Ecofys (27 November 2006), ‘Market risks becoming long’, Press release.82 WWF (2006), ‘Use of CDM/JI Project Credits by Participants in Phase II of the EUEmissions Trading Scheme – A WWF Summary of the ECOFYS UK Report’, November.(UK: WWF); ENDS Report (October 2006), ‘Excess Credits Threaten EU ETS, says WWF’,No. 381, 13.83 Point Carbon (30 October 2006), ‘Point Carbon Expects the EC to Slash 240 millionAllowances per year Off NAPs’.84 Reuters/Planetark (11 November 2006), ‘EU’s Dimas Challenges States on EmissionsPlans’.85 Ibid.86 Point Carbon (18 August 2006), ‘“The New Member States” NAPs under assessment’,Point Carbon, Carbon Market Europe, 1.
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Table 3.4
NAP II, outcome of ﬁrst Commission assessment end November2006 (all ﬁgures in million tonnes of CO2)Cap 2005–07 2005 veriﬁed ProposedAllowed cap Commission’semissions cap 2008–122008–12cut (%)
GermanyGreeceIrelandLatviaLithuaniaLuxembourgMaltaSlovakiaSwedenUK
49974.422.34.612.33.42.930.522.9245.3
47471.322.42.96.62.61.9825.219.3242.4
48275.522.67.716.63.952.9641.325.2246.2
453.169.121.153.38.82.72.130.922.8246.2
6875747322925100
Source: Euractiv 4 December 2006.
Table 3.5
NAP II CDM/JI limits, outcome of ﬁrst Commission assessmentend November 2006Proposed CDM/JI limit (%)
GermanyGreeceIrelandLatviaLithuaniaLuxembourgMaltaSlovakiaSwedenUK
209505910Not announced7208
Allowed CDM/JI limit (%)209225910–7108
Source: PCA (2007).
By end of April 2007, the European Commission had assessed nine more plans.France, and Slovenia joined the UK in getting their caps accepted at ﬁrst try, and theSpanish cap was cut only very marginally. The Austrian, Belgian and Dutch planshad their caps adjusted down by 5–7 per cent, whereas the Czech, Hungarian andPolish plans were cut more severely. Hungary’s NAP was cut by 12.4 per cent, theCzech NAP by 14.8 per cent, and (importantly) the Polish NAP by a formidable 26.7per cent! Furthermore, several countries had their plans for the use of the KyotoProtocol’s ﬂexible mechanisms scaled down markedly (for example, Poland: from
Development of the EU ETS
61
25 per cent to 10 per cent; Spain: from 39 per cent to 20 per cent). These latter roundsof NAP II assessments are summed up in Table 3.6.Table 3.6
NAP II, outcome of second batch of Commission assessments,end April 2007 (all ﬁgures in million tonnes of CO2)
Cap 2005–7
VeriﬁedEmissions2005
33.058.3
33.455.4
32.863.3
30.758.5
68
97.6
82.5
101.9
86.8
15
156.531.395.3239.18.8174.4
131.326.080.3203.18.7182.9
132.830.790.4284.68.3152.7
132.826.985.8208.58.3152.3
01252700
AustriaBelgiumCzechRepublicFranceHungaryNetherlandsPolandSloveniaSpain
ProposedAllowed cap Commission’scap 2008–122008–12cut (%)
Source: European Commission (16 April 2007), IP/07/501, Emission Trading: CommissionAdopts Decision on Hungary’s National Allocation Plan for 2008-2012 (press release).
Table 3.7
NAP II CDM/JI limits, outcome of second batch of Commissionassessments, end April 2007Proposed CDM/JI limit (%)
Allowed CDM/JI limit (%)
207–810131012251847
107–810131010101620
AustriaBelgiumCzech RepublicFranceHungaryNetherlandsPolandSloveniaSpainSource: PCA (2007).
