pertise to EU institutions; they are also involved to varying degrees in all phasesof EU policy-making. Business inﬂuence tends to outmatch the green organizationsin EU environmental policy (Grant et al. 2000).30 The proposal for the EU carbon/energy tax is one example. As noted in Chapter 1, industry was able to water downthe Commission proposal in a way that also contributed to eroding the consensusamong member-states. Representatives of major European companies have rankedEU channels of inﬂuence as ‘particularly important’ with regard to two out of sevenissues: trade and environmental policy (Grant et al. 2000).Industry potentially affects policy-making both directly and indirectly (Newell2000). Indirect structural inﬂuence is related to the policy-maker’s dependence uponindustry. Industry is important to economic growth, employment and technologicalinnovation, not least in the energy sector, which tends to be viewed as a strategicEU objective. ‘Business can claim that only it can deliver the still widely held goalsof economic growth and prosperity which are central to the project of Europeaneconomic integration’ (Grant et al. 2000, 51). This structural dependency tends toprovide industry with privileged and informal access to decision-making, althoughthis is difﬁcult to observe directly. Business and industry have developed multipleforms of representation at EU level in the form of informal networks and formalassociations at product, sector and cross-sectoral level – the latter represented bythe Union of Industrial and Employers’ Confederations of Europe (UNICE). Direct26 A third possibility could be that industries change strategies due to sector-speciﬁc orcorporate speciﬁc reasons.27 This is reﬂected not least in the emerging literature on the role of multinationalcompanies in policy-making (see Risse-Kappen 1995).28 The assumption that the strategies of industrial actors have affected the rapiddevelopment of the EU ETS rests on the premise that they actually inﬂuence policy-making.The independent inﬂuence of non-state actors is, however, extremely hard to measure, asmobilization of non-state actors at EU level does not necessarily equal independent inﬂuenceon policy-making.29 Today there are over 15,000 lobbyists in Brussels. According to Corporate Watch,70 per cent represent corporate interests, operating in hundreds of lobbying consultanciesand agencies in a lobby industry generating about 90 million Euro every year <http://www.corporatewatch.org.uk/?lid=52>.30 However, most analysts seem to agree that ENGOs play an important indirect rolein the policy initiation or agenda-setting phase by activating social demands and by creatingexpectations. This role has been visible in international and EU climate policy (Grant et al.2000; Newell 2000; Betsill and Corell 2001).
Analytical Framework
29
instrumental inﬂuence is based on huge administrative, scientiﬁc and ﬁnancialresources that can be deployed to persuade decision-makers by various means(Skjærseth 2004).The literature on corporate management and the natural environment generallydistinguishes between some notion of proactive/offensive and reactive/defensiveenvironmental strategies (Steger 1993; Ghobadian et al. 1998). With regard to oilcompanies and climate change, for example, companies operating within the samebranch have adopted signiﬁcantly different climate strategies when faced with thesame problem (Skjærseth and Skodvin 2003).31 Since affected companies and sectorsmay approach environmental measures differently, the inﬂuence of industry on EUpolicy-making depends ﬁrst on how cohesive their strategies are. The strategiesemployed by target groups are likely to enhance inﬂuence if major companiesand industry-sectors stand united in their support or opposition to speciﬁc policyproposals. Broad-based industrial opposition to environmental legislation mayweaken the internal unity of the Commission by pitting the DGs responsible forindustry and trade against the DG Environment. Second, the inﬂuence of industrydepends on the strategies and strength of counterbalancing forces. The environmentalmovement tends to represent a signiﬁcant counterbalancing force to target groupsconcerned mainly with abatement costs.ENGO strategies can be exercised at EU level through ten organizations withpermanent representation in Brussels.32 Climate Action Network Europe (CNE) hasbeen particularly active in EU climate policy. These organizations cannot matchindustry with regard to ﬁnancial resources, representation and informal contact withdecision-makers – but they are taken seriously for other reasons. ‘Environmentalgroups play on policy-makers’ perceptions that they represent [a] “public interest” orat least that their motives transcend the narrow proﬁt-making goals of their corporatecounterparts. It is their perceived legitimacy in this regard, as well as the symbolicpotency