Opinion of the European Economic and Social Committee on the "Proposal for a Directive of the European Parliament and of the Council amending the Directive establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms" (COM(2003) 403 final — 2003/0173 (COD))
Date: 2003-12-11
Institutions: European Economic and Social Committee
Subjects: ESC opinion, EU environmental policy, greenhouse gas, reduction of gas emissions, tradeable emission permit

30.3.2004

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Official Journal of the European Union

C 80/61

Opinion of the European Economic and Social Committee on the ‘Proposal for a Directive of the
European Parliament and of the Council amending the Directive establishing a scheme for
greenhouse gas emission allowance trading within the Community, in respect of the Kyoto
Protocol’s project mechanisms’

(COM(2003) 403 final — 2003/0173 (COD))

(2004/C 80/18)

On 1 September 2003 the Council decided to consult the European Economic and Social Committee,
under Article 175(1) 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 13 November 2003. The
rapporteur was Ms Le Nouail-Marlière.

At its 404th plenary session of 10 and 11 December 2003 (meeting of 11 December 2003), the European
Economic and Social Committee adopted the following opinion unanimously.

1.

Introduction

1.1.
The United Nations Framework Convention on Climate
Change (UNFCCC) was signed by 154 countries at the Earth
Summit in Rio in June 1992. It came into effect on 21 March
1994 and represents a concerted effort
to tackle global
warming occurring as a result of human-induced (anthropo-
genic) climate change. Its ultimate objective is the ‘stabilisation
of greenhouse gas concentrations in the atmosphere at a level
that would prevent dangerous anthropogenic interference with
the climate system. Such a level should be achieved within a
time frame sufficient to allow ecosystems to adapt naturally to
climate change, to ensure that food production is not threat-
ened and to enable economic development to proceed in a
sustainable manner’ (1).

1.2.
The Kyoto Protocol (KP) to the UNFCCC was adopted
in December 1997 at the 3rd session of the Conference of
the Parties (COP) in Kyoto, Japan. To date, 119 countries
responsible for 44,2 % of carbon dioxide (CO2) emissions
including the EC and its Member States, as well as most of the
applicant countries, have ratified it.

1.3.
To enter into force, the Kyoto Protocol needs to be
ratified by at least 55 countries responsible for more than
55 % CO2 emissions from industrialised countries in 1990.
The United States withdrew from the protocol
in 2001
although their emissions are increasing and make up 25 % of
total global emissions. Despite the efforts to achieve this
objective before the Johannesburg summit in August 2002,
the protocol has not yet entered into force.

1.4.
The EU is committed to reducing its collective emis-
sions of greenhouse gases by 8 % below its emissions level in
1990 in the 2008-2012 period. However, total greenhouse
gas emissions in the EU are expected to fall by 4,7 % from

(1) Article 2 UNFCCC.

1990 to 2010 assuming adoption and implementation of
current measures, leaving a shortfall of 3,3 % compared with
the target of 8 % reduction. If the EU is to achieve its Kyoto
target, substantial further action and additional policies are
needed. In 1998 the EU Member States adopted the ‘burden-
sharing agreement’ in which they agreed to internally distribute
the collective EU reduction obligation of 8 %. The EU ratified
the Kyoto Protocol at the Council meeting of 4 March 2002
pursuant to Council Decision 2002/358/EC (2). The Member
States completed their national ratification procedures on
31 May 2002.

1.5.
In order to encourage and facilitate the implementation
of their emission reduction commitments, so-called flexible
mechanisms were created with a view to promoting the
achievement of emissions reductions in a cost-effective way.
These flexible mechanisms are: Emissions Trading,
Joint
Implementation, and the Clean Development Mechanism
and cooperation
(encouraging sustainable development
between developed countries and developing countries).

1.6. While the implementation of the three flexible mechan-
isms at international level will only become possible once the
Kyoto Protocol comes into force, the EU is moving ahead with
its own internal emissions trading system which will start in
January 2005 (3).

(2) Decision 2002/358/EC of 25 April 2000 concerning the approval,
on behalf of the European Community, of the Kyoto Protocol to
the United Nations Framework Convention on Climate Change
and the joint fulfilment of commitments thereunder (OJ L 130,
15.5.2002, p. 1), comprising the protocol and its annexes. EP
Report A5-0025/2002 on the proposal of the Council relating to
the above decision.

(3) Directive 2003/87/EC of the European 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,
p. 32-46.

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This proposal complements the directive ‘in respect of
1.7.
the Kyoto Protocol’s project mechanisms’, i.e. the two other
flexible mechanisms in addition to emissions trading, which
aim to reduce the cost and the macroeconomic impact of the
protocol’s implementation.