Concluding CommentsThe ﬁrst allocation round of the ﬁrst EU Emissions Trading Scheme NAP processhas been characterized overall as having gone ‘remarkably well’ (Vis 2006b, 212).This assessment should be seen in light of the formidable challenge facing the EUand the Commission in setting up the ﬁrst large-scale international emissions trading
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62
system in the ﬁeld of the environment. The initial ‘construction’ challenge in thepilot phase was huge, with limited availability of data, not least about the emissionsof large installations (Vis 2006b, 187). Furthermore, allowance prices were initiallyhigher than expected. The market also initially seemed to have survived the majorprice crash of April/May 2006, following the above-mentioned publication of 2005veriﬁed emissions below total allowances (although allowance prices in the pilotphase have dipped to a very low level indeed).Without ignoring this ‘institutional success in light of formidable challenge’perspective, as indicated, we will nevertheless offer a generally more restrainedassessment of implementation, not least because of the quite moderate achievementswith regard to ambitiousness in NAP I. Also the Commission itself has not beensatisﬁed with the ﬁrst NAP process in this respect and is currently ﬁghting to beef upthe NAPs for the Kyoto commitment phase.87 By end of April 2007, 19 NAP II planshad been assessed by the Commission, with all but four plans cut (France, Slovenia,Spain and the UK) by around 9 per cent. Furthermore, the Commission has cutseveral CDM plans, for instance more than halving the plans of Spain and Poland. Itis also clear that the implementation process has been marked by signiﬁcant delays.However, within this overall picture of moderate implementation success, there aresigniﬁcant variations in national performances to date. In the following, we willfocus on four countries that represent a spectrum of variations in implementationperformance and geographical location.•
•
The UK – frontrunner: When NAP I and II are viewed in combination, theUK stands out as the main EU ETS implementation frontrunner. It was amongthe comparatively more ambitious in NAP I, and, when 2005 emissions wereput on the table, it also emerged as one of the few countries that had nothanded out more allowances than the ETS industries needed (it had ‘underallocated’). Not only has the UK been able to meet the deadlines quite well,its plan was the only one (out of the ten ﬁrst assessed) to be unconditionallyaccepted in the ﬁrst Commission NAP II ‘verdict’.Germany – reluctant: Germany is of key ETS importance and interest:it is the biggest EU emitter, and accounts for almost 25 per cent of totalallowances. The country has been generally on time, and lies somewherein the middle with regard to comparative ambitiousness. Figures on 2005emissions showed that Germany had handed out slightly more allowancesthan the ETS industries needed (hence a slight ‘over-allocation’ in NAP I).In NAP II, Germany has seen its proposed NAP II cap rejected and adjustedconsiderably down by the Commission. However, not unlike the case withNAP I, Germany quarrelled with the Commission and has embraced the ETSonly very reluctantly.
87 In the 2005 NAP II Communication, it is for instance noted that ’the EU ETS needsto be used more to fully realize the potential of emissions trading’. European Commission(22 December 2005), COM(2005)703 Final, Communication from the Commission: FurtherGuidance on Allocation Plans for the 2008 to 2012 Trading Period of the EU EmissionsTrading Scheme (Brussels), 4.
Development of the EU ETS
•
•
63
Spain – improving laggard: Spain was initially very delayed in NAP I, butspeeded up signiﬁcantly from late spring 2004 and ended up with comparativelyacceptable NAP. When ﬁgures for 2005 emissions were announced, Spainproved to be among the few countries that had not handed out more allowancesthan the ETS industries needed (hence on the ‘under-allocation’ side), furtherconﬁrming a certain NAP I soberness. Spain’s NAP II has been favourablyreceived and (as was also the case with France, Slovenia and the UK only) itscap was accepted by the Commission at ﬁrst try.Poland – laggard: It is hard to escape the conclusion that Poland ﬁgurescentrally among ETS implementation laggards so far. It was seriously delayedin NAP I, and its cap showed comparatively little ambition. When 2005ﬁgures were announced, Poland was found to be among the group of countrieswhich had been most liberal in handing out allowances to the ETS industry(emerging as a clear ‘over-allocator’). Although the country has been on timeas regards NAP II, its ambitiousness has again been seriously questioned.This was conﬁrmed in late March 2007, when the Commission cut Poland’ssuggested NAP II by not less than 27 per cent (down from 284.6 millionallowances to 208.5).
