Work
08.July 2008 - 00:00
The inclusion of EFTA states in the EU ETS
On 26 October 2007 the ETS Directive (2003/87/EC(1) ) was incorporated into the EEA Agreement, and the EFTA states are now included in the European Emissions Trading System on equal terms with the Member States. This is welcomed as the three EFTA States are both fully integrated in the internal market and are committed to solving environmental problems. However, this inclusion has raised some unexpected problems. For instance, some aspects of the Norwegian NAP are clearly contrary to both the Community’s environmental policy and European competition rules, thus negatively affecting EU industries that invest in Norway. For example, the Norwegian NAP allocates free allowances only to installations with emissions between 1998 and 2001, but nothing to more modern installations. This practice seems to lack environmental justification.
The rule favours old installations using old technology, while modern installations based on best available technology have to bear costs that make them uneconomical. A case exists where limestone from a quarry in Norway must be transported to older installations in Norway or abroad, instead of being processed in a newly built installation close to the quarry. This causes not only additional emissions but also costs for the European industry concerned. Investments made in good faith after 2001 are thus wasted. The allocation of free allowances according to the Norwegian NAP distorts competition and hinders foreign investments in Norway, thus having environmental consequences. It is inconsistent with basic considerations behind the ETS Directive and hampers the proper functioning of the system. It seems to be based on the ambition that no allowances should be allocated for free after 2012, which is not in line with the EU policy for the next trading period, in which allowances will be allocated for free on the basis of common, Community-wide rules. Matters are significantly complicated if NAPs from non-member states that are linked to the European ETS pursue policies that both violate basic competition rules and are incompatible with important elements in the Community’s policy on the matter.
Is the Commission aware of the problems that the example of Norwegian NAP policy may cause to European industry and the mutual goal of emissions reductions, thus affecting proper functioning and future of the European ETS?
As the EU ETS will expand in the coming years, does the Commission have a solution as to how to overcome the similar problems that may arise for European industry from linking emission trading systems with third countries?
(1) OJ L 275, 25.10.2003, p. 32.
8 July 2008
Answer given by Mr Dimas on behalf of the Commission
The Commission welcomes the incorporation of the European Economic Area (EEA) countries into the EU Emissions Trading Scheme (ETS).
The Norwegian National Allocation Plan (NAP) is still to be approved by the EFTA (European Free Trade Association) Surveillance Authority. The Norwegian NAP provides for around 60 % of auctioning of allowances, the highest share of all phase II national allocation plans. While the EU Emissions Trading Directive(1) only allows 10 % of auctioning in the second phase, Norway has been allowed to increase the share of auctioning allowances when linking to the EU ETS.
This deviation has been agreed upon in Decision No 146/2007 that was adopted by the Joint Committee of the EEA on 26 October 2007.
The Emissions Trading Directive leaves Member States considerable discretion how to allocate allowances. Pursuant to the provisions of the Emissions Trading Directive, in particular its Annex III, the Commission and ESA respectively only set the outer limit for the total cap of a Member State or EEA country. In addition, they need to examine if certain companies and sectors are unduly favoured through the allocation process, taking into account state aid rules. This holds true also in the case of Norway which used the margin of discretion granted by the EU Emission Trading Directive to apply a cut-off date for the allocation of free allowances. The cut-off date applies without discrimination for all individual enterprises and sectors and can serve the purposes to take into account early action of incumbents before absolute emission caps were set.
As regards linking the EU ETS to the third countries, the Commission has emphasised that in order to ensure that third country emissions trading schemes can be linked, it is essential that they provide for mandatory, absolute emission caps and robust monitoring, reporting and compliance provisions so that the environmental integrity of the EU ETS would not be jeopardised. The question of allocation of allowances is a design feature where consistency is desirable but not strictly necessary.
(1) Directive 2003/87/EC of Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, OJ L 275, 25.10.2003.
On 26 October 2007 the ETS Directive (2003/87/EC(1) ) was incorporated into the EEA Agreement, and the EFTA states are now included in the European Emissions Trading System on equal terms with the Member States. This is welcomed as the three EFTA States are both fully integrated in the internal market and are committed to solving environmental problems. However, this inclusion has raised some unexpected problems. For instance, some aspects of the Norwegian NAP are clearly contrary to both the Community’s environmental policy and European competition rules, thus negatively affecting EU industries that invest in Norway. For example, the Norwegian NAP allocates free allowances only to installations with emissions between 1998 and 2001, but nothing to more modern installations. This practice seems to lack environmental justification.
The rule favours old installations using old technology, while modern installations based on best available technology have to bear costs that make them uneconomical. A case exists where limestone from a quarry in Norway must be transported to older installations in Norway or abroad, instead of being processed in a newly built installation close to the quarry. This causes not only additional emissions but also costs for the European industry concerned. Investments made in good faith after 2001 are thus wasted. The allocation of free allowances according to the Norwegian NAP distorts competition and hinders foreign investments in Norway, thus having environmental consequences. It is inconsistent with basic considerations behind the ETS Directive and hampers the proper functioning of the system. It seems to be based on the ambition that no allowances should be allocated for free after 2012, which is not in line with the EU policy for the next trading period, in which allowances will be allocated for free on the basis of common, Community-wide rules. Matters are significantly complicated if NAPs from non-member states that are linked to the European ETS pursue policies that both violate basic competition rules and are incompatible with important elements in the Community’s policy on the matter.
Is the Commission aware of the problems that the example of Norwegian NAP policy may cause to European industry and the mutual goal of emissions reductions, thus affecting proper functioning and future of the European ETS?
As the EU ETS will expand in the coming years, does the Commission have a solution as to how to overcome the similar problems that may arise for European industry from linking emission trading systems with third countries?
(1) OJ L 275, 25.10.2003, p. 32.
8 July 2008
Answer given by Mr Dimas on behalf of the Commission
The Commission welcomes the incorporation of the European Economic Area (EEA) countries into the EU Emissions Trading Scheme (ETS).
The Norwegian National Allocation Plan (NAP) is still to be approved by the EFTA (European Free Trade Association) Surveillance Authority. The Norwegian NAP provides for around 60 % of auctioning of allowances, the highest share of all phase II national allocation plans. While the EU Emissions Trading Directive(1) only allows 10 % of auctioning in the second phase, Norway has been allowed to increase the share of auctioning allowances when linking to the EU ETS.
This deviation has been agreed upon in Decision No 146/2007 that was adopted by the Joint Committee of the EEA on 26 October 2007.
The Emissions Trading Directive leaves Member States considerable discretion how to allocate allowances. Pursuant to the provisions of the Emissions Trading Directive, in particular its Annex III, the Commission and ESA respectively only set the outer limit for the total cap of a Member State or EEA country. In addition, they need to examine if certain companies and sectors are unduly favoured through the allocation process, taking into account state aid rules. This holds true also in the case of Norway which used the margin of discretion granted by the EU Emission Trading Directive to apply a cut-off date for the allocation of free allowances. The cut-off date applies without discrimination for all individual enterprises and sectors and can serve the purposes to take into account early action of incumbents before absolute emission caps were set.
As regards linking the EU ETS to the third countries, the Commission has emphasised that in order to ensure that third country emissions trading schemes can be linked, it is essential that they provide for mandatory, absolute emission caps and robust monitoring, reporting and compliance provisions so that the environmental integrity of the EU ETS would not be jeopardised. The question of allocation of allowances is a design feature where consistency is desirable but not strictly necessary.
(1) Directive 2003/87/EC of Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC, OJ L 275, 25.10.2003.