Implementation (JI,

1.8.
The Kyoto Protocol allows developed countries to use
emission credits generated through the so-called Kyoto project-
for
based mechanisms, namely Joint
projects taking place in developed countries) and the Clean
Development Mechanism (CDM, for projects in developing
countries), to partly meet their emission reduction targets.
Emission credits can only accrue if the emission reductions
achieved through the project are additional to what would
have happened in the absence of the activity (environmental
additionality). JI and CDM projects are primarily to be driven
by the private sector. The CDM has the two-fold goal of both
contributing to the ultimate objective of the UNFCCC and
assisting developing countries in achieving sustainable devel-
opment. The CDM will be supervised by an Executive Board,
which was established at COP7.

1.9.
Already now, before the Kyoto Protocol enters into
force, project-based activities can be eligible under the CDM
and generate credits. These credits will have a value since
governments can purchase them to meet their Kyoto targets
or companies can use them to fulfil their domestic obligation
to reduce emissions at lower cost. This makes the CDM an
economic incentive for greening Foreign Direct Investment.
As such, and taking account the environmental additionality
requirement laid down by the Kyoto Protocol, the CDM is
expected to be a good vehicle for the transfer of clean and
modern technologies in developing countries while delivering
real development benefits.

1.10.
The Commission’s proposal takes into account the
obligation for Parties to the Kyoto Protocol to achieve a
significant part of
their Kyoto targets through emission
reductions in the European Union, so that the use of the Kyoto
flexible mechanisms is supplemental to domestic efforts as
formalised by the burden sharing agreement which sets out
different commitments for the Member States and accession
countries. It therefore envisages the triggering of a review once
JI and CDM project credits equivalent to 6 % of the total
quantity of allowances issued for the trading period 2008-
2012 enter the emissions trading scheme.
If and when
triggered, this review will consider placing a limit on the
credits that can be converted during the remainder of the
trading period.

2. General comments

2.1.
The EESC confirms its unconditional support for the
ratification and implementation of the Kyoto Protocol. The
Committee reiterates that it welcomes the draft directive on
greenhouse gas emissions trading as it ‘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 commitments to reduce greenhouse gases provided
for in the Kyoto Protocol, which also provides for direct
emissions trading between Member States’ (1). The EESC also
stresses ‘the importance of updating the EU’s monitoring
system for Community greenhouse gas emissions and
implementing the Kyoto Protocol if it wants to work actively
towards accessions to and ratifications of the Kyoto Protocol,
in the context of pan-European environmental cooperation’ (2).

2.2.
The Committee is concerned about the general slow
progress in implementing the UN Framework Convention on
Climate Change and the Kyoto Protocol in particular, as drastic
action is needed in view of the fact that the planet’s thermic
inertia means that decades would be required to significantly
check warming.

2.3.
The Kyoto Protocol has not yet entered into force with
the effect that different countries are adopting different regimes
for its implementation. These include varying methods for
monitoring, reporting and verification as well as trading.
Nevertheless countries have taken on commitments despite
the delay in ratification. EU Member States use a common
system that corresponds to the Kyoto Protocol.

2.4.
The EESC supports the Commission’s initiative and
asks (the most) important global players to ratify the Kyoto
Protocol.

The EESC believes that it should be possible to convert
2.5.
credits into allowances for the period 2005-2007. This would
send a positive signal and could advance the development of
future projects that would provide considerable environmental,
social and economic benefits.

(1) EESC Opinion 680/2002 of 29 May 2002 on the Proposal for a
Directive of the European Parliament and of the Council estab-
lishing 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), OJ C 221,
17.9.2002, p. 27-30.

(2) EESC Opinion 931/2003 of 16 July 2003 on the Proposal for a
Decision of the European Parliament and of the Council for a
monitoring mechanism of Community greenhouse gas emissions
and the implementation of the Kyoto Protocol, COM(2003) 51
final — 2003/0029 (COD), OJ C 234, 30.9.2003, p. 51.

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The Committee believes that the Commission should
2.6.
explain the concepts of JI and CDM to the players involved (in
particular the sectors that will implement the mechanisms and
projects) more effectively than has been done in the past,
giving clear information about possibilities and limitations.
The Committee does not consider the activities of the Member
States to date to have been adequate. The recitals and
definitions, in addition to the extensive use of abbreviations
and acronyms, make the text unclear (what does this relate to,
who is concerned, in which countries).

2.7.
The Commission should standardise its terminology,
e.g. mise en oeuvre conjointe/application conjointe and MOC/
MC in the French versions of (1).

2.10.3. When oil and natural gas are no longer available,
they will have to be replaced by hydrogen. But its production
(for instance by electrolysis) requires twice as much primary
energy as it provides. The consequences for energy — and the
climate — would be even more serious than today.

In addition,

2.10.4.
losses during exploitation, transport
and use need to be examined carefully when using natural gas
as it has a 30 times greater effect on the climate than CO2.

