Opinion of the Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC" (COM(2001) 581 final — 2001/0245 (COD))
Date: 2002-05-29
Institutions: European Economic and Social Committee
Subjects: EU environmental policy, air quality, greenhouse gas, pollution control measures

17.9.2002

EN

Official Journal of the European Communities

C 221/27

Opinion of the Economic and Social Committee on the ‘Proposal for a Directive of the European
Parliament and of the Council establishing a scheme for greenhouse gas emission allowance
trading within the Community and amending Council Directive 96/61/EC’

(COM(2001) 581 final — 2001/0245 (COD))

(2002/C 221/08)

On 11 December 2001 the Council decided to consult the Economic and Social Committee, under
Article 175 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Agriculture, Rural Development and the Environment, which was responsible for
preparing the Committee’s work on the subject, adopted its opinion on 6 May 2002. The rapporteur was
Mr Gafo Ferna´ndez.

At its 391st plenary session (meeting of 29 May 2002), the Economic and Social Committee adopted the
following opinion by 93 votes to one, with four abstentions.

1.

Introduction

1.1.
In March 2000 the European Commission published a
Green Paper on greenhouse gas emissions trading within the
European Union. This Green Paper launched a far-reaching
and open debate with the various stakeholders in European
civil society, many of whose suggestions are included in this
draft directive. The Committee also had the opportunity to
issue an opinion on the Green Paper (1).

1.2.
The scheme for greenhouse-gas emission allowance
trading, together with the Joint Implementation Mechanism
and Clean Development Mechanism of the Kyoto Protocol, are
designed to reduce the cost and macroeconomic impact of
implementing the Agreement and thereby facilitate compliance
by the signatory states.

1.3.
The Kyoto Protocol will not be legally binding until
2008. However, the European Commission has decided to
bring forward the implementation of
this mechanism at
Community level to 2005, so as to have sufficient time to run
it in and, if necessary, fine-tune it before it officially enters into
force.

There are two reasons why a legislative system needs
1.4.
to be set up at Community level. Firstly,
it will harness
synergies to reduce costs overall; this would be much more
difficult to achieve if the Member States were acting individu-
ally. Secondly, it will prevent the economic fragmentation of
the emissions market and the Member States possibly drawing
up national criteria that distort competition.

( 1) OJ C 367, 20.12.2000, p. 22.

1.5.
Central to the scheme are the concept of emission
allowances, the greenhouse gases concerned, and the sectors
and/or installations covered by the Directive.

The emission allowance is the amount of greenhouse
1.6.
gases that an installation is authorised to emit
into the
atmosphere over a given period of time, as granted by the
competent authority in the Member State.

1.7. With regard to the six greenhouse gases covered by the
Kyoto Protocol, the Commission has decided that the scheme
will initially cover CO2 alone in order to simplify the initial
implementation of this mechanism and owing to the difficulty
of monitoring, at the moment, emissions of the remaining
gases.

1.8. With regard to the sectors and installations covered by
the Directive, Annex 1 lists them as energy activities (with a
rated thermal input exceeding 20 MW), the production and
processing of ferrous metals, the mineral industry, and the
production of pulp and paper. CO2 emissions from thermal
installations exceeding 20 MW in sectors not mentioned in
this Directive are, however, also covered by it.

1.9.
The scheme is based on four key areas: (i) a national
emissions allocation plan, (ii) a system of individual permits,
(iii) a system for monitoring compliance, including the use of
penalties, and (iv) a mechanism for emissions trading between
the participating entities.

1.10.
The national allocation plan will be drawn up for the
initial period 2005-2008, and for each subsequent five-year
period. For each period, each Member State will determine the
total quantity of emission allowances to be allocated and the
national allocation criteria. After 2008, the Commission will
specify a harmonised method of allocation.

C 221/28

EN

Official Journal of the European Communities

17.9.2002

1.11.
The granting of emission allowances begins with an
application by the installation operator to the competent
authority to be issued with an emissions permit based on the
productive and technical parameters of the installation. The
competent authority will issue an individual emissions permit,
allocating emission allowances free of charge during the
2005-2008 period, and will stipulate emissions monitoring
requirements and the operator’s annual obligation to surrender
a number of allowances, either their own or of a third party,
equal to their total emissions during the preceding year.

1.12.
In accordance with the guidelines for monitoring and
reporting emissions adopted by the European Commission, the
Member States, in cooperation with the competent authorities
responsible for issuing permits, will ensure that operators
comply with their emissions permits. Member States will be
able to impose a penalty on operators who fail to submit for
cancellation each year enough allowances to cover their actual
emissions. These penalties will be lower in the 2005-2008
period.