In Chapter 6, we discuss further the variations in implementation, explain whyimplementation varies, and why there have been implementation problems ingeneral.ConclusionIn this chapter, we have focused on the development of what emerged as the EUEmissions Trading Scheme in light of the EU opposition to emissions trading duringthe Kyoto negotiations in 1997. We have distinguished between the initiation,decision-making and implementation phases of this system. In the initiation phase,the ﬁrst positive signals about emissions trading came from the Commission shortlyafter the Kyoto Protocol, in late spring 1998. The idea of an EU-internal pilot ETSwas launched already in the June 1998 Communication on an EU post-Kyoto strategy.Discussions were taken a bit further in the May 1999 Communication on preparingfor implementation of the Kyoto Protocol. This Communication launched the idea ofa system with basically narrow initial coverage, targeting large emitters or a singleeconomic sector and only CO2 (the most measurable gas). Issues of harmonizationand degree of centralized control were mentioned in only very general terms.These issues were then taken a signiﬁcant step further in the March 2000 ETSGreen Paper. Here, the Commission made a plea for a basically centralized andhence harmonized system for determining the crucially important emission ceilings/caps within the system, emphasizing the substantial institutional challenges that amore decentralized approach would entail. The Commission also argued in favour ofauctioning as the preferred method of allocating allowances. The suggested coverageof the system was in line with the 1999 Communication, singling out six sectors, ofwhich electricity and heat production were by far the largest.
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EU Emissions Trading
The decision-making phase was launched with the drafting and presentationof the Commission’s proposal for an ET directive in October 2001. This proposalrevealed two signiﬁcant changes from the Green Paper: ﬁrst, a decentralized approachwas proposed, giving the member-states signiﬁcant discretion concerning the totalallocation of allowances. This meant that individual NAPs would determine theindividual and collective reduction ambition of the system. Second, allowances wereto be allocated for free. With regard to coverage, the proposal mainly followed theGreen Paper, but the chemical sector was excluded. The proposal also suggested apenalty for non-compliance in line with the Green Paper. Only modest changes weremade to this proposal through the EU decision-making process. The most importantwere more constraints on the allocation of allowances, greater ﬂexibility in coverage/participation in the pilot phase, and an opening for some auctioning in the allocationof allowances. In July 2003, the Commission also proposed a directive linking theEU ETS to the ﬂexible mechanisms under the Kyoto Protocol. This proposal waschanged to allow more use of JI/CDM credits by relaxing the quantitative cap, therestriction on when to use them, as well as which projects would qualify. Greater useof such credits would reduce the costs of compliance with the Kyoto commitmentsbut would decrease the pressure to take action within the EU.In the last section, we offered an assessment of the implementation of the EU ETSso far. Bearing in mind all the signiﬁcant challenges a new emissions trading systemhas to cope with, we concluded that achievements have been only moderate as yet.The major criterion underlying this assessment is the low degree of ambitiousnessin terms of drawing up national allocation plans for the reduction of CO2 in the pilotphase. This is an assessment shared by the Commission, which was not satisﬁedwith the ﬁrst NAP process in this respect, and is currently trying to beef up the NAPsfor the Kyoto commitment phase – apparently with substantially more success thanin the pilot phase. In addition, there have been signiﬁcant delays in applying theimplementation steering signals and guidelines speciﬁed in the ETS Directive andseveral Communications from the Commission. This picture of generally moderateimplementation success includes signiﬁcant variations in national performance todate – to which we return in Chapter 6.
Chapter 4
Initiating EU Emissions TradingThe previous chapter presented the main outcomes of the EU Emissions TradingScheme in the phases of policy initiation, decision-making and implementation.In this chapter we narrow in on the policy initiation phase, from the 1997 KyotoProtocol to the publication of, and responses to, the Green Paper in 2000. Ourmain question here concerns how and why the idea of an EU ETS was initiated anddeveloped within the EU, given its initial scepticism to including emission trading inthe Kyoto Protocol. Why did the EU initiate internal emissions trading shortly afterit had opposed emissions trading internationally?As noted in Chapter 2, we will assess three propositions derived from threeexplanatory perspectives. The ﬁrst proposition focuses on the positions of the EUmember-states. It is based on the broader approach of intergovernmentalism, andholds that the EU ETS evolved due to a change in the positions of the member-states.The European Commission, which formally initiates new EU legislation, acted ona request from member-states and anticipated broad-based support. Our secondproposition focuses on EU institutions and non-state actors at the Community level,with multi-level governance as the broader theoretical approach. It holds that the EUETS evolved due to a change in the position of the European Commission, whichacted independently of the member-states, facilitated by support from affected nonstate actors. While these propositions focus on factors internal to the EU, the thirdproposition takes us to the international context. This proposition is based on theinternational regime approach and states that the EU ETS evolved as a response tothe international climate regime – the UNFCCC and the Kyoto Protocol.As emissions trading was a central part of the negotiations leading up to the 1997Kyoto Protocol, we will start the analysis with the climate regime and the EU ETS.We then analyse the role of the European Commission and non-state actors. Finally,we narrow in on the development in the positions of the EU member-states.Impact of the International Climate RegimeTo what extent and how did the climate regime affect the initiation of EU ETS?More speciﬁcally, how did it affect the evolution of the idea of emissions trading, thetimetable for developing EU ETS, and the emerging discussion of design features? InChapter 2, we proposed that EU institutions and actors initiated the idea of emissionstrading in response to the climate regime.
