of the Accession Treaties. The CEECs were includedas observers in the ﬁnal stages of negotiations on the EU ET Directive, includingboth the second reading in the European Parliament and the ﬁnal deliberations inthe Council.22 The CEECs took a more active part in the negotiations on the LinkingDirective all along.20 Warzaw Press (1 March 2004).21 This Committee, established to allow the CEECs to comment on EU draft legislationconcerning the signature of the Accession Treaties, was composed of representatives of theEU, the EU Commission, the Czech Republic, Cyprus, Estonia, Hungary, Latvia, Lithuania,Malta, Poland, Slovakia and Slovenia. See Fernandez Armenteros and Massai (2005, 432).22 For instance, Dr Tibor Farago, Director-General of the Hungarian Ministry of theEnvironment, stated: ‘we have followed the negotiations on the [ETS] Directive very closely,and have also expressed our concern on the linking proposal…At the moment we are waitingfor the Commission’s guidelines on the NAP’. Point Carbon (22 August 2003), ‘Hungary:Late Bloomer by Intent’, Point Carbon Carbon Market Europe, 1.
Implementing EU Emissions Trading
169
All CEECs have ratiﬁed the Kyoto Protocol, which commits them to emissionslimitations as Annex B Parties. Poland has a 6 per cent reduction target. However,given the economic and industrial restructuring processes underway in the CEECsin the post-Communist 1990s, their Kyoto targets are generally expected to be quitegenerous. Moreover, this development has been expected to set them up as sellers ofallowances in the ETS.As expected, progress in 2002 was fairly good. The 2004 EEA assessmentnoted that Poland was 29 percentage points below a linear Kyoto target path (EEA2004, 17). According to the 2006 EEA assessment, recent progress has been onlymarginally less promising (two percentage points ‘down’) (EEA 2006, 23). Accordingto Point Carbon, this development led representatives of the Polish Ministry ofthe Environment to state in February 2005 that Poland had already met its Kyotocommitments and that was why ‘it doesn’t really have to take part in EU ETS’.23Furthermore, since many other Kyoto signatories seemed set to overshoot theirtargets, the progress made in Poland led many to expect a reward when allowanceswere allocated. A windfall for industry was foreseen in allowance sales.24However, the 2006 EEA report also contained a warning signal, as by 2010,CEEC greenhouse gas emissions are expected to increase by 11 percentage points(EEA 2006, 24). This warning signal has clearly been picked up by industry. Forinstance, in spring 2005, when the Commission demanded a signiﬁcant cut of theproposed Polish cap, this created an uproar in several sectors of Polish industry –including cement, steel and power. Such a cut ‘could hinder the growth of the Polisheconomy’.25 This concern on the part of trade union and industry about the needfor future allowances related to a fast-growing economy was shared by the Polishgovernment, which in March 2005 stated that it was careful not to create ‘artiﬁcialbarriers to further economic growth’.26 The case of Poland was further complicatedby a change of government and environment minister in spring 2005. This led tofurther delays in the Polish ETS implementation process, and the late entry of Polishcompanies impeded market maturity.In sum, there was little need for Poland to implement the ETS ambitiously, andeconomic growth prospects meant also low willingness to do so.Comparative PatternsTable 6.1 shows that expectations have been roughly in line with actual implementationpatterns. This indicates that our three explanatory factors have been able to explaindifferences in implementation reasonably well.
23 Point Carbon (22 February 2005), ‘Polish NAP Under Pressure’.24 EU Energy (22 April 2005), ‘Little Hope for CO2 Allowance Deal between Poland,EC’, Issue 106, 14–15.25 EU Energy (25 March 2005), ‘Government, Industry “Disappointed” by EU NAPDecision’, Issue 104, 18.26 Reuters/Planetark (10 March 2005), ‘Poland Weighing Legal Options on EUEmissions’.
