EU carbon trading a possible blueprint

Climate change will become a serious business issue for many European companies from tomorrow with the start of the European Union’s mandatory greenhouse gas emissions trading scheme on New Year’s day (reports The Financial Times).

For the first time, businesses in energy-intensive sectors will have to monitor and lower their emissions of carbon dioxide or face large fines. If successful, the scheme could provide the blueprint for lowering emissions around the world.

The scheme aims to lower the EU’s overall greenhouse gas emissions - in line with member states’ obligations under the Kyoto protocol - by targeting the sectors judged to be the biggest emitters of carbon dioxide and imposing limits on how much they are allowed to produce. Each country must submit a national allocation plan that calculates how much its affected industries should be allowed to emit under the scheme. About 12,000 installations, responsible for nearly half of Europe’s overall emissions of carbon dioxide, will be given individual targets.

Companies that reduce their carbon emissions, for instance by increasing their energy efficiency or by installing "cleaner" technology, will be able to sell their unused allowances on an open market. Companies that exceed their quota will be able to buy extra permits. Any company found to exceed its quota without valid permits will be fined at a rate of Euro 40/t.

The scheme applies only to industrial installations. Only six categories of business are covered, at least in its first stage: electricity generation; heat and steam production; mineral oil refineries; the production and processing of ferrous metals; the manufacture of cement, bricks and ceramics; and the pulp and paper sector.  The scheme will be reviewed by the European Commission in 2006, and countries will have to submit their national allocation plans for the second period then.