EU Takes Steps Towards Kyoto with CO2 Trading Market

Environment ministers from the 15 members of the European Union agreed on Monday to a trading market in carbon dioxide pollution permits. Once approved, the market scheme will give key industries permission to buy and sell emission rights within the European Union from 2005.

It will also set a limit on the amount of the 'greenhouse gases' that the named industries - energy, steel, cement, glass, brick making, paper and cardboard - can produce. The EU deal aims to cut greenhouse gas levels in line with the 1997 Kyoto Protocol. It is the first inter-country agreement for corporate trading in CO2.

The German environmental minister Jürgen Tritten said that his government supported the EU scheme even though its emissions policy was already in line with the original reduction schedule.

"The other states need to reduce emissions for the Kyoto protocol to be realised," said Trittin in the German daily Süddeutsche Zeitung.

Polluters can buy credits from producers of less gas

Emissions trading involves countries buying and selling their agreed allowances of greenhouse gas emissions. This allows highly polluting countries to buy unused 'credits' from those which are allowed to emit more than they actually do.

It benefits both sides: the polluters gain by not having to reduce their own emissions while those countries who have less emissions have a handy source of revenue. Traders are already brokering speculative deals between companies around the world where CO2 credits are changing hands for up to five euro ($5.06) a ton.

The effect is a balanced rate of gas emission that acts as a cap for the amount that can be produced in the EU. "It is good for the environment, it is good for enterprises and it is good for the economy...The EU can really begin work on reducing emissions of greenhouse gases" Danish Environment Minister Hans Christian Schmidt told reporters after the meeting.

Lower fines take the sting out of industry costs

Industry, especially in Germany, has been skeptical of a policy it fears could just be an energy tax by a different name. To reduce the cost to industry, the 15 environment ministers agreed a number of significantly lower fines to those already in place if emissions targets are not met.

Penalties in the introductory period, from 2005 to 2007, are 40 euro ($40.51) per ton of CO2 beyond the allowed limit, rising to 100 euro per ton from the start of 2008.

Trading is first step in reducing EU gas to Kyoto level

The year is in important one in terms of the protocol. According to the international agreement, the EU as a whole must cut emissions of CO2 and five other gases - methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride - between 2008 and 2012 to eight percent below its 1990 levels.

The EU scheme could be the precursor of a global emissions trading market between all countries involved in Kyoto.

The Americans have excluded themselves from any future market dealing for the time being. The United States, which produces a quarter of the world's greenhouse gases, has abandoned the Kyoto Protocol, saying there is a lack of scientific evidence.

Ironically, the majority of traders waiting to take advantage of the EU market are located in the United States, where emissions trading was first established to deal with pollutants like sulphur dioxide which causes acid rain.

Without measures, EU would fall way below agreed cuts

Last week, the European Environment Agency (EEA) predicted that the EU would miss its Kyoto target if emissions trading and other measures were not introduced. The EEA reported that the latest projections provided by member states before the agreement was signed showed that their existing policies would achieve a total cut of only 4.7 percent by 2010.

Most of that decrease would be achieved by Germany, Sweden and the UK cutting their emissions by more than they need to. If these countries decided not to "over-comply", the EEA stated that the EU's overall emissions would decrease by a mere 0.6 percent by 2010.

The agreement on emissions trading is one step closer for the EU in meeting its responsibilities set out in the Kyoto protocol.