of their ideas and popularity of their values, that encourage policy-makers totake them seriously’ (Grant et al. 2000, 62). Support from ENGOs is thus crucial forthe EU as they have the ability to increase the legitimacy of speciﬁc policy proposals.It is unlikely that the ‘green’ European Parliament, generally claimed to be very opento ENGO lobbyists and their positions, will support any environmental legislation thatis widely opposed by the green movement. Taken together, supportive convergencebetween industry strategies representing ‘economic growth and prosperity’ and the31 Given a certain environmental risk inherent in a company’s activities, a proactivecompany motivated by proﬁts and survival will exploit new market opportunities and supportstringent environmental legislation. A proactive strategy may be based on unilateral action andexpress itself by demonstrating that new instruments work, thereby setting a good example forothers to follow. Conversely, a reactive company will deliberately leave market opportunitiesunexploited and oppose environmental legislation. In this case, corporate inﬂuence may bebased on coercion. Companies can lobby decision-makers by the use of threats and persuasionaimed at affecting the perception of costs and beneﬁts among decision-makers.32 These are the CEE bankwatch network; Friends of Nature; Epha Environmental HealthNetwork; Birdlife; Climate Action Network Europe (CNE); European Environmental Bureau(EEB); Friends of the Earth Europe (FoE); Greenpeace Europe; Transport and Environment;WWF Europe (World Wide Fund for Nature).
30
EU Emissions Trading
green movement representing the ‘public interest’ would constitute a signiﬁcantlegitimizing force and thereby facilitate an EU ETS. This may result either from theinﬂuence of the EU institutions or from the ability of these actors to inﬂuence thedesign of the emissions trading system in line with their own speciﬁc interests.International RegimesThe ﬁnal explanatory perspective applied to understand the development of the emissionstrading scheme concerns changes in the wider international institutional context withinwhich the EU operates. This perspective takes us from EU internal explanatory factorsto the context of international climate policy: the UNFCCC and the Kyoto Protocol.How can international regimes inﬂuence the diffusion of policy instruments?More speciﬁcally, how could the Kyoto Protocol affect the making of the EUEmissions Trading Scheme even before it had entered into force?33 Building onSkjærseth and Skodvin (2003) and on Oberthür and Tänzler (2007), we assume thatthe climate regime has affected the EU ETS by means of pressure, opportunitiesand learning. First, international regimes can increase pressure on governmentsto be able to comply with their international commitments. Such pressure mayincrease the willingness of governments to implement innovative policy instruments(Oberthür and Tänzler 2007). A necessary condition for this mechanism is that therelevant agreement is expected to enter into force. Second, international regimescan provide new economic opportunities. In particular, they can provide specialincentives to implement particular innovative policy instruments (ibid.). Finally,international regimes may facilitate learning – typically in the form of new ideasabout measures likely to prove effective in solving the problem (Levy et al. 1995,306). This resembles the study of policy diffusion34 which emphasizes learningthrough effective communication (Rogers 1995). In the context of internationalenvironmental institutions, the focus is on how non-binding institutional guidelinescan facilitate effectiveness and enhance the legitimacy and norm developmentof certain policies (Bush et al. 2006; Tews 2006).35 Examples of policy diffusionbetween environmental institutions include the principle of precautionary action andecosystem management (Stokke 2000; 2001).Both pressure, opportunities and learning are assumed to play a role in the policyinitiation phase. However, learning is probably especially important in this phase,simply because sensitivity to new ideas is high when the institutional processes areopen and close in time. The positions of actors tend to be less ﬁxed at this stage, asthey are less aware of the distribution of costs and beneﬁts ﬂowing from different33 The Kyoto Protocol did not enter into force until February 2005.34 This is an established concept within comparative politics and comparativeenvironmental politics. Its main focus is on the horizontal (across states) spread of policyinstruments.35 According to Tews (2006:100), diffusion is the spreading of innovations due tocommunication instead of hierarchy or collective binding decision-making within internationalinstitutions. Innovations should in this context be understood as a programme, idea or practicethat is new to the government adopting it.