EU Emissions Trading
170
Table 6.1
Implementation of the EU ETS: Expected vs. actual outcome (inrelative terms)Fit
Need
Deed/drive
Expected outcome
Actual outcome
UK
M/H
L/M
H
Frontrunner
GermanySpain
L/ML
L/MH
H/ML/M (C)
Poland
L
L
L
Intermediate/FrontrunnerIntermediateLaggard/IntermediateLaggard
IntermediateLaggard/Intermediate (C)Laggard
C=Change
Together with Germany, the UK was the EU country that expressed the most vehementopposition to the Commission’s suggested ETS design. This was clearly related todomestic climate policy design and a wish to improve the more speciﬁc policy ﬁtbetween domestic and EU design. In contrast to Germany, emissions trading ﬁguredprominently in the British policy mix, so there was more of a slight policy misﬁtthan a more general and serious institutional misﬁt. The underlying attitude towardsemissions trading was basically positive and valuable lessons were being learnt.These domestic experiences also helped in the process of modelling and producingemission caps, applauded in both NAP I and II. However, this must primarily be seenas the result of good bureaucratic footwork, within a political context where someactual weight was given to climate policy. There was governmental willingness tosqueeze industry (particularly the power sector), but overall good climate policyprogress meant that there was no real need to squeeze the industry covered by theEU ETS very hard.Germany was in many ways the main opponent to the European Commission inthe development of the EU ETS. Hence Germany’s rather quarrelsome performancein the implementation process can stand as a prime illustration of the importanceof seeing decision-making and implementation in combination. It is also clear thatproblematic institutional ﬁt due to reliance on voluntary agreements can help toexplain both Germany’s opposition in the decision-making phase and its reluctantimplementation performance. On the other hand, a closer look reveals that thevoluntary agreements have not only complicated things: they also provided helpfulfocal points in the messy ﬁrst allocation round.Although Germany’s comparatively ambitious burden-sharing target leaves noroom for complacency, adequate climate policy progress has meant that the actualneed to squeeze German industry covered by the ETS very hard has simply notbeen present, thus far. However, there are signs that Germany’s climate policy drivehas been getting weaker in recent years. Furthermore, scattered evidence about thegenerally critical and hesitant role of industry, which relinquished the voluntaryagreements with regret, further supports our placing Germany, at best, in theintermediate category with regard to ETS performance to date.
Implementing EU Emissions Trading
171
Spain is interesting because it displays change in implementation over time. Theneed for an ambitious EU ETS performance was extremely high for Spain to reachits goal according to the BSA. But it took a new government in spring of 2004 toact upon this need. Hence, a combination of high need and change in climate policydrive is the key to understanding the case of Spain.In the case of Poland, institutional and policy ﬁt was low. In addition, postCommunism restructuring effects, in terms of markedly reduced emissions, meantthat the country did not have any need for the EU ETS. Finally, the country’seconomic growth prospects meant little interest in an active climate policy.The EU DimensionAlthough the EU ETS became basically decentralized, the allocation of allowanceswas not unconstrained. As noted in Chapter 3, Annex III of the ET Directivecontained several optional and mandatory criteria that member-states had torespect. One of the most important criteria was the need to be on a path towards theKyoto target in the period 2005–07 and consistent with Kyoto targets in the period2008–12. This provision resulted largely from the European Parliament’s efforts tocentralize the system towards setting the cap on the total quantity of allowances atEU level. The European Commission has the authority to approve and consequentlyreject National Allocation Plans (NAPs) which, in its view, do not comply with therelevant provisions. This means that our second proposition on the consequences ofa centralized system is still worth exploring, since the EU ETS included elementsaimed at harmonizing NAPs. More speciﬁcally, we proposed that such elementswould pull in the direction of greater environmental