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EU Emissions Trading
Introducing the IdeaThe idea of international emissions trading developed in the international climatenegotiations after the ﬁrst Conference of the Parties (CoP-1) to the United NationsFramework Convention on Climate Change (UNFCCC) held in Berlin in 1995.1The ‘Berlin Mandate’ concluded that UNFCCC commitments were inadequate. Ittherefore initiated a follow-up process aimed at taking action for the period beyond2000 by elaborating policies and measures and setting binding and quantiﬁedreduction objectives. At the second CoP in Geneva 1996, the USA announced thatit was ready to support a legally binding protocol linked to international ﬂexibilityinstruments including a tradable permit system.2 In a non-paper, the USA formallylinked its support for legally binding targets with the inclusion of emissions trading(Yamin 2005a, 6). International emissions trading was seen by the USA and someother countries as the most effective way to ensure international ﬂexibility, makingit possible to agree on emission reductions at lower national costs. The JUSCANNZumbrella group (including the USA, Japan, Switzerland, Canada, Australia, Norwayand New Zealand) emerged as a serious counterweight to the EU in the Kyotonegotiations (Grubb et al. 1999, 34).The EU reacted by uncertainty and suspicion to the US proposal. In additionto concerns that emissions trading would not be practical, the main concern wasthat international ﬂexibility would provide a strategy for the main emitters to avoidsigniﬁcant domestic action (Grubb et al. 1999, 92). This concern was related to‘hot air’ from Eastern Europe and Russia. As emissions fell in the countries witheconomies in transition, an international reduction target could mean that emissionallowances would be transferred from those countries to the OECD countries,the USA and Japan in particular. Nor did developing countries embrace the ideaof emissions trading. They were distrustful, fearing that the rich countries wouldsimply buy their way out of domestic action and shift the burden of controlling GHGto the South (Yamin 2005a, 5).Negotiations on the Berlin Mandate took place mainly within an Ad Hoc Groupon the Berlin Mandate (AGBM) which met eight times between 1995 and CoP3 in Kyoto, Japan. Emissions trading was one of the policies and measures underconsideration at the AGBM meetings. The EU favoured a mandatory approach toa new legal instrument based on common and coordinated policies and measures.Washington, however, opposed harmonized measures and advocated ﬂexibilitythrough national programmes based on national circumstances.3 The USA and its
1 The 1992 UNFCCC included a reference to ‘joint implementation’, but it was notclear whether this referred to some kind of emissions trading (Yamin 2005b).2 Earth Negotiations Bulletin (38, 1996), ‘Summary of the Second Conference of theParties to the Framework Convention on Climate Change: 8-9 July 1996’, 12:38, 12.3 Earth Negotiations Bulletin (39, 1996), ‘Report of the Meetings of the Subsidiary Bodiesof the UN Framework Convention on Climate Change: 9-18 December 1996’, 12:39, 4.
