local CO2 emissions while other Member States remain within a business as usual scenario.

Negotiations between EU Member States will take place throughout the year, but key at the moment is to identify the starting positions held by each in order to identify the starting ground and be able to predict likely middle ground outcomes.