ambitiousness. By contrast,a decentralized system would be likely to lead to a ‘race to the bottom’, as eachmember-state would have incentives to protect its own industries by providing themwith generous allocations of allowances.To shed further light on this common moderation, we need a closer look at someshared factors, the ﬁrst of these being located at the EU level.A ‘race to the bottom’?Like most other EU policy-making and implementation, the EU ETS entails adimension of economic competition between the EU states which cannot be fullygrasped by examining the countries individually. An implementation process thatinvolves both high initial uncertainty and high speed may make this competitivedimension even more pertinent, as countries will have little time to check on whatothers are doing. Combined with a low degree of harmonization, this will facilitatea ‘race to the bottom’. After all, no state wants to end up as the one left ‘holdingthe bag’, with industry at a disadvantage compared to the competitions. The EUETS NAP I process is a good illustration of such dynamics. As stressed by Vis(2006b, 187), relevant data were initially in short supply. Furthermore, as Vis notes,the underlying competitive challenge can be seen in the treatment of new entrants,where ‘... fear that [treating] new entrants any less favourably than neighbouring
EU Emissions Trading
172
Member States would mean that new investment would tend to go to Member Stateswhere allocation was for free’ (ibid., 196).The high policy-making speed and time pressure originated in Brussels and thegenerally tight ETS schedule set by the Commission (see, for example, Pew Center2005, 9). The tight schedule must also be understood in light of the fact that, althoughthere had been some previous experiences with domestic emissions trading, thisinstrument was quite new to all concerned. A closer look at some of the countries infocus here conﬁrms that the tight schedule had unfortunate domestic effects. Evenin the comparatively well-prepared UK, time constraints and the impossibility ofconsulting with other member-states were pointed out in our interviews in the winterof 2005.27 As for Spain, its case is of course somewhat extreme, as the absence ofalmost any action in the early NAP I phase led to a high-pressure situation when thenew government took over, and things suddenly started happening.Time constraints led countries to focus ‘inwards’. There was simply not enoughtime for consulting with other member-states and learning from them, althoughsome valuable consultations did take place within the framework of the ClimateChange Committee (see Vis 2006b, 204). No wonder then that the logic of theprocess resembled a ‘race to the bottom’, where competitiveness concerns gavemember-states incentives to over-allocate permits.28 As noted in Chapter 3, thestrongest indication of this dynamics was the observation that, in 2005, the numberof allowances distributed to installations in order to cover 2005 emissions was about4 per cent higher than actual CO2 emissions.The Commission as WatchdogThe Commission was assigned the function as the main supervisor and watchdogin relation to the processes of drawing up the NAPs and implementing the ETS. Inthe spirit of a decentralized system, ‘the Commission’s role was always going tobe one of moderate tightening, as opposed to wholesale revision’ (Vis 2006b, 201).As mentioned in Chapter 3, the Commission was also responsible for producingguidelines to Annex III for the NAP I process. These guidelines were criticized forbeing vague and delayed. In December 2003, Point Carbon reported that allocationprocesses were slowing down, as all parties waited for the allocation guidelinesfrom the European Commission, guidance as to the treatment of new entrants wascharacterized as far from clear.29However, as pointed out by CEPS (2005), we should bear in mind that, in linewith their preferences for a decentralized ETS and the assignment of moderatewatchdog powers, also the member-states would rather have guidance that wasnot too clear or restrictive. As shown in Chapter 5, the European Parliament triedto increase harmonization and make Annex III more detailed, but failed – largely27 UK interviews, 16 February 2005.28 This has also been pointed out in other studies; see for example Bowyer et al. 2005,18.29 Point Carbon (22 June 2004), ‘Feature: New Entrants Reserves are the GreatUnknowns’; CEPS 2005, 22.