Initiating EU Emissions Trading
67
allies pushed hard to get the provisions for emissions trading included among AnnexI Parties to the UNFCCC, in practice the industrialized countries.4In June 1997, an EU Council meeting under the Dutch presidency respondedto the US pressure by concluding: ‘The Council regrets that not all industrializedcountries have come forward with proposals for quantiﬁed targets or common andcoordinated policies and measures (CCPMs), while some of these countries haveoutlined proposals for emissions trading as a mechanism for achieving such targets’.5At ﬁrst glance, this would seem to indicate that the EU was uniﬁed in its oppositionto international emissions trading. However, the Council goes on to state: ‘TheCouncil considers that the mechanisms such as emissions trading are supplementaryto domestic action and CCPMs, and that the inclusion of any trading system in theProtocol and the level of the targets to be achieved are independent. It thereforecalls upon all industrialized countries to indicate the targets they envisage for 2005and 2010’.6 This conclusion, which was reafﬁrmed at the EU Council meetingin October, indicates that the EU could accept international emissions trading asa negotiation compromise as long as it did not imply a weaker overall protocol.Against this backdrop, the draft text of the Kyoto Protocol presented at AGBM-8 inOctober 1997 contained a provision that Annex I parties might transfer to, or acquirefrom other Annex I parties, any of its emissions allowed for the purpose of meetingits commitments.7 This provision did not view emissions trading as supplementary todomestic action and it went far beyond the conclusions of the EU Council.In Kyoto, emissions trading became the issue that nearly killed – but saved –the Protocol (Grubb et al. 1999). The USA could not accept a binding numericalemission target without ﬂexibility and the EU could not accept a protocol without abinding numerical target. And no agreement could be reached on the text proposedat AGBM-8. In this situation, the UK proposed amending the text to clarify thatemissions trading could not start until appropriate rules and guidelines weredeveloped by subsequent Conferences of the Parties.8 This compromise proposalwas supported by the USA and the EU. The UK proposal also revealed that theEU was not perfectly uniﬁed in its opposition to the idea of emissions trading. TheUK was more receptive to market-oriented instruments than most other EU states.Nevertheless, it is clear that emissions trading was not part of the EU negotiatingposition in the Kyoto negotiations. Although the Council could accept internationalemissions trading under speciﬁc conditions and as a concession to the USA inparticular, the EU Commission explicitly stated: ‘especially the so-called ﬂexible
4 UNFCCC divides the parties into Annex I and non-Annex I countries. Annex I lists 41industrialized countries which have to implement policies and measures to reduce emissionsof GHGs.5 Council (23 June 1997), 9375/97, Subject: Community Strategy on Climate Change.Outcome of Proceedings from Environment Council on 19 June 1997. Brussels, 2.6 Ibid.7 Earth Negotiations Bulletin (76, 1997), ‘Report of the Third Conference of the Partiesto the Framework Convention on Climate Change: 1-11 December 1997’, 12:76, 11.8 Ibid., 12.
EU Emissions Trading
68
mechanisms…were not an integral part of the EU’s approach at Kyoto’.9 This meansthat the Kyoto Protocol had a signiﬁcant potential to affect the position of the EUwith regard to emissions trading.The ﬁnal text, which appears as Article 17 in the Kyoto Protocol, reads asfollows:•
••
The CoP shall deﬁne the relevant principles, modalities, rules and guidelines,in particular for veriﬁcation, reporting and accountability for emissionstrading;The Parties included in Annex B may participate in emissions trading for thepurposes of fulﬁlling their commitments under Article 3 of this protocol;Any such trading shall be supplemental to domestic actions for the purposeof meeting quantiﬁed emission limitation and reduction commitments underthat article.
This text satisﬁed the proponents of emissions trading by including the idea as anintegrated part of the Protocol. Conversely, opponents could claim that there would beno such trading until the rules and procedures were deﬁned. Moreover, the principlethat emissions trading should be ‘supplementary’ to domestic action was in line withthe EU Council conclusion adopted prior to Kyoto. One of the most controversialissues within the EU became the deﬁnition of a concrete ceiling on the use of ﬂexiblemechanisms to ensure that those mechanisms did not undermine domestic action.Despite signiﬁcantly differing positions on this issue, the EU abandoned a proposed50 per cent ceiling, fearing that the USA would refuse to ratify the Protocol. Inaddition, we should note that Article 17 did not mandate emissions trading in anyway – it merely stated that annex B parties may utilize this instrument.10In Chapter 2, we assumed that the climate regime facilitated EU initiation ofemissions trading through pressure, opportunities and learning. Pressure can beobserved as the EU ETS was initiated as an explicit response to the Kyoto Protocolcommitment to reduce emissions by 8 per cent from 1990 between 2008 and 2012.The Communications prepared by the European Commission in 1998 and 1999 depictemissions trading as part of EU implementation of the Kyoto Protocol (see Chapter3). Despite the optional nature of Article 17, the Commission expected internationalemissions trading to become operational under the climate regime from 2008, andargued that an EU internal emissions trading system from 2005 would ‘provideinvaluable practical experience of trading’.11 Moreover, the reduction commitmentsin the Kyoto Protocol were perceived as mandatory by the Commission and most ofthe member-states, which emphasized the need for new policy instruments to achieve9 European Commission (June 1998), COM(98)353, Commission Communicationto the Council and the Parliament. Climate change – Towards an EU Post-Kyoto Strategy(Brussels), 4.10 Annex B to the Kyoto Protocol lays down binding emissions targets for all Annex Icountries (to the UNFCCC) except Belarus and Turkey.11 European Commission (June 1998), COM(98)353, Commission Communicationto the Council and the Parliament. Climate change – Towards an EU Post-Kyoto Strategy(Brussels), 20.
