<s> EU EMISSIONS TRADING
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EU Emissions TradingInitiation, Decision-making and Implementation
JON BIRGER SKJÆRSETH AND JØRGEN WETTESTADFridtjof Nansen Institute, Norway
© Jon Birger Skjærseth and Jørgen Wettestad 2008All rights reserved. No part of this publication may be reproduced, stored in a retrieval systemor transmitted in any form or by any means, electronic, mechanical, photocopying, recordingor otherwise without the prior permission of the publisher.Jon Birger Skjærseth and Jørgen Wettestad have asserted their right under the Copyright,Designs and Patents Act, 1988, to be identiﬁed as the authors of this work.Published byAshgate Publishing LimitedGower HouseCroft RoadAldershotHampshire GU11 3HREngland
Ashgate Publishing CompanySuite 420101 Cherry StreetBurlington, VT 05401-4405USA
Ashgate website: http://www.ashgate.comBritish Library Cataloguing in Publication DataSkjærseth, Jon BirgerEU emissions trading : initiation, decision-making andimplementation1. Emissions trading - European Union countries2. Greenhouse gas mitigation - Economic aspects - EuropeanUnion countries 3. Greenhouse effect, Atmospheric Economic aspects - European Union countriesI. Title II. Wettestad, Jørgen, 1955 363.7'38746'094Library of Congress Cataloging-in-Publication DataSkjærseth, Jon Birger.EU emissions trading : initiation, decision-making and implementation / by Jon BirgerSkjærseth and Jørgen Wettestad.p. cm.Includes bibliographical references and index.ISBN 978-0-7546-4871-01. Emissions trading--European Union countries. 2. Greenhouse gas mitigation-Economic aspects--European Union countries. 3. Greenhouse effect, Atmospheric-Economic aspects--European Union countries. 4. Energy policy--Environmental aspects-European Union countries. I. Wettestad, Jørgen, 1955- II. Title. III. Title: EuropeanUnion emissions trading.HC240.9.P55S45 2007363.738’746094--dc222007027846ISBN: 978-0-7546-4871-0
Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall.
ContentsList of TablesPrefaceList of Abbreviations
viiixxi
1
Introduction
1
2
Analytical Framework
11
3
Development of the EU ETS
35
4
Initiating EU Emissions Trading
65
5
Deciding on EU Emissions Trading
103
6
Implementing EU Emissions Trading
159
7
Conclusions
181
ReferencesAnnex IIndex
197207209
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List of Tables1.1
Member-state goals under the 1998 burden-sharing agreement
6
2.1
Summary of propositions
33
3.1
Main changes in the European Commission’s proposalsfor ET and Linking DirectivesDistribution of allowances under the ETS 2005–07NAP I 2005 allocations and veriﬁed emissionsNAP II, outcome of ﬁrst Commission assessmentend November 2006 (all ﬁgures in million tonnes of CO2)NAP II CDM/JI limits, outcome of ﬁrst Commissionassessment end November 2006NAP II, outcome of second batch of Commission assessments,end April 2007 (all ﬁgures in million tonnes of CO2)NAP II CDM/JI limits, outcome of second batch ofCommission assessments, end April 2007
61
4.14.2
Main non-state actor positions on the emerging EU ETSMember-states’ positions on the emerging EU ETS
8496
5.15.25.35.4
The Commission’s proposal and the ﬁnal Linking DirectiveKey changes suggested in the Parliament’s ﬁrst readingKey changes suggested in the Parliament’s second readingET proposal, Parliament proposals and ﬁnal outcome
115129135137
6.1
Implementation of the EU ETS: Expected vs. actualoutcome (in relative terms)
170
3.23.33.43.53.63.7
485657606061
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PrefaceOf the growing body of literature on the EU Emissions Trading Scheme (ETS),some of the most valuable contributions thus far have been written by the EuropeanCommission architects themselves (Lefevere 2005; Delbeke ed. 2006). Theseauthors have unmatched knowledge of what happened behind the scenes as wellas impressive technical, economic and legal insights. We highly recommend thesecontributions to anyone wishing a detailed description of the EU ETS.The contribution of this particular book lies ﬁrst and foremost in a systematicanalysis of why, how and with what consequences the EU Emissions