Implementing EU Emissions Trading
173
because the member-states did not want to give too much inﬂuence to the EuropeanCommission on allocation.So did the efforts of the European Parliament and the Commission pay off interms of higher levels of ambition? The answer is yes, to some extent. At the outsetof the NAP I process, several Commission representatives expressed explicit wishesfor ambitiousness in the member-state NAPs and related scarcity in the subsequentmarket. For instance, the head of DG ENV, Catherine Day, stated in February 2004:‘there must be an underlying scarcity in the market’ and ‘the scarcity will exist attwo levels: overall for the installations covered by the Directive, and individually,installation by installation’.30 This call was repeated by DG ENV senior ofﬁcial PeterVis in April 2004: ‘the market cannot be long as a whole, there must be scarcity if itis to work.’.31 So, from the very outset, the Commission tried to encourage memberstates to make an extra effort.On the whole, it managed to shave off some 290 million tonnes of the proposedNAP I total, as well as securing commitments to cancel the remains of new entrants’reserves in several cases. However, this represents only 4.5 per cent of the totalallocation of about 6.6 billion tonnes – not very much. In NAP I the Commissionspent considerable time on the continuing and administratively burdensomequarrelling with EU heavyweights like the UK and Germany. The case of the UKhas been characterized as the most protracted; it concerned the UK’s attempt torevise and adjust its 2005–07 total cap 20 million tonnes upwards (from 736 to 756million tonnes CO2) in light of revised energy and emissions projections. Althoughthe UK took its case to the Court of Justice and got principal approval there inNovember 2005, the Commission refused to accept the UK’s revised plan. As forthe German case, it centred on the German government’s wish to ‘ex post’ takeback allowances if actual emissions should come in below expectations (indicatingover-allocation). The Commission maintained that this would add unnecessaryuncertainty to an already complex situation; it refused, but lost out in the end.Neither of these cases involved large quantities of allowances. However, judgingby Peter Vis’s account of these processes, the Commission saw these ‘heavyweightcases’ in a wider perspective and was worried about possible precedence effects(Vis 2006b).As to effects in terms of percentages shaved off proposed NAPs, the role of theCommission was more important in the cases of Italy and Poland. Their proposedNAPs were rejected by the Commission, and continuing pressure led to relativelysigniﬁcant changes in both cases. For Italy, the ﬁnal annual cap was 23 milliontonnes lower than the initially proposed 255.5 million tonnes – 232.5 million tonnesand hence a 9 per cent cut.32 Poland went through several rounds, ﬁnally ending upwith an annual cap of 235.6 million tonnes – down 42 million tonnes or about 15 percent from the initially proposed 277.4 million tonnes.With NAP II, the Commission adopted a generally tougher line of action. In itsﬁrst assessment round in late November 2006, the Commission proposed changes30 Point Carbon (2 February 2004), ‘NAPs Must Leave EU Emissions Market Short’.31 Point Carbon (22 April 2004), ‘EC Calls for Market Scarcity’.32 EU Energy (3 June 2005), ‘EC Cuts Italian NAP by 9%’, Issue 109, 3–4.
174
EU Emissions Trading
to nine out of ten plans, together accounting for around 42 per cent of the emissionscovered by the ETS. Given Germany’s position as top EU emitter, the 28 milliontonnes (approx. 7 per cent) shaved off its plan was particularly important – from asuggested 482 million tonnes to the accepted 453.1 million tonnes. The 27 per centcut of the EU’s third-largest emitter, Poland, was also a signiﬁcant act of increasedtoughness. As noted in Chapter 3, the suggested NAP II cap cuts add up to around 9per cent, already clearly above what the Commission achieved in NAP I (see Tables3.4 and 3.6).With the introduction of explicit and speciﬁc formulas for deciding NAP IIoverall and CDM caps, it is important to note that the Commission, rather quietlyand almost unnoticed, has in practice already introduced a more centralized modelfor setting caps in the EU ETS. What is basically left for the member-states isthe installation-level allocation. The apparently quiet overall acceptance of thisdevelopment is probably grounded in an increasing realization among memberstates that the decentralized approach they initially favoured has not worked wellenough. In addition come the May 2006 shock-waves related to the ﬁrst publicationof 2005 ET emissions indicating signiﬁcant over-allocation.In sum, there are EU-level factors which can shed light on common pilot phasemoderation. Especially the decentralized NAP I process, spurring an initial ‘raceto the bottom’ and the setting up of the Commission as a moderately powerfulwatchdog, is