Amended 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 (presented by the Commission pursuant to Article 250 (2) of the EC Treaty)
Date: 2002-11-27
Institutions: European Commission
Subjects: greenhouse gas, reduction of gas emissions, tradeable emission permit

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 27.11.2002
COM(2002) 680 final

2001/0245 (COD)

Amended 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

(presented by the Commission pursuant to
Article 250 (2) of the EC Treaty)

2001/0245 (COD)

Amended 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

1. 

BACKGROUND

Transmission of the Proposals to the Council and the European Parliament (COM (2001) 581
final 2001/0245 (COD)) in accordance with article 175(1) of the Treaty

Opinion of the Committee of Regions

Opinion of the Economic and Social Committee

23 October 2001

14 March 2002

29 May 2002

Opinion of the European Parliament - first reading

10 October 2002

2. 

OBJECTIVE OF THE COMMISSION PROPOSAL

The proposal establishes a scheme for greenhouse gas emission allowance trading within the
Community by establishing an EU framework and ensuring an EU-wide market for emission
allowances. Such an instrument is an important cornerstone in the Commission’s strategy for
reaching the  Kyoto  target  in  the  most  cost-effective  way.  Emissions  trading  will  reduce  the
cost of emission reductions by ensuring that these  reductions  are  made  where  they  are least
costly. At the same time, emissions trading is environmentally  effective by achieving a pre-
determined emission reduction from the activities covered. This proposal ensures the proper
functioning of the internal market and avoids unacceptable distortions of competition.

The Commission proposes that emissions trading in the EU should start in 2005, and in a first
phase  cover  CO2  emissions  from  large  industrial  and  energy  activities.  The  operators  of
installations  covered  by  the  Directive  will  have  to  apply  to  the  competent  authority  in  its
Member State  for  a  permit  allowing  it  to  emit  greenhouse  gases.  This  permitting  procedure
shall  be  fully  co-ordinated  with  the  procedure  under  Directive  96/61/EC  on  Integrated
Pollution Prevention and Control  (IPPC) in order  to avoid unnecessary bureaucracy. On the
basis  of  the  permits,  Member  States  shall  allocate  emission  allowances  to  each  installation
every  year.  It is these allowances that  can be  traded,  although  no  operator of an  installation
will be forced to trade. By 31 March each year, the operator will have to surrender a number
of  allowances  equal  to  the  emissions  of  its  installation  in  the  preceding  calendar  year.  The
Directive  would  set  harmonised  penalties  to  be  paid  by  operators  for  not  surrendering  a
sufficient number of  allowances.  In the period 2005-2007,  the  Member  States  shall  allocate
allowances  free  of  charge  according  to  a  national  allocation  plan  to  be  approved  by  the
Commission  and  respecting  certain  criteria  so  as  to  avoid  state  aids  and  distortions  of
competition. For the 2008-2012 period, the Commission shall specify a harmonised method of
allocation at a later stage.

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3. 

COMMISSION OPINION ON THE AMENDMENTS ADOPTED BY THE PARLIAMENT

3.1. 

Amendments accepted by the Commission

The following amendments, which are acceptable to the Commission, are listed in the order of
their intended insertion into the legal text of the Commission’s original proposal.

Concerning  recitals:  amendment  13  (new  recital  16d)  states  that  the  EU’s  climate  change
strategy “should be built on a balance between the  emission allowance trading  scheme and
other types of Community, domestic and international action”. This amendment is acceptable.
The Commission has never intended that emissions trading be the only type of action pursued
by the EU’s climate strategy or internationally.

Concerning  penalties:  amendment  40  (Article  16,  paragraph  2)  would  confine  “naming  and
shaming”  to  companies  who  have  not  surrendered  sufficient  allowances  pursuant  to  this
Directive.  This  amendment  is  acceptable.  “Naming  and  shaming”  for  every  possible  minor
offence may be excessive. It remains, however, a useful deterrent in the case of infringement
of the Directive’s basic requirement to surrender allowances equivalent to actual emissions.

Amendment 41 (Article 16, paragraph 3) deletes the provision that the penalty shall be twice
the  average  market  price  if  higher  than  EUR  100.  This  amendment  is  acceptable.  This
facilitates the practical application of the Directive and creates greater certainty regarding the
penalty levels.

Amendment 42 (Article 16, paragraph 4) deletes the provision  that in the period  2005-2007
the penalty shall be twice the average market price if higher than EUR 50. This amendment is
acceptable for reasons given in respect of amendment 41 above.

Concerning  elements  for  review:  amendment  56  (Article  26,  paragraph  2,  new  point  (aa))
specifies  that  the review should  examine  the  relationship  between  the  EU  emissions  trading
scheme  and  international  emissions  trading  that  will  start  in  2008.  This  amendment  is
acceptable. It is reasonable that the review include this.

Amendment  57  (Article  26,  paragraph  2,  point  (b))  inserts  “further  harmonisation  of  the”
method  of  allocation,  as  opposed  to  “the  harmonised  method…”.  This  amendment  is
acceptable.  The  requirement  that  allocation  in  the  period  2005-2007  be  for  free  is  already
some degree of  harmonisation.  The  amendment  is  not  prejudicial  to  future  decisions  on  the
method of allocation, and it is reasonable to use the word “further” even if no more is decided
than an extension of the same degree of harmonisation further into the future.