Initiating EU Emissions Trading
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the Kyoto target. The EU’s leadership ambition in international climate policy andits insistence on binding numerical reduction targets in the Kyoto negotiationsimplied a particular obligation for the EU to comply with the Kyoto commitments.In essence, the Kyoto Protocol commitments increased the willingness of the EU toimplement new climate policy instruments to achieve the Kyoto target.The Kyoto commitments could be achieved by various types of climate policyinstruments. In this situation, the Kyoto Protocol gave the EU particular incentivesto engage in emissions trading as that could reduce the costs of complying withthe Kyoto target. Emissions trading thus represented a new economic opportunityfor the EU. When the Commission presented its Green Paper on emissions tradingin March 2000, it attached an economic analysis showing signiﬁcant savings fromemissions trading.12 Early movers could also gain additional beneﬁts by acquiringadministrative experience of running emissions trading systems (Oberthür andTänzler 2007).13Finally, the Kyoto Protocol facilitated learning by linking the internationalcommitments to active promotion of the idea of emissions trading by the USA. TheUSA had experience with emissions trading as part of the 1990 amendment to theClean Air Act and the establishment of sulphur dioxide (SO2) and nitrogen oxide (NOX)trading systems. As a leader in the JUSCANNZ group, the USA tried to convinceothers of the advantages of emissions trading and other ﬂexible mechanisms (Yamin2005b). After Kyoto, the US experience became important for the EU.14 In 2000,for example, at the ﬁrst meeting in European Climate Change Programme (ECCP)Working Group 1 on ﬂexible mechanisms, Brian McLean, Director of the Clean AirMarkets Divisions at the US Environmental Protection Agency, presented the SO2and NOX emissions trading schemes operating in the USA.15 Starting the internalEU stakeholder discussion with practical and positive experience from the USA wasextremely valuable, despite the differences between air pollution and climate changeand the US political system compared to that of the EU.It was also politically important for the EU to have the support of the USA indeveloping this new policy instrument. According to Vis (2006a, 58) ‘The EuropeanUnion has learnt a great deal about the instrument of emissions trading from theUnited States.’ On the other hand, the Kyoto Protocol was crucial in linking theUS idea to the Kyoto commitments and the EU GHG reduction targets that wereto become the basis for the EU ETS. Moreover, as the rules and procedures for12 This analysis showed that individual compliance with the Burden-sharing Agreementwould annually cost €9.0 billion, EU-wide trading among energy producers would cost€7.2bn, EU-wide trading among energy producers and energy-intensive industries would cost€6.9bn, and EU-wide trading among all sectors would cost €6.0bn. See Vainio and Zapfel(2006) for a comprehensive discussion of economic analysis and EU emissions trading.European Commission (8 March 2000). COM(2000)87 ﬁnal, Green Paper on GreenhouseGas Emissions Trading within the European Union (Brussels).13 This argument was used by EURELECTRIC. Interviews in Brussels, 11 January2006.14 Interviews in Brussels, 12 January 2006.15 European Commission (12 July 2000), ECCP Working Group 1, Summary Record ofMeeting 4 July 2000 (Brussels).
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EU Emissions Trading
international emissions trading were not deﬁned in the Kyoto Protocol, emissionstrading was frequently discussed as part of the subsequent international negotiations.This helped make the idea familiar to EU governments through their involvement indetailed international discussions (Oberthür and Tänzler 2007).We can conclude, ﬁrst, that the climate regime increased the willingness of theEU to implement new climate policy instruments by means of general pressure tocomply with the Kyoto commitments. Second, despite the EU opposition to emissionstrading during the Kyoto negotiations, the Kyoto Protocol gave the EU specialincentives to engage in emissions trading as it would reduce the costs of complyingwith the Kyoto target. Finally, the Kyoto Protocol facilitated learning, by linking theUS promotion of emissions trading to the Kyoto commitments, and through detailedinternational negotiations. In subsequent sections we shall see that emissions tradinginitiatives of the EU member-states, the EU institutions and industry can mainly betraced back to the Kyoto Protocol.16Initial Design and TimingArticle 17 of the Kyoto Protocol did not say much about the design of an emissionstrading system. As proposed by the UK, the design of an international trading systemunder the Kyoto Protocol should be left to the subsequent climate negotiations. TheEuropean Commission expected that the ﬂexible mechanisms – JI, CDM and ET –would be further deﬁned at CoP-