Trading Schemecame into being. Our investigation is undertaken from a political science perspective,making this book a political analysis of an economic policy instrument. As politicalscientists, we seek to place the initiation, decision-making and implementation ofthe EU ETS within a broader analytical framework for understanding EU policymaking. To this end we systematically apply social science theory to understand thedevelopment of the EU ETS, using the development of the scheme to reﬁne socialscience theory. A further aim is to apply various explanatory perspectives pointingto different decision-making levels, actors and institutions in answering the researchquestions. We will view the process from the perspective of the EU memberstates, but also from the perspective of EU institutions, of European industry andenvironmental organizations, and from that of the international climate negotiationsand the climate regime, particularly the Kyoto Protocol.We have tried to restrict technical details to a ‘need to know’ basis. On the onehand, the EU Emissions Trading Scheme is an intuitively simple policy instrumentfor distributing or allocating carbon emission allowances or permits (in tons of carbondioxide, CO2) to industry. The main difference from traditional permit systems isthat industry can buy or sell these allowances, as deemed necessary. If the systemis to make any sense as a climate-policy instrument for reducing emissions, lessallowances should be given out than are projected to be needed. On the other hand,the EU ETS is extremely complex: the Monitoring and Reporting guidelines and theRegisters Regulation alone ﬁll some 200 pages of legal text. We can comfort anyreaders struggling to understand the details of the EU Emissions Trading Scheme:they are not alone.Many scholars have provided us with valuable support and suggestions forimprovement. Sebastian Oberthür has gone through the whole manuscript andoffered extremely valuable comments, drawing upon his theoretical and empiricalexpertise. In addition to providing invaluable information in two interviews, PeterVis commented upon draft versions of Chapters 4, 5 and 6. Ingvild AndreassenSæverud provided essential inputs to earlier work on the ETS implementationprocess, including collaboration in carrying out several interviews. Elin Lerum
x
EU Emissions Trading
Boasson kindly assisted us in ﬁnding relevant empirical evidence for severalchapters, and Karoline Hægstad Flåm wrote very helpful initial drafts for the partson the linking directive process in Chapters 3 and 5. Steinar Andresen, Arild Moe,Olav Schram Stokke and Oran R. Young have provided comments to Chapter 2. StigSchjølseth provided useful inputs and comments to Chapters 3 and 6. MaryanneRygg has provided excellent editorial assistance and Susan Høivik has improved theEnglish text considerably.We are also grateful to Oran R. Young for inviting Jon Birger Skjærseth as aguest researcher to the Bren School of Environmental Science & Management at theUniversity of California, Santa Barbara (UCSB) in 2006/07. This book would nothave materialized without the excellent working conditions provided at the UCSB.Jon Birger SkjærsethSanta Barbara, California
Jørgen WettestadLysaker, Norway
List of Abbreviations
ACBEACCFAGBMAGEALTENERAPIBAUBDI (Germany)BESTBMUBMWABPBSACCAPCCPMsCDMCDUCEECsCEFICCEMBUREAUCEOCEPSCERsCH4CNECO2CoPCoreperCSUDETR
(UK government) Advisory Committeeon Business and the EnvironmentAmerican Council for Capital FormationAd Hoc Group on the Berlin MandateGerman Emissions Trading Group(AG Emissionhandel)EU programme focussing on promotionof renewable energy sourcesAmerican Petroleum InstituteBusiness as UsualFederation of German Industries(Bundesverband Deutscher Industrie)‘Bureaucrats for Emissions Trading’German Ministry of the EnvironmentGerman Ministry of Economics and LabourBritish PetroleumBurden-Sharing AgreementCenter for Clean Air PolicyCommon and Coordinated Policies and MeasuresClean Development MechanismChristian Democratic UnionCentral and Eastern European CountriesEuropean Chemical Industry CouncilRepresentative organisation of thecement industry in EuropeChief Executive OfﬁcerCentre for European Policy StudiesCertiﬁed Emissions ReductionsMethaneClimate Action Network EuropeCarbon dioxideConference of the PartiesCommittee of Permanent RepresentativesChristian Social UnionUK Department of the Environment,Transport and the Regions