Amendment  58  (Article  26,  paragraph  2,  new  point  (ca))  adds  an  additional  element  for
review  to  include  the  possible  amendments  to  adapt  the  scheme  in  the  light  of  EU
enlargement. This amendment is acceptable. It would be appropriate to consider what effects
EU enlargement  may  have had  on  the scheme, bearing  in mind  that many  of  the  Accession
Countries may be Member States as of the start of the scheme in 2005.

3.2. 

Amendments  accepted  in  part,  in  principle,  or  in  principle  and  in  part  by  the
Commission

The following amendments, which are acceptable in part, in principle, or in principle and in
part by the Commission, are listed in the order of their intended insertion into the legal text of
the Commission’s original proposal.

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Concerning recitals: amendment 10 (new recital 16a) says, in its first sentence, that policies
and  measures  must  be  implemented  across  all  sectors  of  the  economy  and  not  only  the
industrial and energy sectors. The second sentence requires Member States to ensure that the
choice  of  policies  and  measures  employed  do  not  give  risk  to  distortions  of  competition
within the same sector. The first sentence is acceptable. It makes explicit a belief that others
sectors  should  contribute  to  reducing  greenhouse  gas  emissions.  The  second  sentence  is  an
operative  provision,  the  drafting  is  unclear  and  it  is  unacceptable.  Policies  to  reduce
greenhouse  gas  emissions  will  inevitably  impact  more  on  fossil  fuel  power  generators  than
nuclear power generators, even though both are “within a particular sector”.

Amendment 15 (Article 1) states that the present Directive “aims to contribute towards” the
EU  and  its  Member  States  fulfilling  their  commitments  under  the  Kyoto  Protocol  with  the
least possible adverse impact on economic development and employment. This amendment is
acceptable  in  principle  and  in  part.  This  is  explanatory  text  rather  than  operative  text.  It
should therefore be inserted at the end of existing recital 5 (that refers to the Kyoto Protocol’s
targets).  “European  Community”  should  replace  “EU”  and  the  words  “least  possible
diminution of” should be replaced by the words “minimum adverse effect on”.

Concerning  transparency:  amendment  35  (Article  12,  new  paragraph  4b)  requires  that  the
system “for the transfer, surrender and cancellation of allowances must ensure transparency
as  regards  the  ownership  of  allowances  at  all  times  and  as  regards  the  transactions
performed  between  companies  inside  and  outside  the  Member  States”.  This  amendment  is
acceptable in principle. Public access to information is ensured by Article 17 in conjunction
with  the  registries  to  be  established  in  accordance  with  Article  19.  The  registries  will
“provide  for  confidentiality  as  appropriate”  in  order  to  protect  commercially  sensitive
information,  but  with  the  premise  that  registry  information  is  accessible  to  all.  Wording  to
give  this  effect  would  be:  second  sentence  of  Article  19(2),  after  the  words:  “The  registry
shall” add “be accessible to the public and shall…”.

Concerning reporting by operators: amendment 39 (Article 14, paragraph 3) changes the word
“at” to “three months after” so as to clarify that reporting emissions during a calendar year
cannot be made at the exact end of the year (00h00, 1 January). This amendment is acceptable
in part.  It is acceptable to replace the word “at” by the word “after”. It is not necessary to
specify  “three  months”,  as  by  31  March  the  reports  have  to  be  verified  and  corresponding
allowances surrendered (see Article 12(3)).

Concerning  reporting  by  Member  States:  amendment  43  (Article  16,  new  paragraph  4a)
provides that Member States shall report on the way in  which penalties and the purchase of
additional allowances are treated for tax purposes. This amendment is acceptable in principle
and  in  part.  Such  a  provision  would  be  more  appropriately  inserted  into  Article  21  on
reporting  by  Member  States.  It  is  all  aspects  of  the  fiscal  treatment  (including  capital  gains
and losses on allowances bought and sold) that would be of possible interest. At the end of the
second  sentence  of  Article  21(1),  it  is  acceptable  to  insert  “and  on  the  fiscal  treatment  of
allowances”.

Concerning transparency: amendment 46 (Article 17) refers to the forthcoming Directive on
access  to  environmental  information.  This  amendment  is  acceptable  in  principle.  After  the
reference to “Directive 90/313/EEC”, it would be appropriate to insert the additional words
“or equivalent, when entered into force”.

Concerning the links with emissions trading schemes in third countries: amendments 51 and
103  (Article  24,  paragraph  1)  says  that  agreements  on  the  basis  of  the  Kyoto  Protocol  may

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only  be  made  with  Parties  that  have  ratified  the  Kyoto  Protocol.  Agreements  must  be
concluded  with  the  applicant  countries  insofar  as  it  is  not  provide  by  the  accession
negotiations.  This  amendment  is  acceptable  in  principle  and  in  part.  The  wording  “on  the
basis  of  the  agreements  under  the  Kyoto  Protocol”  is  not  acceptable.  An  EC  entity  based
trading scheme necessarily has to have a different basis to trading under the Protocol between
Parties  to  the  Protocol.  Notwithstanding  this,  the  EC  scheme  will  be  compatible  with  the
Kyoto  Protocol’s  trading.  Acceptable  wording  would  be  to  replace  “third  parties”  by
“Parties listed in Annex B of the Kyoto Protocol that have ratified that Protocol”. The part of
the amendment referring to agreements with applicant countries is not acceptable. It would be
inappropriate  to  decide now that  links “must”  be  established before  any  such  schemes  have
been established and without examination of the environmental credibility of such  schemes.
Furthermore, not all Accession Countries are listed in Annex B of the Kyoto Protocol.