3. Specific comments

The EESC supports the use of emission credits gener-
2.8.
ated through Joint Implementation mechanisms (JI) for projects
taking place in developed and transition countries, and the
Clean Development Mechanism (CDM)
in
developing countries, as instruments to speed up technological
developments that will reduce carbon emissions and benefit
both developing and developed countries.

for projects

Art. 11(bis)(2)

2.9. With regard to the coherence of Community policies,
the Committee notes the Commission proposal for an action
plan on climate change in the context of development
cooperation and the contribution of the fifth framework
programme for research (2).

2.10.
However, the Committee is concerned that the Kyoto
mechanisms may only result in a short-term reduction of CO2
emissions, which is not compatible with long-term sustainable
development.

3.1.
The EESC is well aware that the credits generated
through Joint Implementation (JI) and Clean Development
Mechanisms (CDM) projects which are converted into allow-
ances for use in the emissions trading scheme are limited by the
Kyoto Protocol, as JI and CDM projects can only supplement
national efforts, not replace them. However, the Committee
advises the Commission to take account of:

— the complexity and slow implementation of the Kyoto
(1997) and the Marrakech Accords (2001)
Protocol
(7th Conference of the Parties), which were drawn up by
the United Nations Framework Convention on Climate
Change and adopted in Rio in 1992;

It is therefore vital to consider energy efficiency at
2.10.1.
least as much as the mix of resources and the diversification of
supply.

— the lack of available projects at the moment and the slow

process of project approval;

2.10.2.
Increasing the use of natural gas (CH4) in electricity
production would be an economically attractive means of
reducing CO2 emissions. Like oil, natural gas is a potential
source of fuel production in the transport sector. However,
available information indicates that the known reserves of this
resource are more limited than those of other potential sources
for the production of electricity, such as coal, nuclear power
and renewable energy.

— the need to make these flexible instruments an incentive
to speed up technological developments and fair transfers
of technology;

— the minimal contribution of the reduction in greenhouse
gas emissions covered by the Kyoto Protocol (3 % of the
effort necessary to check the warming process);

(1) COM(2003) 85, COM(2003) 403, MEMO/03/154.
(2) Communication from the Commission to the Council and the
European Parliament ‘Climate Change in the Context of Develop-
ment Cooperation’, COM(2003) 85 final, Annex I: Action plan
and Annex VI: Climate change relevant projects financed under
the fifth framework programme for research.

— the duration of the proposed directives, apart from the
opening of negotiations on later commitment periods of
the Kyoto Protocol scheduled to begin in 2005;

— coherence with the European Programme on Climate
Change and the Sixth Environmental Action Programme
which promote emissions reductions;

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— readability and the message conveyed to potential actors
(public or private) as well as the need for a clear and
positive message with a view to the ratification of the
Kyoto-Protocol by third countries;

— the consideration of the different commitments of Mem-

ber States under the Kyoto Protocol;

— the conclusion of a ‘burden-sharing agreement’ between
EU Member States including the accession countries.

Art. 11(ter)(5)

3.4.
Despite the reference to compliance with Articles 6
and 12 of the Kyoto Protocol, which are vague about this
issue, the Committee proposes amending this clause to read:
‘transfer of environmentally safe and sound technology and
know-how adapted to developing countries and countries with
economies in transition’, and defining ‘environmentally safe
and sound know-how’.

Art. 11(bis)(3)

3.2. Without calling the Kyoto Protocol into question, the
Committee stresses that the delay in implementing the Kyoto
Protocol and the negotiation commencing in 2005 of the
commitment period after 2012 mean the LULUCF should not
be systematically excluded from the scope of the application
of the project-based mechanism. The Community should be
ready to implement the agreement on how LULUCF credits
should be treated which is expected at COP-9 (Milan —
December 2003).

3.3.
The temporary aspect discussed in the Kyoto Protocol
still raises issues of national sovereignty, land use and sustaina-
ble management adapted to local circumstances; so much so
that no world convention on forests exists.

Art. 21 — Paragraph 3 is replaced by the following (point 7(b) of
the proposal)

3.5.
In addition to ‘the organisation by the Commission of
an exchange of information between the competent authorities
of the Member States concerning developments relating to
issues of allocation, the conversion of emission reduction units
(ERU) and certified emission reductions (CER) for use in the
Community scheme, the operation of registries, monitoring,
reporting, verification and compliance’, it would be appropri-
ate to inform NGOs ‘deemed to have an interest’, social
partners and the public at large, in accordance with the Aarhus
Convention (1998) on public access to the decision-making
process and access to justice in matters concerning the
environment, as well as submitting a regular report to the
European Parliament, the Committee of the Regions and the
EESC.

Brussels, 11 December 2003.

The President

of the European Economic and Social Committee

Roger BRIESCH