Analytical Framework
31
political options. Actors typically enter into a process of discovering, inventing andexploring both own interests and possible solutions. The actual processes throughwhich cross-institutional learning occurs are, however, not well understood (Levy etal. 1995, 306). According to Evans and Davies (1999), one condition for learning totake place is that the solution (here: emissions trading) is actively promoted by otherparticipants in the source institution – in this case, the climate regime.We would thus expect the climate regime to explain why the EU embraced theidea of emissions trading in the policy initiation phase. More speciﬁcally, we proposethat EU institutions and actors initiated the EU ETS in response to the internationalclimate regime. We would then expect to ﬁnd that: (1) emissions trading was includedin the Kyoto Protocol without forming part of the EU’s negotiating position. Thiswould give the climate regime a signiﬁcant potential to affect the EU’s position onemissions trading; and (2) the climate regime facilitated EU initiation of emissionstrading through pressure, opportunities and learning. Pressure can be observed tothe extent the EU ETS was explicitly initiated as an instrument to achieve the KyotoProtocol commitments; economic opportunities are provided by the climate regime tothe extent the EU ETS would reduce the costs of complying with the Kyoto Protocolcommitments; learning takes place to the extent the climate regime facilitates activepromotion of emissions trading by other participants in the climate regime.In the decision-making phase, the question is whether the climate regime affectedthe ﬁnal outcome of the EU ETS. In this phase, the threshold for external inﬂuence islikely to be higher as attention is increasingly directed towards institutions and actorswith a formal role in EU decision-making. Institutional processes are increasinglyclosed to outsiders, and actor positions become more ﬁxed as awareness of the costsand beneﬁts linked to various options grows. Shocks and crises in the institutionalenvironment may, however, penetrate internal EU decision-making processes. It isreasonable to assume that signiﬁcant changes in the climate regime can alter thecosts and beneﬁts of options available in the EU and thereby affect the range ofpolitically feasible solutions. If the climate regime introduced the idea of emissionstrading to the EU, it is also likely that the regime affected the design and adoptionof the EU ETS.Given these assumptions, we propose that the EU ETS came to reﬂect developmentswithin the international climate regime. Accordingly, we expect to ﬁnd that: (1) acrisis in the climate regime penetrated the internal EU decision-making process; (2)the EU expected the Kyoto Protocol to enter into force despite uncertainty as to itsratiﬁcation; (3) the rules for international emissions trading determined the rules forthe EU ETS; (4) the time schedule for the EU ETS decision-making process wasinﬂuenced by the climate regime.Finally, the climate regime can facilitate deliberate coordination of activities inthe implementation phase. In a dense international institutional environment, EUdirectives will have to be coordinated with broader international rules and procedures.Such deliberate coordination between two institutions can be understood as a formof institutional interaction (Oberthür and Gehring 2006). In the context of emissionstrading, the links between the EU ETS and the Clean Development Mechanism(CDM) and the Joint Implementation (JI) mechanism of the Kyoto Protocol areparticularly relevant. In addition to this institutional link, we shall explore another
32
EU Emissions Trading
international dimension that has to do with the extent to which the EU ETS industriesare exposed, and hence vulnerable, to global competition.In October 2004, the EU adopted the Linking Directive which links theEmissions Trading Directive to the CDM and JI mechanisms of the Kyoto Protocol.As CDM projects in Third World countries imply a higher risk and complexity thanallowance trading between industrialized countries, it is reasonable to assume thatCDM allowances/credits will be traded at lower prices than EU allowances. Hence,on the one hand, a direct link between the EU ETS and the Kyoto Mechanisms canreduce the costs of compliance for sectors covered by the ET Directive by allowingemission reduction in another member-state or non-EU member-state at lowercosts. The availability of CDM credits would thus make it easier for industries toagree to ambitious allocation. This in turn means that a