Concerning  review:  Amendment  55  (Article  26,  paragraph  2,  introductory  sentence)  inserts
that the review should be based on experience during the 3-year period starting in 2005. The
Commission  “shall”  make  a  report  accompanied  by  proposals  as  appropriate.  This
amendment is acceptable in part. The only acceptable is the word “shall”. It is acceptable that
the  Commission  shall  make  a  report  as  long  as  it  preserves  the  right  of  initiative  to  make
appropriate proposals. The reference to “proposals as appropriate” is already contained in at
the end of the paragraph.

Concerning  transparency:  Amendment  73  (Annex  III,  new  point  8a)  requires  that  national
allocation  plans  shall  list  installations  included  in  the  scope  of  the  directive  “and  of  those
installations’  emissions  permits”  [understood  as  intended  to  mean  that  the  cap  set  for  each
installation shall be  published]. This amendment is  acceptable in principle and  in  part.  This
amendment  serves  to  improve  transparency.  Member  States  must  have  this  information  in
order  to  allocate  allowances  to  operators  of  individual  installations,  so  the  requirement  to
include this in the national allocation plan is not unduly burdensome. The interpretation of the
meaning is due to the fact that the “emissions permits” will contain the information required
in Article 6(2) (including, for example, monitoring requirements, methodology and frequency
specific  to  the  individual  installation).  What  is  of  more  interest  to  other  parties  is  for  the
quantitative allocations made to the operators of individual installations to be made available.
Acceptable  wording  would  replace  “and  those  installations’  emissions  permits”  with  the
words “with the quantities of allowances allocated to each”.

Amendment  74  (Annex  IV,  Monitoring  of  emissions  of  other  greenhouse  gases)  would
require  that  standardised  methods  for  monitoring  the  emissions  of  other  greenhouse  gases
than  CO2  “shall  be  developed  in  collaboration  with  all  stakeholders”  and  agreed  in
accordance  with  the  comitology  procedure.  This  amendment  is  acceptable  in  part.  The
proposed text “shall be developed in collaboration with all stakeholders” is acceptable, but
the word “used” in the original text should be retained rather than deleted, followed by the
insertion of a comma. The words “and agreed in accordance with the procedure referred to
in Article 23(2)” are not acceptable as it is unnecessary to repeat in the Annex the basis for
agreement of the guidelines as already stated in Article 14(1).

3.3. 

Amendments not accepted by the Commission

The following amendments are listed in the order of their intended insertion into the legal text
of the Commission’s original proposal.

Amendment 1 (new recital 5a) restates the European Parliament’s endorsement of the Kyoto
Protocol  and  the  burden  sharing  agreement.  This  amendment  is  not  acceptable.  It  is

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inappropriate  to  refer  here  to  the  European  Parliament’s  opinion  given  on  6  February  2002
that  was  made  in  respect  of  a  separate  proposal  (Council  Decision  2002/358/CE  on  EC
ratification of the Kyoto Protocol).

Amendment 2 (new recital 5b) recalls that Member States are required to meet their national
targets “using the resources they deem to be appropriate”. This amendment is not acceptable.
Member  States  may  not  do  as  they  like  if  this  amounts  to  the  disregard  of  Community
legislation.

Amendment  3  (new  recital  6a)  argues  for  an  EU  approach  rather  than  Member  States
individually  because  there  is  an  internal  market.  This  amendment  is  not  acceptable.  While
endorsement  of  the  need  to  take  an  integrated  approach  within  the  context  of  the  internal
market is welcome, this EU approach does not absolve the Member States from taking action
to  reduce  greenhouse  gas  emissions  individually.  This  intention  is  already  expressed  in
existing recitals 7 and 14.

Amendment  91  (recital  7)  recalls  that  “allowances  should  be  allocated  in  accordance  with
best  available  techniques…”.  This  amendment  is  not  acceptable.  Emissions  trading  is  an
instrument  that  does  not  need  technology  standards,  but  lets  operators  decide  which
technologies they use.

Amendment  6  (new  recital  11a)  provides  that  Member  States  must  ensure  that  “indirect
mechanisms  to  reduce  CO2,  such  as  CHP  generation”  receive  consideration  in  national
allocation plans. This amendment is not acceptable. It should be for Member States to decide
on  the  quantities  to  be  allocated,  including  in  respect  of  CHP  generation.  The  wording  is
operative,  inappropriate  for  recitals.  The  Directive  should  not  attempt  to  pick  winning
technologies,  but  by  the  instigation  of  a  price  on  emissions  create  an  incentive  to  use  more
energy-efficient technologies.

Amendment 8 (new recital 15a) affirms that the EC will continue to negotiate with its major
trading partners to achieve an international regime for emissions trading. Meanwhile, the EC
must show  leadership.  This  amendment  is  not  acceptable.  The  preamble  to  this  Directive  is
not the place to make statements about what the European Community will do in the context
of the international negotiations on climate change.