important in this respect. However, the harmonizing elements of thenational allocation process and the utilization of its ‘watchdog’ role exerted byEuropean Commission have pulled in the direction of higher levels of ambition, asexpected. This development has been taken a signiﬁcant step forward in NAP II. Letus then move on to other possible explanations at the international level.International PerspectiveAccording to the ﬁnal proposition put forth in Chapter 2, a strong link between theEU ETS and the climate regime’s ﬂexible mechanisms, and low industrial exposureto global competition, would increase the willingness of member-states to acceptambitious ETS allocation. The ﬁrst part of this proposition primarily concerns thelink between the NAPs and the Clean Development Mechanism (CDM). As noted inChapter 5, the link between the EU ETS and the Kyoto mechanisms was hotly debatedin the decision-making processes. A main outcome was that it became possible forEU member-states to use credits/allowances stemming from CDM projects alreadyfrom 2005 on, which could potentially inﬂuence both the NAP I processes and thevery functioning of the ET market. As CDM projects in developing countries entailhigher risks and greater complexity than allowance trading between industrializedcountries, it is generally assumed that CDM allowances/credits will be traded atlower prices than EU allowances. The availability of CDM credits would thus makeit easier for industries to agree to ambitious measures, implying that a strong linkbetween the NAPs and CDM is likely to increase ambitiousness.The second part of the proposition has to do with the fact that the industriescovered by the ETS are exposed to global competition (albeit to varying degrees);
Implementing EU Emissions Trading
175
hence it may be inadequate to look only at domestic and EU factors in order tofully understand EU industry strategies and action. In essence, the moderate levelof ambition may have been caused by opposition from EU industries fearing globalcompetitive effects.Industry Competition and OppositionThe EU ETS covers only certain industries and ‘activities’. Basically, we maydistinguish between two main categories of ET industries: power producers, andpower consumers. Power production in the EU normally takes place within subregional European markets, so global competition is not a relevant factor in this case.The power consumers have generally been highly sceptical to a strict cap-and-tradesystem. The question here is whether power-consuming industries under the EUETS are exposed to global competition which has further ampliﬁed their resistanceto ambitious allocation.In 2004, the British Carbon Trust organization published a study of theimplications of the EU ETS for industrial competitiveness in the UK (Carbon Trust2004). Of the ﬁve sectors studied (electricity, cement, paper, steel, and aluminium),global concerns were found to be of some relevance only for the four latter, of whichaluminium is not included in the EU ETS. As for cement, although it cannot traveleconomically far on land, it can be transported at sea at reasonable cost. However,at least in the case of the UK, import penetration from outside the EU is very low(around 5 per cent), so only in a longer-term scenario, with considerably higherallowance prices, do global concerns really kick in. The same basically goes forpaper, where imports from outside the EU are at around 15 per cent.Steel, however, is in a somewhat different position. Industry believes that, duein part to the signiﬁcant global trade in steel, it may be very difﬁcult to pass costincreases (caused by the ETS) through to prices (ibid., 19). Especially in a morelong-term scenario with considerably higher allowance prices, the Carbon Trustnotes: ‘EU producers would suffer if other major producers did not face carbonconstraints’ (ibid., 20).Although the Carbon Trust has studied only British industry, there is little reasonto believe that the situation is fundamentally different for the power-consumingindustries of other EU countries. For instance, in March 2005, the president of thePolish metallurgical industry federation noted the booming demand for steel in theglobal market and how the EU ETS could negatively affect Polish exports to thismarket.33 On the whole, although the issue of global competition is relevant, it isnot very important in this connection. Of the industries so far covered by the EUETS, global competition appears to be most important in the case of steel. Thus,there is little reason to ascribe the moderate ambitiousness of ETS NAP I to fearsabout global competitive effects. On the other hand, the factor will probably becomemore important in a long-term perspective, particularly if global competitors remainoutside the global regulatory framework that succeeds the Kyoto Protocol.33 EU Energy (25 March 2005), ‘Government, Industry “Disappointed” by EU NAPDecision’, Issue 104, 18.