strong link between thenational allocation of allowances and CDM is likely to increase ambitiousness. Onthe other hand, such a strong link may decrease the pressure on EU governmentsto take real action in their own countries. The link between the EU ETS and theﬂexible mechanisms under the Kyoto Protocol is thus likely to reduce compliancecosts and increase the ambitiousness of allocations, at the expense of pressure onEU governments to take real action in their own countries. Moreover, and turning tothe global competition perspective, industries under the EU ETS exposed to globalcompetition are likely to press for generous allocation of allowances to keep thecarbon price and potential abatement costs down. Conversely, low exposure couldreduce industrial opposition to ambitious allocation.Against this background, we propose that a strong link between the EU ETSand the climate regime’s ﬂexible mechanisms, and low industrial exposure to globalcompetition, will increase environmental ambitiousness. Accordingly, we expect toﬁnd that: (1) credits from CDM projects have been utilized to supplement nationalallocation of allowances; (2) low industrial exposure to international competition hasled industry to refrain from lobbying against ambitious allocations; (3) an importantexplanation of implementation is to be found at international level particularly in theclimate regime and the Kyoto Protocol’s ﬂexible mechanisms.ConclusionThis chapter has sought to develop an analytical framework for understanding why,how and with what consequences the EU developed the world’s ﬁrst internationalemissions trading system so rapidly. We have distinguished between three phases ofpolicy-making: initiation, decision-making and implementation. In order to explainthe development of the EU Emissions Trading Scheme from a vague idea to theactual allocation of carbon allowances, we applied three explanatory perspectivesderived from the following three general approaches: First, the intergovernmentalapproach, which focuses mainly on the level of nation-states. Second, the multilevel governance approach, which, despite the name, is mainly concerned with theEU level. Finally, we applied the international regime approach, which is mainlyconcerned with the international level. These approaches are clearly complementary,
Analytical Framework
33
but point to different decision-making levels, actors, institutions and mechanisms toexplain what happened.Table 2.1
Summary of propositionsPolicy initiation
Decision-making
Implementation
Member-state level
Change in thepositions of themember-states leadto the initiationof EU ETS.Commission actson a request frommember-states andanticipates broadbased support.
The EU ETS reﬂects A decentralizedthe interests/positions EU ETS will leadof the member-states. to low but varyingIt is decentralized.environmentalambitiousness, dueto differing nationalcircumstances.
EU level
Commission changed The EU ETS reﬂectsthe harmonizationits position onambition of theemissions tradingand initiated the EU Commission andETS independently. the Parliament. Itis centralized.
A centralized EUETS will lead togenerally highenvironmentalambitiousness, due tocommon EU criteria.
International level
EU institutions andactors initiated theEU ETS in responseto the internationalclimate regime.
The EU ETSreﬂects thedevelopments withinthe internationalclimate regime.
A strong linkbetween the EUETS and the climateregime’s ﬂexiblemechanisms, and lowindustrial exposure toglobal competition,will increaseenvironmentalambitiousness.
In Table 2.1 we have summarized the propositions derived from the explanatoryperspectives. For each proposition, we have throughout the chapter listed indicatorsfor what we expect to ﬁnd, thus making the propositions empirically testable. We havealso referred to various assumptions and conditions underlying these propositions.The most important is that a development towards converging and supportivepositions within and between industry and ENGOs represent a necessary conditionfor the rapid making of the EU ETS within the multi-level governance approach.In the next chapter, we analyse the main collective and individual outcomesin the three policy-making phases, focusing on the development of the idea, thespeciﬁc design, harmonization and adoption of the system and ambitiousness in thepractical application of the system. That chapter will serve as the point of departure
34
EU Emissions Trading
for explaining these outcomes in Chapters 4, 5 and 6. Chapter 4 focuses on policyinitiation, Chapter 5 on decision-making, and Chapter 6 on implementation.