1.13.
The emissions trading scheme begins with a registry
system established in each Member State, which will be
in the form of electronic
standardised at Community level
databases. The European Commission will designate a Central
Administrator to maintain an independent transaction log.
Transactions will be carried out on a commercial basis by the
entities or persons specifically authorised in the Directive. The
details of these transactions will be private.

At

international

1.14.
level, the Community may also
conclude agreements with third countries to provide for
mutual recognition between the Community scheme and
schemes in third countries.

Finally, the Commission may make a proposal by
1.15.
2004 to extend the scope of this Directive to include other
gases and activities and may submit a report by 2006 on the
application of this Directive, accompanied by proposals as
appropriate.

2.3.
The first discrepancy is found in the subject matter of
the Directive, as laid down in Article 1. The Committee does
not agree with this. As stated in the Committee’s opinion on
the Green Paper on this subject, the purpose of this Directive
should not be to ‘promote reductions of greenhouse gas
emissions in a cost-effective manner’ but ‘to ensure that
greenhouse gas emissions are reduced in a manner that is cost-
effective and minimises the impact on competitiveness and
overall employment in the European Union’.

Secondly, the Committee has a number of doubts
2.4.
concerning the coercive implementation of this Directive
during the transitional period 2005-2008 (i.e. before the
official entry into force of the Kyoto Protocol).

2.5.
Thirdly, the Committee sees no justification for the
exclusion of other greenhouse gases in the initial proposal or
for the failure, as of 2008, to consider the other two flexibility
mechanisms provided for in the Protocol.

The Committee also has reservations concerning the
2.6.
compatibility of this Directive with the functioning of the
internal market and, in particular, the requirement that this
system does not distort competition as a result of differing
interpretations of the conditions governing emissions in each
installation by the competent authorities in each country.
Likewise, the Committee does not agree with the way its
relation to the Directive on integrated pollution prevention
and control (IPPC Directive) is defined and, in general, the fact
that emissions allowances are seen as a ‘burden’ rather than as
a ‘potential benefit’ for companies making an additional effort
to reduce emissions. Each of these aspects will be discussed
with reference to the relevant article.

The Committee therefore proposes deleting the para-

2.7.
graph in Article 2(2) referring to Directive 96/61/EC.

2. General comments

In Article 3 (Definitions), the Committee proposes the

2.8.
following changes:

The Committee welcomes this Directive, as it

2.1.
is
innovative (and may, therefore, be subject to fine-tuning, on
the basis of experience gained in some European Union
countries) and will help to achieve — at the lowest possible
cost and with the lowest
impact on the economy and
employment in the European Union — the national commit-
ments to reduce greenhouse gases provided for in the Kyoto
Protocol, which also provides for direct emissions trading
between Member States. The Committee has always given its
unreserved support to the approval and ratification of this
Protocol.

2.8.1.
‘Installation’: A technical unit in a single location
where one or more activities listed in Annex I are carried out.

2.8.2.
Replace ‘Person’ by ‘Operator’ and define as follows:
‘Any natural or legal person who can demonstrate sufficient
interest in participating in this system.’

However, while the Committee shares the ultimate
2.2.
objective of this Directive, it does have a number of reser-
vations concerning the proposal itself.

2.9.
Article 6. Add the following: ‘An obligation to surren-
der allowances or credits generated by Clean Development
projects or Joint Implementation projects equal to the total
emissions...’

17.9.2002

EN

Official Journal of the European Communities

C 221/29

2.10. With regard to Article 9 (National allocation plan), a
number of Member States have developed their own methods
for achieving national emissions objectives and thereby meet
their obligations under the Kyoto Protocol. These alternative
methods must be included in this Directive as flexibility
mechanisms that help maintain the acquis achieved, providing
that Member States can demonstrate that they are making the
same effort as this Directive.

Installations in these countries compete mainly
2.10.1.
with enterprises outside the EU, which do not have to bear the
burden of emission quota costs or taxes on emissions; thus the
implementation of the directive would reduce the competi-
tiveness of such firms.

2.11.
Article 9 as follows:

The Committee

therefore proposes

completing

2.11.1.

Add two new sub-paragraphs to paragraph 1:

— Six months before 1 January 2005 and 2008, and six
months before each subsequent
five-year period, the
Member States shall notify the European Commission of
installations that they intend to include in or exclude
from the scope of this Directive. These installations must
be clearly identified and precise reasons given.

— The Commission, in accordance with the general pro-
cedure applicable to the National Allocation Plans, may
exclude such installations from the scope of this Directive,
after verifying that:

1)

2)

as a result of national policies,
including sector-
specific or other voluntary agreements under public
supervision, these installations make an effort to
reduce their emissions in such a way as to achieve
the same results as this Directive;

these installations are subject to the same monitor-
ing and verification procedures provided for in
Articles 14 and 15 for other installations covered by
this Directive.