176
EU Emissions Trading
Still, resistance from industrial target groups appears to be a signiﬁcant reasonfor the moderate level of ambition in phase I. If we look at the strategies of industriesin the four countries selected for analysis in this chapter, the similarities in resistanceare far more striking than the differences. In the UK, several observers have reportedthat industry engaged in lobbying in order to maximize their allocations under theEU ETS.34 For instance, when James Cameron, CEO of ‘Climate Change Capital’addressed a UK Parliamentary Committee, he stated: ‘Claims on competitivenessaround the UK’s allocation plan – led by the CBI – have been very badly managed... very misleading, counterproductive and irresponsible, but they have worked’.35 InGermany, ‘The president of the BDI … expressed his satisfaction that new burdenson industry had been prevented’ while WWF Germany stated that ‘the red-greencoalition had “castrated” the EU ETS by giving in to industry’.36 Similarly, othersources reported about ‘industry sceptical of emissions trading plan’ and the situation‘complicated by the various lobby groups vying to inﬂuence the system to suit theirinterests’.37In Spain, the pressure from industry changed from an effort to sabotage thewhole implementation process to ensure that the ambitiousness of the allocation,the cap, was lenient.38 In Poland, strong dissatisfaction was reported on the part ofindustry: industry did not feel it had been given sufﬁcient credit for undergoing apainful restructuring process.39 Also trade union opposition was noted, as allowanceswere seen as too low and it felt that they would slow production in one of the fastestgrowing economies in Europe.40 When the Commission demanded a signiﬁcant cutof the proposed Polish cap in the spring of 2005, this created a further uproar inPolish industry, not least in the cement, steel and power sectors.41These scattered observations indicate that industry in general lobbied to maximizeits allocations under the EU ETS, and this can add to our understanding of moderateambition levels in the ﬁrst round of allocation. But industrial lobbying seems tohave been based on general concern about rising abatement costs, rather than fear ofglobal competition.34 ENDS Report (February 2004), ‘Horsetrading Gets Under Way on EmissionsAllocation Plan’, Issue 349, 5; ENDS Report (May 2004), ‘DEFRA Loses the Initiative withDelayed Emissions Allocation Plan’, Issue 352, 41; Friends of the Earth (27 October 2004),‘Blair Caves in to Industry on Climate’, FoE press release.35 ENDS Report (January 2005), ‘MPs Attack CBI “Scaremongering” on ClimateChange Costs, Issue 360, 30.36 Euractiv (31 March 2004), ‘German Emissions Trading Compromise Hailed byIndustry, Condemned by Green NGOs’.37 Deutsche Welle (25 February 2004), ‘German Industry and Green at Loggerheadsover Emissions Plan’.38 Interviews in Madrid, 9–10 May 2005.39 Point Carbon (14 May 2004), ‘Viewpoint: Polish ETS Case Undermining KyotoPrinciples?’, Point Carbon, Carbon Market Europe, 1.40 International Environment Reporter (28 July 2004), ‘Poland Developing Draft Planwith Business to Join European Carbon Trading Scheme’, 27:15, 586.41 EU Energy (25 March 2005), ‘Government, Industry “Disappointed” by EU NAPDecision’, Issue 104, 18.