xii
DGDG ECFINDG ENVDG TRENECCPECJEEAEEBEITsENGOEPEPAEPPERTETETGEU ETSEURELECTRICEUROPIAFIELDFoEGETSGHGsHEWHFCsICCFIPCCIPPCJIJUSCANNZLCPMEPsN2ONAONAPsNOXOECDPCAPFCsPSE
EU Emissions Trading
Directorate GeneralDG Economic and Financial AffairsDG EnvironmentDG Transport and EnergyEuropean Climate Change ProgrammeEuropean Court of JusticeEuropean Environmental Agency;or European Economic AreaEuropean Environmental BureauEconomies in TransitionEnvironmental Non-Governmental OrganizationEuropean ParliamentUS Environmental Protection AgencyEuropean People’s Party, Christian DemocratsEuropean Round Table of IndustrialistsEmissions TradingEmissions Trading GroupEU Emissions Trading SchemeUnion of the Electricity IndustryEuropean Petroleum Industry AssociationFoundation for International Law and DevelopmentFriends of the EarthGreenhouse Gas and Energy Trading SimulationsGreenhouse GasesHamburg Electricity UtilityHydro ﬂuoro-carbonsInternational Council for Capital FormationIntergovernmental Panel on Climate ChangeIntegrated Pollution Prevention and ControlJoint ImplementationJapan, USA, Canada, Australia, NewZealand, Norway and IcelandLarge Combustion PlantMembers of ParliamentNitrous oxideUK National Audit OfﬁceNational Allocation PlansNitrogen oxideOrganisation for EconomicCo-operation and DevelopmentNorwegian Pollution Control AuthorityPerﬂuorocarbonsSocialist group in the European Parliament
List of Abbreviations
REACHRECLAIMRGGISAVE ProgrammeSF6SO2SPDTARUNCEDUNCTADUNEPUNFCCCUNICEVAVCIWMOWWF
xiii
Registration, Evaluation, Authorisationand Restriction of ChemicalsRegional Clean Air Incentives MarketRegional Greenhouse Gas InitiativeEU programme to promote energy efﬁciencyand encourage energy-saving behaviourSulphur hexaﬂuorideSulphur dioxideSocial Democratic PartyThird Assessment ReportUnited Nations Conference onEnvironment and DevelopmentUnited Nations Conference on Trade and DevelopmentUnited Nations Environmental ProgrammeUnited Nations Framework Conventionon Climate ChangeUnion of Industrial and Employers’Confederations of EuropeVoluntary AgreementChemical Industry AssociationsWorld Meteorological OrganizationWorld Wide Fund for Nature
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Chapter 1
IntroductionThe EU was a leading sceptic to international emissions trading in greenhouse gases(GHGs) in the run-up to the 1997 Kyoto Protocol. Four years later, the EuropeanCommission proposed the world’s ﬁrst international emissions trading system. Thedirective on emissions trading was formally adopted by the member-states in theCouncil of Ministers and by the European Parliament in October 2003. This directiveintroduced the EU Emissions Trading Scheme (EU ETS) for large industrial emittersof CO2 from 2005. The ﬁrst round of implementation in the form of drawing upnational allocation plans for the distribution/allocation of CO2 emission permits wasmainly carried out in 2004. By 1 January 2005, the system was up and running. Withthe ETS, the EU had not only accepted the idea of emissions trading. From being alaggard, it had become a leader in emissions trading within a very short period oftime. The EU Emissions Trading Scheme has been acknowledged as one of the mostfar-reaching and radical environmental policies in many years.The aim of this book is to understand the EU’s turn-about and its consequences.Why did the EU change its position? How did it manage to establish the world’sﬁrst international emissions trading system so rapidly? What are the consequencesso far? In essence, how can we explain the rapid initiation, decision-making andimplementation of the ETS in light of the EU’s scepticism to including emissionstrading in the Kyoto Protocol?1The making and implementation of the EU ETS is politically and environmentallyimportant for several reasons. First, it constitutes the major climate policy instrumentof the EU, so the