2.12.

Article 10: Method of allocation

2.12.2.
Two important examples are energy efficiency
objectives and those based on ‘standard references’ that are
widely recognised and accepted as such. The proposal should
therefore consider these alternatives and include them in
Annex 3 as valid options for Member States within their
overall strategy.

2.12.3.
The proposal should also stipulate that a tran-
sitional period is needed following the entry into force of the
Kyoto Protocol to assess the suitability of the method of
allocation in each Member State and its compatibility with the
internal market. This is necessary to verify the suitability of the
mechanism and find a harmonised system at Community level
that is compatible with the emission allowances mechanism
provided for in the Protocol for all the signatory states.

2.13.

The Committee therefore proposes the following:

2.13.1.
ning 1 January 2013...’.

Article 10(1): Replace with: ‘Until the period begin-

Article 10(2): Replace with:

‘In accordance with
2.13.2.
Article 26(2), the European Commission shall propose a
harmonised method of allocation that shall be applied as of
1 January 2013 and which, in the event that a fee is charged
for these allowances, must take account of energy taxes paid
by companies to avoid double taxation’.

2.13.3.
The Commission should also ensure that no damage
is done to the internal market in the period up to 2013 and
broadly speaking should, by means of the harmonised method
of allocation, ensure a level playing field among Member
States.

2.14.

Article 12(1): Replace ‘persons’ with ‘operators’.

2.15.
3. Replace ‘persons’ with ‘operators’.

Article 13. Validity of allowances. Paragraphs 2 and

Article 16. Penalties: The penalties provided for in
2.16.
this article must not under any circumstances be applied
before the entry into force of the Kyoto Protocol’s first
commitment period in 2008. At the same time, penalties must
not exclude the subsequent surrender of credits. Until 2013,
therefore, penalties can only have the symbolic value of forcing
operators to develop the market in allowances, without the
aforementioned penalties being seen as disproportionate.
Furthermore, the reference to a ‘market price’ is very vague
owing to the fact that transactions between operators are
confidential. The Committee therefore suggests the following:

2.12.1.
The Commission proposes allocating emission
allowances in tonnes of CO2, and thereby limits the use of
other indicators. However, other measurement systems may
be appropriate for some installations.

Amend Article 16(1) as follows:

2.16.1.
‘...The penalties
provided for must be effective and proportionate, in accord-
ance with the provisions of paragraph 3, and may be applied
following the entry into force of the Kyoto Protocol.’

C 221/30

EN

Official Journal of the European Communities

17.9.2002

2.16.2.
The excess emissions penalty shall be EUR 50. Payment....’

Amend the second part of paragraph 3 as follows: ‘

2.17.
Annex I: In the paragraph referring to energy instal-
lations, replace ‘exceeding 20 MW’ with ‘exceeding 50 MW’.
This will focus the Directive in the initial phase on those
sectors or individual installations with the highest greenhouse
gas emissions without affecting small plants such as large
hospitals or other installations of a similar size. The exclusive
reference to CO2 also needs to be removed so that all
greenhouse gases are covered. However, the Committee also
believes that the aforementioned threshold of 50 MW could
be revised in 2006 in the light of new electricity production or
combined cycle technologies, as part of the review provided
for in Article 26.

2.18.

Annex III: The following changes are proposed:

In paragraph 4, remove the reference excluding
2.18.1.
electricity produced from renewable energy. This will allow
renewable energy sources to be included with biomass, thereby
improving their market penetration and increasing security of
energy supply within the European Union.

Add the following to the end of point (3):

2.18.2.
‘In
particular, consideration may be given to other methods of
allocation used by the Member States, providing these are
based on widely recognised “standard references” and achieve
the same results as the methods proposed in this Directive.’

In point

2.18.3.
(6), replace ‘new entrants’ with ‘new
companies or new installations’ and complete the end of the
paragraph as follows:
‘... Member State, or the manner in
which the increased capacity of existing installations shall be
considered in such a way as not to discriminate against these
new activities.’

Include a new point (6a) as follows: ‘The plan shall
2.18.4.
take account of
the appropriate formulae to prevent the
competitiveness of a given sector or installation being compro-
mised disproportionately, as well as the methods used to
ensure compatibility with the internal market.’

Add the following to the end of the point

2.19.
(7):
‘Likewise, when allocating individual allowances, consideration
shall be given to efforts made by the installation concerned to
reduce emissions since 1990, and to the real possibilities for
the sector and individual
installation concerned to make
additional efforts to reduce emissions.’

Brussels, 29 May 2002.

The President

of the Economic and Social Committee

Göke FRERICHS