Amendment  9  (recital  16)  says  that  emissions  trading  should  form  “a  flexible  and
complementary”  part  of  a  package  of  measures  to  address  climate  change  that  achieves
reductions in all sectors of the economy. Comparable targets need to be set and instruments
developed for other sectors, such as the transport sector,  agriculture, small  & medium-sized
businesses  and  households.  Finally,  the  amendment  states  that  greenhouse  gas  emissions
trading  and  energy  taxation  should  be  complementary  instruments.  This  amendment  is  not
acceptable.  The  Commission  rejects  a  voluntary  approach.  Reference  to  “flexible”  in  this
amendment is intended to facilitate a voluntary approach. A voluntary approach to emissions
trading will substantially reduce the economic efficiency of the instrument, will pose a greater
risk of distortion of the internal market, will teach us less and will not ensure preparedness for
emissions trading in the Protocol’s commitment period 2008-2012. It is excessive to insist on
setting targets and developing other instruments  for sectors outside  the scope  of  the  present
Directive. Existing recital 16 already addresses the interaction with taxation.

Amendment  11  (new  recital  16b)  states  that  emissions  trading  “shall  not  replace  existing
charges  levied  on  energy  and  CO2  emissions”.  This  amendment  is  not  acceptable.  It  is  an
operative  provision,  inappropriate  for  recitals.  The  link  with  energy  taxation  is  already

6

addressed in recital 16.  In some  circumstances,  it  may  be  appropriate  to  replace  charges  on
CO2 emissions, so it would not be wise to prohibit this.

Amendment  12  (new  recital  16c)  specifies  that  the  directive  applies  only  to  the  use  of
fluorinated  gases  by  activities  listed  in  Annex  I  and  that  the  use  and  containment  of
fluorinated  gases  in  consumer  products  should  be  covered  by  separate  legislation.  This
amendment  is  not  acceptable.  The  Commission  will  seek  to  include  fluorinated  gases  only
when it is  satisfied that  they  can  be  adequately  monitored  and  reported  and  when  the  IPPC
Directive  has  been  fully  implemented  in  respect  of  non-CO2  greenhouse  gases  for  existing
installations (October 2007).

Amendment 14 (new recital 17a) maintains that the possibility of linking schemes with other
Parties to the Kyoto Protocol will encourage the US to come back on board. This amendment
is unacceptable. Even if the Commission shares the wish that the US changes its mind about
its rejection of the Kyoto Protocol, there is no need to bring specific non-EU countries into a
Directive addressed to Member States.

Amendment  16  (Article  2,  paragraph  1)  provides  for  additional  sectors  to  be  included
provided  that  such  inclusion  does  not  conflict  with  Article  87  &  88  of  the  Treaty.  Such
included sectors shall be notified to the Commission by 31 March 2004 for the period 2005-
2007,  and  for  subsequent  periods  18  months  before.  The  Commission  may  reject  such
applications in the case of conflict with Article 87 and 88 (these are state aid provisions). This
amendment  is  not  acceptable.  Voluntary  and  unilateral  “opt-in”  of  additional  activities  may
distort competition and may undermine the environmental  integrity of the  emissions  trading
system  (depending  on  the  ability  to  monitor  emissions  from  different  sources).  All  Treaty
provisions  will  have  to  be  respected,  not  just  those  relating  to  state  aid.  The  amendment  is
linked to Parliament’s proposed extension to cover all 6 gases covered by the Kyoto Protocol
(amendment 17).

Amendment  17  (new  Article  2a)  extends  the  scope  of  emissions  trading  to  cover  all
greenhouse  gases  covered  by  the  Kyoto  Protocol  provided  that  the  data  with  regard  to  a
particular  reference  year  is  “satisfactory”  and  that  “accepted  methods  on  measurement,
monitoring  and  calculation”  are  developed  by  the  Commission  in  collaboration  with  all
stakeholders and agreed in comitology. This amendment is not acceptable. It is inappropriate
to extend the scope of the Directive in principle and then to limit the practical application of
this extension until an indeterminately long process has been completed and a decision made
by comitology. Such practice would amount to bad law-making that fails to give certainty for
businesses (an installation with N2O emissions would not know whether or when it would be
covered).

Amendment 97 (Article 4, new paragraph 1a) provides that special provision should be made
for CHP and the use of waste fuels on the basis guidance to be prepared by the Commission.
This amendment is not acceptable. It should be for Member States to decide on the quantities
to  be  allocated,  both  in  respect  of  particular  technologies  and  in  respect  of  waste  fuels.  As
mentioned  for  amendment  6  above,  emissions  trading  as  a  market  instrument  should  not
attempt to pick winning technologies, but by the instigation of a price on emissions creates an
incentive to use more energy-efficient technologies. As far as waste fuels are concerned, the
granting of any additional allowances may encourage waste incineration as opposed to re-use
and recycling.

Amendment  19  (Article  5,  point  (c))  adds  “and  volume”  to  the  details  required  in  an
application  for  a  permit  about  the  emissions  from  an  installation.  This  amendment  is  not

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acceptable. While such information would be useful, it pre-supposes the requirement that the
quantity  of  emissions  from  an  installation  is  monitored  prior  to  their  inclusion  within  the
scope of the Directive. Such monitoring requirements would, therefore, be implicitly required
even before the permit explicitly set monitoring requirements.