success or failure of the scheme will affect the extent to whichthe EU will be able to reduce its CO2 emissions and comply with its commitmentsunder the Kyoto Protocol. Second, the EU Emissions Trading Scheme is the ﬁrstinternational emissions trading scheme ever. As such, it represents an innovativepolitical solution to one of the most pressing ecological challenges facing theearth today. Third, and for the same reason, the EU ETS represents a ‘grand policyexperiment’ with ramiﬁcations extending far beyond the EU (see Kruger and Pizer2004). How the Emissions Trading Scheme performs will have consequences forhow the international climate negotiations can be brought forward beyond the initialcommitment period (2008–12) of the Kyoto Protocol.The development of the EU ETS is also theoretically interesting and challengingfrom a social science perspective. Different schools of thought offer different answersto the research questions above. One approach see EU policy-making and integration1 In stark contrast, the process of getting a highly structured EU carbon/energy taxfailed; moreover, it took twelve years to get a weaker version adopted, if we count the carbontax initiative in the early 1990s as the true starting point of this process.
2
EU Emissions Trading
as mainly a result of interstate bargaining. According to this intergovernmentalistapproach, the interests and preferences of the EU member-states are the key tounderstanding the EU ETS. The development of the EU ETS is compatible withan intergovernmentalist approach to the extent the member-states changed theirpositions, took the initiative and determined the design of the scheme. Anotherapproach explains the EU ETS by pointing to the complexity of the actors andinstitutions involved at different levels of decision-making. The rapid developmentof the emissions trading scheme is more in line with multi-level governance to theextent it was the EU institutions, industry and environmental non-governmentalorganizations (ENGOs) that changed their positions and strategies, took the initiativeand determined the design of the scheme.Intergovermentalist and multi-level governance perspectives emphasize EUinternal actors and institutions as key determinants for EU policy-making. Butperhaps the main causes of the rapid development of the EU ETS lie outside theEU itself, in the interaction with the international climate regime. In line with thisinternational regime approach, we would seek the explanation in the United NationsFramework Convention on Climate Change (UNFCCC) and the Kyoto Protocol’scommitments and provision for international emissions trading.The idea of emissions trading has been – and to some extent still is – controversialand is by no means widely accepted (Lefevere 2005, 92). In the context of climatechange, the concept has been challenged for being morally wrong and questionablewith regard to equity (Ott and Sachs 2000). The essence of the moral/ethicalargument is that emissions trading authorizes pollution, turning it into commoditiesthat can be bought and sold. Equity concerns have been raised particularly withregard to developing countries and international emissions trading. The mainargument here is that the richer industrialized countries can simply buy their way outof their obligations and thus maintain their disproportionate consumption of scarceresources. But even if emissions trading is accepted as an idea, transforming thisidea into an instrument capable of reducing emissions of GHGs is by no means easy.Emissions trading cannot in itself reduce emissions or pollution: its effect dependsupon how it is designed.The logic behind a smoothly functioning emissions trading system is to encouragecompanies to decrease emissions by creating a dynamic monetary incentive sothey can sell their allowances or credits to other larger polluters, and proﬁt. Suchincentives will not evolve if allowances are in excess of ‘real’ needs, or if monitoringand enforcement are inadequate. Conversely, a well-designed system based on strictcaps and adequate monitoring, enforcement and compliance will, at least in theory,offer certainty of emissions