Implementing EU Emissions Trading
177
EU ETS and the CDMThe Linking Directive opened up for the possibility of using credits stemming fromCDM projects already from the start of the EU ETS in 2005. However, the EUcountries have no formal international targets to comply with before the 2008–12Kyoto commitment period. This is why discussions about NAP I ambition-levelscentred on a ‘path towards’ the Kyoto targets in the ETS 2005–07 pilot phase and‘consistent with’ the Kyoto targets 2008–12. In reality there was little sense in ‘usingup’ CDM credits in the pilot phase, even if they were available (which they wereonly to a very limited extent, as further described below).Although interest in and priority given to the development of CDM projectssurged in the wake of high ETS prices in 2005 (see Grubb and Neuhoff 2006, 19),the capacity of the CDM Executive Board to assess and approve projects has beenlimited.42 The CDM Board has been characterized as a bottleneck in the system.43By late 2006, approximately 1400 projects had been submitted, with some 430formally registered. Of these, the Board had approved 88 projects and actuallyissued ‘Certiﬁed Emissions Reductions’ (CERs), the latter amounting to 22 milliontonnes CO2.44 This is roughly similar to Slovenia’s total allowances in the ETS pilotphase. Seen in light of the over-supply of allowances in the pilot phase, and thestill non-operative UNFCCC International Transaction Log (the global allowanceregistry, meaning no formal possibility to use CDM credits so far), no companiesseem inclined to use CDM credits for compliance purposes in the ETS pilot phase.45This means that the CDM factor is basically insigniﬁcant for understanding the levelof ambition in NAP I.However, for the second phase of the EU ETS, the CDM issue becomes far morepertinent. Earlier EU discussions about ‘supplementarity’ centred on the extent towhich member-states could rely on credits from the Kyoto mechanisms. As furtherdiscussed in Chapter 5, in addition to opening up for CDM credits from 2005 on,a main outcome was a general requirement that the use of the mechanisms shouldbe only ‘supplemental to domestic action’. In the Commission’s December 2005guidelines for second-phase NAPs, no further speciﬁed limit was introduced. TheCommission merely repeated that member-states’ planned use of such credits shouldbe consistent with their supplementarity obligations under the Kyoto Protocol. Stateswere free to choose whether to apply the limit individually with respect to eachinstallation, or collectively to all installations.4642 The CDM Executive Board is composed of ten members drawn from all constituenciesof parties to the Kyoto Protocol.43 See, for example, Egenhofer 2005; Reuters/Planetark (9 November 2006), ‘InvestorsWary of Kyoto Market Controls’.44 Point Carbon (13 December 2006), ‘CDM and JI Project Pipeline’, CDM & JIMonitor, 3.45 EU Energy (6 April 2007), ‘Delays in Registry-ITL Links Threaten Emissions Tradingfrom 2008’, Issue 155, 10.46 European Commission (22 December 2005), COM(2005)703 Final, Communicationfrom the Commission: Further Guidance on Allocation Plans for the 2008 to 2012 TradingPeriod of the EU Emissions Trading Scheme (Brussels), 7–8.
178
EU Emissions Trading
The Commission’s ﬁrst NAP II verdict in late November 2006 provided furtherclariﬁcation on supplementarity. The press release was explicit: ‘the Commissionconsiders that, as a general rule, installations should be allowed to use JI and CDMcredits to supplement their allowance allocation by up to 10 per cent. In assessingproposed limits that are greater than 10 per cent, the Commission has taken intoaccount the efforts a member-state has to undertake to respect its Kyoto target’.47 Asmentioned, in November 2006, nine out of ten proposed NAP II plans were rejectedby the Commission. In three of these cases (Ireland, Sweden and Malta), this includedthe proposed use of JI/CDM credits. Overall, the Commission has cut seven out of19 CDM plans, more than halving the plans of Ireland, Spain and Poland.This speciﬁed and tougher line taken by the Commission can also be seen inlight of alarming reports published in autumn 2006, indicating that member-states’planned use of JI/CDM credits at this point was ‘signiﬁcantly larger than the expectedshortage’ (of allowances).48 This planned use indicated downward pressure on pricesin phase two of the ETS and low incentives to abatement within the EU itself.49Hence, it is clear that how the