Amendment 20 (Article 5, new point (da)) would require the operator to provide details of the
nature  and  extent  of  expected  emissions  from  an  installation.  This  amendment  is  not
acceptable. The “extent of expected emissions” is a forecast of future quantities of emissions
that  will  be  covered  by  the  obligations  of  the  emissions  trading  scheme.  In  practice  under
emissions  trading,  an  individual  installation  might  increase  or  decrease  actual  future
emissions subject only to the requirement that the operator holds a corresponding quantity of
allowances for the period.

Amendment  21  (Article  6,  paragraph  1,  subparagraph  1)  would  insert  the  words:  “Without
prejudice to other requirements laid down in national or Community law” at the beginning of
the  Article  on  the  conditions  and  contents  of  a  permit.  This  amendment  is  not  acceptable.
Under the  Treaty,  Community  Directives  over-ride  national  law,  so  the  Directive  cannot  be
without prejudice to national law.

Amendment 22 (Article 7) provides that the up-dating of a permit in the case  of  changes to
installations is to be done “in consultation with the operator” and a month is given for a new
operator  to  notify  the  competent  authority.  This  amendment  is  not  acceptable.  The  relevant
provisions  replicate  those  of  the  existing  IPPC  Directive  thereby  maintaining  a  consistent
approach  towards  permitting  between  the  two  instruments.  The  competent  authority  who
issues the permits, as the regulatory authority, should be the final judge of what elements of
the  permit  might  need  updating.  The  name  and  address  of  new  operator,  deleted  by  the
amendment, are necessary elements to be up-dated.

Amendment 23 (Article 9 paragraph 1, subparagraph 1) replaces the words “including those”
by “the” so as to make the  criteria  for allocation plans  listed  in  Annex  III  exhaustive. This
amendment is not acceptable. The Member States  should  have  some  degree  of  flexibility in
the setting of targets for their entities so as to reflect differing national circumstances.

Amendment 24 (Article 9, new paragraph 1a) stipulates that the total quantity to be allocated
by  a  Member  State  to  its  entities  shall  not  exceed  x%  of  its  assigned  amount  (allowed
emissions  under  the  Kyoto  Protocol)  where  x%  corresponds  to  the  share  of  total  emissions
produced  by  the  installations  covered  by  this  Directive  in  1990.  This  amendment  is  not
acceptable. It is an additional complication in addition to the safeguards already proposed in
the  Directive,  and  is  superfluous.  Furthermore,  the  overall  effect  is  that  this  “cap”  will
constrain  some  Member  States  more  than  others,  and  thereby  risks  the  distortion  of
competition.

Amendment 25 (Article 9, new paragraph 1b) states that installations established since 1990
will  be  allocated  allowances  on  the  basis  of  best  available  technology  in  the  year  of
commissioning, in respect of which the Commission will issue further guidance by 2004. This
amendment is not acceptable. Member States should be allowed the freedom to reward early
action  as  they  think  appropriate.  Furthermore,  this  amendment  would  create  unequal
treatment between incumbents in 1990 and existing installations that have been commissioned
since then.

Amendment 26 (Article 9, new paragraph 2a) provides that the regulatory committee “shall
compare national allocation plans” with a view to identifying distortions of competition, and

8

advise  the  Commission.  This  amendment  is  not  acceptable.  Requiring  comparison  of  all
national allocation plans will constrain all  Member  States  to  go  at  the speed  of the slowest.
Some Member States may want to notify their allocation plans earlier than required, so as to
be able to decide on them sooner and provide businesses with greater certainty. Furthermore,
failure by one Member State to submit its national allocation plan on time could prevent the
commencement of trading by the other Member States.

Amendment 27 (Article 9, paragraph 3) says that, when evaluating national allocation plans,
the  Commission  “shall  take  into  account  the  compatibility  with  other  greenhouse  gas
emissions  trading  schemes  which  already  exist  in  Member  States”.  This  amendment  is  not
acceptable.  Some  national  trading  schemes  are  incompatible  with  the  present  proposal  and
cannot  be  linked  without  special  measures  being  taken.  The  Member  States  will  have  to
comply with all the provisions of this Directive as adopted, including any special transitional
provisions that may be negotiated.

Amendment  102  (Article  10)  introduces  15%  auctioning  in  both  the  1st  and  2nd  periods.
Revenues shall be recycled. This amendment is not acceptable. The Commission is opposed
to any auctioning in the first period and wishes to take account of experience before deciding
on the method of allocation for the second.

Amendment 29 (Article 11, paragraph 1) makes a consequential change in respect of the “x%
cap”  (amendment  24)  concerning  the  period  2005-2007.  Decisions  on  allocations  shall  be
taken  at  least  six  months  (instead  of  3  months)  before  the  beginning  of  the  period.  This
amendment  is  not  acceptable.  On  the  “x%  cap”,  see  the  comments  on  amendment  24.  A
decision on allocations six months before the beginning of trading in 2005 would be good, but
taking into account the time limit for national  transposition  (31.12.2003),  submission  of  the
national allocation plans to the Commission (31.03.2004) and a decision by the Commission
(30.06.2004) it would be impossible to give a  full 6 months notice prior to 01.01.2005. The
Commission’s  proposal  sets  the  decision  as  being  taken  by  Member  States  “at  least  3
months” before the first period starts, which allows  earlier decisions to be  taken  if  Member
States wish to notify their national allocation plans earlier than required.