reductions corresponding to the stringency of the cap.Unlike domestic trading schemes controlled by governments with authority to trackand punish non-compliance, effective international systems are far more difﬁcult toestablish. Finally, even a well-designed system will not work if it is not implementedcorrectly by the participants in the system – which, in this context, means the EUmember-states and by industry, its installations and operators.These three challenges – acceptance of the idea, adoption and design of thesystem, and practical application – can roughly be related to three phases in thedevelopment of the EU Emissions Trading Scheme: policy initiation, decision-
Introduction
3
making and implementation. One central assumption is that the three explanatoryapproaches referred to above will have different explanatory power in these threepolicy phases. Another underlying assumption is that what happens in the initiationand decision-making phases will have important consequences for how the systemis implemented and how well it will work in practice. The devil is not necessarilyonly in the details – it may very well also be in the major design decisions madealong the way.Below, we place the Emissions Trading Scheme within the perspective of EUclimate policy. This brief history will show that the intergovernmental, multi-levelgovernance and the international regime approaches all have their merits. The historyof EU climate policy in general and emissions trading in particular cannot be fullyunderstood without reference to non-state actors, member-states, EU institutions andthe international climate regime.A Brief History of EU Climate Policy2References to climate policy began to crop up in European Community documentsfrom the mid-1980s. It was brieﬂy mentioned by the European Commission in1985, and the Parliament adopted the ﬁrst ofﬁcial EU document on the subject inthe form of a Resolution in 1986 (Ofﬁcial Journal 1986). The Commission followedup with a 1988 Communication on ‘The Greenhouse Effect and the Community’,3recommending further scientiﬁc studies and review of policy options. However, theFourth Environmental Action Programme (1987–92) did not identify climate changeas a priority issue.In 1988 the United Nations Environment Programme (UNEP) and the WorldMeteorological Organization (WMO) established the Intergovernmental Panel onClimate Change (IPCC), and international policy discussions intensiﬁed. During thespring of 1990, the Commission discussed the use of economic and ﬁscal instrumentsin environmental policy, including a speciﬁc energy/carbon tax. In June 1990, theEuropean Council called for the early adoption of targets and strategies for limitingemissions of greenhouse gases. At a joint meeting of the Energy and EnvironmentCouncils in October 1990 (prior to the Second World Climate Conference), politicalagreement was reached on stabilizing EU CO2 emissions by 2000 at 1990 levels,on the assumption that other leading countries would take on commitments alongsimilar lines (Skjærseth 1994). This agreement aimed at putting the EU in a leadingposition, especially in relation to the USA, and at inﬂuencing the negotiations on aUN Framework Convention on Climate Change.The Commission immediately continued to ﬂesh out a more speciﬁc climatepolicy package based on the following central elements:2 As this book is about the European Union and emissions trading, this historicaloverview is written with that particular dimension in mind.3 European Commission (16 November 1988), COM(88)656, Communication tothe Council: ‘The Greenhouse Effect and the Community’, Commission work programmeconcerning the evaluation of policy options to deal with the ‘greenhouse effect’, and draftCouncil Resolution on the greenhouse effect and the Community (Brussels).
EU Emissions Trading
4
•••
ﬁscal measures, particularly an energy/carbon tax;measures targeting the transport sector, including a maximum speed limit forprivate cars;measures to improve energy efﬁciency and the use of renewables, includinga revitalization of the existing SAVE energy efﬁciency programme and a newALTENER programme on renewables.
