Will Phase 2 of the EU ETS be successful in reducing emissions

Implications: Phase 1 of the EU ETS(2005 to 2007) has been characterised by a majority of EU Nations allocating too free many Carbon Reduction  Allowances. Verified emissions out-turn for 2005 caused the traded price of caron permits to collapse, and this has been reated when the verified emissions for 2006 were published in May 2007. Allocations for Phase 2 of the EU ETS (2008 to 2012) should have been approved several months ago, but States delayed submitting National Plans and many of these have seen the proposed Cap on emissions reduced by the European Commission (EC). The EC appears to be trying to be tough on State that are not seen to be reducing emissions fast enough and setting easy targets for carbon dioxide reductions.

Analysis: The proposed Cap on emissions for Phase 2 of the EU ETS is only around 1% lower than the actual EU emissions in 2005.

Czech Republic announced in April that it would make a legal challenge to the EC decision to scale back its proposed Phase 2 Cap of 101.9 million tonnes of carbon dioxide to 86.8 milllion tonnes (Mte).

Only the UK, French and Slovenian National Allocation Plans have been approved without requiring revisions, and the proposed Spanish plan has been only marginally scaled back.

Germany is furious that its proposed Cap of 482 Mte has been reduced to 453.1 Mte.

The European Commission is trying to hold the line of reducing emissions, but individual Nations, whilst supporting the ETS in principle, do not want to reduce emissions at the expense of harming its industry.

The Commission will therefore have reconcile these differences if Phase 2 is to be successful. Phase 1 could be described as a trial of the many systems for the ETS, but Phase 2 has to be seen to be reducing emissions significantly.