Amendment  76  (Article  11,  new  paragraph  1a)  makes  specific  provisions  for  new  entrants
who “shall receive their allocation in the same way as all other participants in the market”.
Allowances for all operators “shall be adjusted” so that the “x% cap” of amendment 24 is not
exceeded.  This  amendment  is  not  acceptable.  Member  States  should  be  free  to  choose
whether  to  allocate  to  new  entrants  free  of  charge  or  whether  to  require  them  to  buy
allowances in the market. What is essential from a Community perspective is that  access to
allowances  is  guaranteed.  Wording  to  this  effect  is  already  contained  in  Article  11.  In
addition,  the  idea  of  “adjustment”  that  may  involve  taking  back  from  operators  allowances
already  allocated  would  remove  the  certainty  that  is  so  important  for  businesses.  Operators
might  be counting on all  their  holding  of  allowances  for  compliance  purposes:  taking  some
back might put them into non-compliance.

Amendment 31 (Article 11, paragraph 2) makes a consequential change in respect of the “x%
cap” of amendment 24 concerning periods from 2008. This amendment is not acceptable for
the reasons given in respect of amendment 24.

Amendment 32 (Article 11, new paragraph 4a) requires that, upon accession of new Member
States,  the  total  quantity  of  allowances  issued  shall  be  reduced,  after  review  by  the
Commission, “so as to ensure that no surplus of  allowances  develops”. This amendment is
not  acceptable.  The  inclusion  of  new  Member  States  into  the  scheme  will  bring  additional

9

sources  into  the  scheme  –  and  so  additional  emissions.  In  these  circumstances,  there  is  no
need to reduce the number of allowances issued, but rather there will be a need to increase the
number of allowances. Reducing allocations already made would create the same uncertainty
and  risk  of  non-compliance  as  explained  for  amendment  76  above.  To  prevent  gross  over-
allocations,  the  national  allocation  plans  of  all  Member  States  participating  in  the  scheme,
including new Member States, will be subject to Commission review and possible rejection in
accordance with the Treaty’s provisions and the criteria of Annex III.

Amendment  33  (Article  12,  paragraph  1)  provides  that  allowances  allocated  in  respect  of
installations  in  one  Member  State,  owned  by  the  same  operator,  can  be  transferred  without
restrictions  “within  the  company”.  This  amendment  is  not  acceptable.  It  is  not  clear  what
“restrictions” are referred to.  The  present  wording  already  allows  the transfer of  allowances
between  the  installations  of  an  individual  operator  within  the  same  Member  State.  Indeed,
allowances  are  initially  allocated  to  operators  rather  than  to  installations.  Furthermore,  this
Directive  imposes  no  restrictions  on  the  transfer  of  allowances  between  one  operator  and
associated operators within a Member State. The use of the word “company” is inconsistent
with use of “operator” used throughout, but “companies” can be operators within the meaning
of this Directive.

Amendment 34 (Article 12, new paragraph 4a) lays down that Member States shall cancel the
allowances  of  installations  that  are  closed  down  or  where  capacity  is  reduced  or  “which
continue  to  operate  under  the  same  or  worse  conditions  in  non-EU  countries”.  This
amendment  is  not  acceptable.  To  cancel  allowances  in  respect  of  capacity  cut-backs  or
closures  would  be  bureaucratic  to  implement,  and  might  be  prejudicial  to  the  objective  of
reducing  greenhouse  gas  emissions  (e.g.  maintaining  capacity  in  order  not  to  lose
allowances).

Amendment  36  (Article  12,  new  paragraph  4c)  provides  for  the  mandatory  “banking”  of
allowances between periods. The amendment is not acceptable. The wishes of the amendment
are  already  provided  for  by  Article  13  with  the  exception  of  banking  between  the  period
2005-2007 and the period 2008-2012, where the proposal leaves it optional for Member States
to take account of their different circumstances. Banking into the period commencing in 2008
may make the fulfilment of commitments under the Kyoto  Protocol more  difficult  for  some
Member States, which is why Member States should have the choice whether to allow this or
not.

Amendment 37 (Article 12, new paragraph 4d) provides for the “banking” and “borrowing”
of  allowances  within  the  periods  defined  in  Article  11(1)  and  (2).  The  amendment  is  not
acceptable.  The  wishes  of  the  amendment  are  already  provided  for  by  Article  13  except
insofar as allowances are not yet issued. “A proportion” of allowances are issued each year,
and they can only be used by the operator for “banking” and  “borrowing” within the period
after  they  have  been  issued.  However,  the  quantities  that  will  be  issued  are  decided  at  the
beginning  of  the  period  for  the  whole  period  so  as  to  give  operators  certainty  about  the
quantities that will be allocated to them.

Amendment 38 (new Article 12a) would require that, when an installation ceases to operate,
no further allowances may be issued to the operator in respect of this installation unless it can
be demonstrated that the closure is related to a corresponding new investment made within the
Community.  This  amendment  is  not  acceptable.  Such  a  provision  is  unduly  complicated  to
apply.  The  Commission  considers  that,  given  the  expected  value  of  allowances,  relocations
out of the EU are very unlikely as a consequence of this Directive.

10

Amendment  80  (Article  16,  new  paragraph  4b)  says  that  Member  States  shall  use  revenues
from penalties for the purpose of purchasing allowances by Member States. This amendment
is not acceptable. There is no basis in the Treaty for requiring how such revenues are used by
Member States.