In light of subsequent policy developments, it is interesting to note that a spring 1991version of this developing policy package also included a burden-sharing element,whereby certain countries with higher development needs – in practice, Greece,Ireland, Portugal and Spain – were to be given greater ﬂexibility than the others(Ringius 1999, 139).An autumn 1991 Communication from the Commission clearly expressedthe ambition to act as a global leader at the upcoming June 1992 United NationsConference on Environment and Development (UNCED).4 Just before UNCED, aCommission Communication5 outlined four main measures for the Council to adopt:a framework directive on energy efﬁciency (within the existing SAVE Programme); adecision concerning promotion of renewable energies (the ALTENER Programme);a directive on a combined carbon and energy tax, on the condition that such a tax wasalso adopted by ‘main competitors’ within the OECD; and a decision concerning amonitoring mechanism for CO2 and other greenhouse gas emissions. However, theCouncil was not able to adopt any of these proposals prior to UNCED, whereuponEnvironment Commissioner Ripa de Meana resigned in protest.The tax proposal led to some of the most ferocious lobby activity ever seenin Brussels. The fossil-fuel industry was able to water down the Commissionproposal in a way that also contributed to erode consensus among the member-states(Skjærseth 1994; Newell and Paterson 1998). The UNFCCC was adopted at UNCED.It contained as a main element a loose commitment for industrialized countries,‘individually or jointly’, to return to earlier levels of anthropogenic emissions of CO2and other greenhouse gases by the year 2000.After UNCED the Commission gave priority to getting the climate policy packageadopted. Not surprisingly, putting the monitoring mechanism in place provedleast problematic, and this was adopted in June 1993. The budgets for both SAVEand ALTENER were considerably reduced, and watered-down versions of bothprogrammes were adopted in September 1993. However, getting the energy/carbontax adopted proved even more problematic. Due to unanimity requirement in EU’sﬁscal environmental policies, this was bound to be a controversial element of thepackage. From the very start, there had been considerable scepticism and resistance.For instance, the ‘cohesion countries’ (Greece, Ireland, Portugal and Spain) wouldaccept a tax only in return for additional structural funding; France argued for a4 European Commission (14 October 1991), SEC(91)1744 ﬁnal, Communication fromthe Commission to the Council: A Community Strategy to Limit Carbon Dioxide Emissionsand to Improve Energy Efﬁciency.5 European Commission (1 June 1992), COM(92)246, Communication from theCommission: A Community Strategy to Limit Carbon Dioxide Emissions and to ImproveEnergy Efﬁciency (Brussels).
Introduction
5
pure carbon tax in order to protect its nuclear industry; and the UK was opposed toany such tax at the EU level. As unanimity seemed increasingly unattainable andthere was no sign of main OECD competitors establishing similar taxes, the idea ofa common energy/carbon tax was downplayed towards the end of 1994.6 This – aswell as the slashing of the SAVE and ALTENER budgets – should probably be seenin light of the more general shift in EU integration trends in the early 1990s towards‘subsidiarity’ and ‘the limiting of EU powers’ (Collier 1997).In the preparatory process to the ﬁrst UNFCCC Conference of the Parties (CoP)to be held in Berlin in 1995, the EU agreed to aim for the launch of negotiations ona new protocol with strengthened commitments, to be concluded by the time of thethird CoP, in 1997. This was also very much the outcome of the ﬁrst CoP (the ‘BerlinMandate’). The Ad Hoc Group on the Berlin Mandate (AGBM) was established as aforum for discussions and negotiations towards the new protocol.Already by the end of 1995, the EU position was to combine a target for theUnion as a whole with an internal burden-sharing agreement. However, reachingagreement on a position for both a common target and an internal sharing proveddifﬁcult, and several EU countries, including Germany, tabled their own protocolproposals within the AGBM. In order to meet the March 1997 ﬁnal deadline fortabling protocol proposals (including the development of a speciﬁc burden-sharingformula), under the leadership of the Dutch Presidency, an agreement on a 15 percent joint target and a speciﬁc burden-sharing formula for differentiated targets forindividual member-states amounting to an overall reduction of 9.2 per cent by 2010was hammered out in early March (Ringius 1999). This enabled the EU to