Amendment 45 (Article 16, new paragraph 4c) provides that Member States shall harmonise
the  fiscal  treatment  of  trading  in  allowances  and  corresponding  penalties  “by  means  of  the
open  method  of  co-ordination”.  This  amendment  is  not  acceptable.  As  a  fiscal  measure,
Member States cannot be obliged to do this by the present Directive.

Amendment 47 (Article 18, title) adds to title “and access to justice”. This amendment is not
acceptable.  No  change  to  the  proposal  is  necessary.  Judicial  review  is  ensured  for  all
legislation in all Member States in accordance with Article 6 of the European Convention on
Human  Rights.  It  is  unnecessary  to  make  further  provisions  in  every  piece  of  Community
legislation.

Amendment 48 (Article 18, new paragraph 1a) provides that Member States shall ensure the
possibility  of  judicial  review.  This  amendment  is  not  acceptable.  The  reasons  are  given  for
amendment 47 above.

Amendment 49 (Article 22)  deletes the possibility  to amend  Annex  III  (criteria  for  national
allocation  plans)  by  comitology.  This  amendment  is  not  acceptable.  The  criteria  may  need
amendment  in  the  light  of  experience.  Only  by  comitology  could  an  amendment  be  made
prior to the elaboration of national allocation plans by 2006.

Amendment  50  (new  Article  23a)  allows  Member  States  to  apply  to  exclude  until  2007
certain  installations  if  they  are  subject  to  equivalent  national  measures,  monitor  their
emissions and be subject to comparable penalties. The Commission would decide whether to
approve temporary exclusions. This amendment is not acceptable. The Commission wants a
mandatory  scheme  as  of  2005.  A  voluntary  approach  to  emissions  trading  –  even  during  a
temporary  period  –  will  substantially  reduce  the  economic  efficiency  of  the  instrument.  A
voluntary  approach  would  also  pose  a  greater  risk  of  distortion  of  the  internal  market.  A
voluntary approach will be much less meaningful in terms of “learning-by-doing” and will not
ensure preparedness for emissions trading in the Protocol’s commitment period 2008-2012.

Amendment  52  (Article  24,  paragraph  2,  new  subparagraph  1a)  lays  down  that  any  mutual
recognition  agreement  entered  into  under  Article  24  shall  only  include  “emission  reduction
allowances”, and shall exclude the use of “carbon sinks”. This amendment is not acceptable.
The Commission does not want to make a direct link to the project mechanisms of the Kyoto
Protocol in the present proposal but will be making a separate proposal in 2003.

Amendment  53  (new  Article  24a)  stipulates  that  credits  from  Joint  Implementation  and  the
Clean Development Mechanism cannot be used before 2008. Thereafter, only credits that do
not  involve  carbon  sinks  and  nuclear  energy  sources  may  be  used.  This  amendment  is  not
acceptable. The Commission does not want to make a direct link to the project mechanisms of
the Kyoto Protocol in the present proposal but will be making a separate proposal in 2003. It
would  be  inappropriate  to  prejudge  the  content  of  the  Commission’s  proposal  at  this  stage.
The  Parliament will have an  opportunity  to  amend  this  proposal  when  the  time  comes.  The
Commission will, however, take account of the Parliament’s opinion as expressed here when
preparing its proposal.

11

Amendment  54  (Article  26,  paragraph  1)  says  that  the  Commission  “shall”  (instead  of
“may”) make a proposal by 30.06.2006 (instead of 31.12.2004) to amend Annex I to include
other  “sectors  and  activities”  (but  not  gases).  This  amendment  is  not  acceptable.  This
provision  duplicates  the  existing  provision  (Article  26(2))  that  the  Commission  reviews,
reports and makes appropriate proposals by 30.06.2006.

Amendment 59 (Article 26, paragraph 2, new point (ea)) says that the review should include
considering whether aspects of national schemes operating up to 2005 should be incorporated
in to the EU trading scheme from 2008. This amendment is not acceptable. The consideration
of what features of existing national schemes should be integrated into the EU scheme should
be undertaken now, not left until 2006 as part of the review in the light of experience.

Amendment 61 (Annex I, table, column 2 (Greenhouse gases)) is consequential to amendment
17.  It  would  delete  the  column  of  Annex  I  specifying  CO2  only.  This  amendment  is  not
acceptable.  For practical  reasons,  it  is the Commission’s  preference  to  start  with  CO2  only.
This is to ensure that emissions trading starts in a manageable way concentrating on the major
greenhouse gas that can already be adequately monitored. This is not to exclude the eventual
extension to other gases as monitoring capability improves. In such case, separate proposals
will be made. In addition, it is also preferable to make full use of the IPPC Directive for non-
CO2  greenhouse  gases  until  its  deadline  for  full  implementation  by  existing  installations
expires (October 2007).