stand outas the most ambitious by far of the major actors.In Kyoto in December 1997, the EU spent much time on internal coordination andtrying to stand up against US ideas on a protocol based on ﬂexible mechanisms such asinternational emissions trading. The EU succeeded in getting a protocol adopted withstrengthened commitments and with the USA on board, but the more speciﬁc designof the protocol has a distinct US ﬂavour. Three ﬂexible mechanisms became centralingredients of the Kyoto Protocol: emissions trading, Joint Implementation (JI), aClean Development Mechanism (CDM). The EU’s own target became an 8 per centreduction of greenhouse gases (GHGs) by 2008–12 from 1990 levels. Furthermore,similar to other parties to the Protocol, the EU should make demonstrable progressin achieving its commitment by 2005.After Kyoto, both the Community and the individual member-states hadquantitative targets. However, the Kyoto outcome deviated from the EU’s assumptionsunderlying the 1997 Burden-sharing Agreement, as the target was less ambitious.The number of gases had been expanded, and there was a commitment period from2008 to 2012 rather than a single target year of 2010.7 The 1997 agreement was6 Instead, the European Council instructed the ECOFIN Council to consider commonparameters to enable member-states to apply a CO2 tax (Wettestad 2000).7 The EU reduction target was reduced from 15% by 2010 to 8% over the period 2008–12, and the number of greenhouse gases was increased from three to six. The Kyoto Protocolencompasses six gases: Carbon dioxide (CO2); Methane (CH4); Nitrous oxide (N2O); Hydroﬂuoro-carbons (HFCs); Perﬂuorocarbons (PFCs); and Sulphur hexaﬂuoride (SF6). It was
EU Emissions Trading
6
hence revised and transformed into a Burden-sharing Agreement in June 1998, withthe 8 per cent reduction commitment divided among the EU member-states as shownin Table 1.1.Table 1.1
Member-state goals under the 1998 Burden-sharing Agreement
AustriaBelgium
–13.0%–7.5%
Denmark
–21.0%
Finland
0.0%
France
0.0%
Germany
–21.0%
Greece
+25.0%
Ireland
+13.0%
Italy
–6.5%
Luxemburg
–28.0%
The Netherlands
–6.0%
Portugal
+27.0%
Spain
+15.0%
Sweden
+4.0%
United Kingdom
–12.5%
The Burden-sharing Agreement became legally binding in 2002. Later it cameto serve, together with the Kyoto commitments, as the foundation for allocatingemissions allowances under the EU ETS.At least from the perspective of the Commission, there was a clear need fornew policy instruments at the community level to meet the Kyoto commitments.Although the EU was well under way to achieving stabilization by the 2000 target,it was clear that this was very much due to the ‘dash-to-gas’ in the UK, and reuniﬁcation effects in Germany.8 Efforts to dress up the carbon/energy tax as anenergy tax in 1997 did not help, as key European industries and member-states likeSpain and the UK continued to mount vociferous opposition. Other elements of theinitial climate policy package, such as SAVE and ALTENER, remained weak andinadequate (Wettestad 2001).mainly the US that argued for including the three latter gases. The EU was sceptical, butﬁnally chose to give in (see Grubb et al. 1999, 75–6).8 The ‘dash-to-gas’ from coal in the UK was not primarily motivated by environmentalpolicy concerns; it, so to speak, brought down emissions without speciﬁc environmentalabatement costs. In a somewhat similar manner, the German re-uniﬁcation and relatedclosure and restructuring of industry in the East brought down emissions without speciﬁcenvironmental abatement policy costs, as a one-off process. See also Chapters 4, 5 and 6.
Introduction
7
As a ﬁrst and symbolically important development, a shift in the position onemissions trading was announced in the 1998 and 1999 Communications on EUKyoto strategy and implementation.9 The discussion on possible options as to thedesign of such a system moved a considerable step further with the March 2000Green Paper on an EU emissions trading system.10 In the same month, the secondpart of the Commission’s new policy development was launched: the EuropeanClimate Change Programme (ECCP). This programme was initially divided intosix working groups, of which four focused on policies and measures in the energyconsumption, energy supply, transport and industry sectors. One group focused uponresearch and one on ﬂexible mechanisms including emissions trading (WG I). Theten WG I meetings held between July 2000 and May 2001 served as a stakeholderexercise, including industry and ENGOs, in terms of elaborating the platform for anEU ETS.Meanwhile, in March 2001, President Bush pulled the USA out of the still unratiﬁedKyoto Protocol. The EU now became the p