Amendment  62  (Annex  I,  table,  item  “production  and  processing  of  ferrous  metals”)  adds
aluminium  activities  subject  to  the  threshold  of  50,000  tonnes  of  CO2  equivalent  per  year.
This amendment is not acceptable. Inclusion of these activities only makes sense if the scope
is  extended  to  other  greenhouse  gases  than  CO2.  As  explained  for  amendment  17,  the
Commission wishes to start emissions trading with CO2 only. This will reduce complexities
in the initial phase. However, it is the Commission’s intention to extend the coverage of the
emissions trading scheme to additional activities and  all  6  greenhouse  gases  covered  by  the
Kyoto  Protocol  as  soon  as  it  is  satisfied  that  good  monitoring  capability  exists,  and  when
compliance  with the  IPPC  Directive shall  be fulfilled  in respect of  all  non-CO2  greenhouse
gases.  Such  amendment  would  be  made  by  a  new  proposal  to  be  adopted  by  co-decision.
Having a threshold of 50.000 tonnes of CO2 equivalent poses practical difficulties. Emissions
data is not collected  systematically  across  the EU, so  such a threshold  would be difficult to
administer. All installations will in principle have to monitor their emissions in order to know
whether they are above or below the threshold. Emissions vary every year due to a number of
factors. One year a company might exceed the threshold, and the next years not exceed it. The
manner in which such thresholds would be administered is a further complicating factor.

Amendment  63  (Annex  I,  table,  new  item  3a)  adds  the  chemical  industry  subject  to  the
threshold  of  50,000  tonnes  of  CO2  equivalent  per  year.  This  amendment  is  not  acceptable.
The reasons are the same as those for amendment 62 above.

Amendment 64 (Annex II) wishes to add the factors of Global Warming Potentials for  each
gas to the Annex. This amendment is not acceptable. The factors would more appropriately be
contained in the monitoring guidelines to  be  elaborated under Article 14(1). The  factors  are
subject to periodic revision by the Intergovernmental Panel on Climate Change (a UN body).
No factors have been agreed yet for the HFCs.

Amendment 65 (Annex III, point 1) deletes the point as a consequence of the “x% cap”. This
amendment is not acceptable. The point contains crucial elements that cannot be omitted. If

12

allocations are not consistent with targets under the burden sharing agreement, then Member
States will be unlikely to reach those targets.

Amendment 66 (Annex III, point 2) deletes the point as a consequence of the “x% cap”. This
amendment  is  not  acceptable.  Allocations  must  be  consistent  with  progress  towards  the
European Community’s legally binding commitment under the Kyoto Protocol.

Amendment  78  (Annex  III,  point  3)  introduces  the  concept  of  best  available  techniques
(BAT)  and  benchmarks  into  the  allocation  plan  criteria.  This  amendment  is  not  acceptable.
Member States should not be required to use such BAT standards or benchmarks. Emissions
trading  is  an  instrument  that  does  not  need  technology  standards,  but  lets  operators  decide
which technologies they use.

Amendment 79 (Annex III, new point 3a) inserts the idea of benchmarks being derived from
BAT.  This  amendment  is  not  acceptable.  The  reasons  are  the  same  as  for  amendment  78
above, to which this is a consequential amendment.

Amendment  68  (Annex  III,  new  point  3b)  stipulates  that  the  practical  inclusion  of  other
greenhouse  gases  than  CO2  is  conditional  upon  the  full  development  of  “standardised  or
accepted  methods”  of  monitoring  developed  to  the  same  standards  of  accuracy  as  energy-
related  CO2  emissions.  This  amendment  is  not  acceptable.  Including  such  emissions  within
the scope of the Directive, but making their de facto inclusion dependent on the agreement of
monitoring  guidelines  in  comitology  is  considered  an  inappropriate  way  of  extending  the
scope of this Directive, and by implication, reducing the scope of the IPPC Directive. There
would remain some uncertainty whether and when such extension to other gases would occur.
Extension  of  the  scope  is  better  agreed  by  co-decision  when  monitoring  standards  are
sufficiently developed.

Amendment  69  (Annex  III,  point  4)  inserts  an  explanatory  text  on  the  accumulation  of
financial  benefits.  States  that  Member  States  “shall  avoid”  unduly  burdening  their  industry
with  multiple  instruments  to  address  climate  change.  This  amendment  is  not  acceptable.
Subsidiarity should be respected. Member States should be allowed to regulate their operators
with  multiple  instruments.  Indeed  several  Member  States  could  be  expected  to  need  to  use
multiple instruments in the same sectors if they are to fulfil their Kyoto targets.

Amendment  70  (Annex  III,  point  5)  specifies  “allocation”  plan,  and  further  stipulates  that
allocations cannot be more than an installation is likely to need unless they are in recognition
of  early  action.  This  amendment  is  not  acceptable.  The  Commission  cannot  accept  any
constraint  on  what  should  or  should  not  be  considered  as  incompatible  state  aid.  Member
States  should  be  allowed  to  reward  early  action  as  they  consider  appropriate  and  as  their
individual circumstances allow, but always subject to the provisions of the Treaty.

Amendment 104 (Annex III, point 6) lays down that the treatment of new entrants must give
rise  to  no  distortions  of  competition  [compared  to  incumbents].  Information  should  be
included  in  the  allocation  plans  on  how  new  production  capacity  will  be  treated.  This
amendment is not acceptable. The Commission believes that Member States should be able to
choose  the  method  by  which  allowances  are  allocated  to  new  entrants,  subject  only  to  the
requirement that they ensure that new entrants have adequate access to allowances.

13

Amendment 96 (Annex  III, point 7) makes  the rewarding  of early  action between 1990 and
2004 an  obligation  on  Member  States.  This  amendment  is  not  acceptable.  The  Commission
believes that the manner and extent to which Member States reward early action is for them to
decide in the light of their national circumstances.

3.4. 

Amended proposal

Having  regard  to  Article  250,  paragraph  2,  of  the  EC  Treaty,  the  Commission  modifies  its
proposals as indicated above.

14