Chapter 3
Development of the EU ETSThis chapter provides an initial overview of the development of the EU EmissionsTrading Scheme, broken down into three policy phases. First is the phase of initiation,which started after Kyoto in 1997 and ended with the March 2000 Green Paper, beforethe European Commission started drafting the ET directive proposal in January2001. Here we need to analyse how the idea of emissions trading developed withinthe EU, along with how main issues of design were gradually clariﬁed. Second is thedecision-making phase, starting with the Commission’s drafting of the ET directiveproposal in 2001 and ending with the formal adoption of the Linking Directivein October 2004. In this phase, the main focus is on the changes that took placebetween the Commission’s ET directive proposal and the ﬁnal political agreementon the 2003 ET Directive between the Council and the Parliament in June 2003. Thethird phase, implementation, started immediately after the formal adoption of the ETDirective in October 2003, with the production of National Allocation Plans (NAPs)in two rounds: 2003–05 for the EU ETS pilot phase; and 2005–07 for the Kyotocommitment phase. The main question here is to what extent the member-states haveachieved the goal of promoting reductions of greenhouse gases. As not long time haspassed, we examine primarily the ambitiousness of allocations.Initiation: From Idea to Green PaperThe Kyoto Protocol, negotiated in December 1997, established three ﬂexiblemechanisms as important aspects of global climate policy: Emissions Trading (ET),Joint Implementation (JI), and the Clean Development Mechanism (CDM). Duringthe Kyoto negotiations, the EU opposed ﬂexibility and argued in favour of domesticaction. As the USA was not willing to accept a binding numerical target withoutﬂexibility, the EU had to yield, in order to ensure that a binding target was achievedin the Kyoto Protocol. Emissions trading was thus included in the Kyoto Protocol(Article 17), but merely as an option. The speciﬁc rules for international emissionstrading were to be deﬁned later. At this time the Kyoto Protocol was far from beingratiﬁed, and was consequently not binding for the EU member-states.Nevertheless, in May 1998, what may have been the ﬁrst ofﬁcially positivesignals on emissions trading came out of the Commission. In connection with thepreparatory process for a meeting within the Kyoto Protocol in Bonn in June 1998,a Commission ofﬁcial, speaking to International Environment Reporter on thecondition of anonymity, stated:we need to break away from this black-and-white picture where the US, Canada andJapan, and others are seen as the driving forces behind emissions trading while the EU is
36
EU Emissions Tradingseen as obstructing progress…We want to make a constructive contribution to setting therules and regulations for an international emissions trading scheme that will help meet thegoals of the protocol.1
This was followed up in June by Environment Commissioner Ritt Bjerregaard,who proclaimed: ‘we have to get involved in emissions trading [...] we cannot letothers dictate the rules’.2 Here it should be noted that the outlook of the Commissionwith regard to emissions trading was still primarily international in nature. The EUexpected agreement to be reached on international rules for emissions trading at theUNFCCC Fourth Conference of the Parties (CoP-4) in Buenos Aires in Novemberthat year.In June 1998, the European Commission published the CommunicationClimate Change – Towards an EU Post-Kyoto Strategy,3 which can be seen asthe ﬁrst step in the development of an EU strategy to meet the Kyoto Protocolcommitments. As described in Chapter 1, at Kyoto the EU had agreed to reduceemissions of greenhouse gases (GHGs) by 8 per cent of 1990 levels by 2008–12. TheCommunication put a series of key questions to the Council of Ministers. The moreshort-term horizon was the upcoming CoP-4 in Buenos Aires, and the questionsrelated partly to the formulation and clariﬁcation of the EU’s negotiating position.A comprehensive climate strategy would have to incorporate all sectors of the EUeconomy, possible areas for action, and the international dimension. To develop thisstrategy the Community and the member-states were to start an interactive process.An EU framework could be established to co-ordinate their respective actions,exchange data, track progress and identify areas for action to meet commitments. Itwas underlined that if demonstrable progress were to be realized by 2005 – as calledfor in the Kyoto Protocol – ‘then certain elements need to be in place by 2002 whichrequires a conﬁrmation to move on certain actions now’.4The Communication noted that a comprehensive strategy would need to takeinto account all the provisions in the Kyoto Protocol, in particular the ‘ﬂexiblemechanisms’. These mechanisms could ‘play an important role in meetingcommitments at less cost, thereby safeguarding the competitiveness of EU industry’.5The weight given to these mechanisms, which the EU had originally opposed, isreﬂected in the fact that roughly two-thirds of the 1998 Communication dealt withvarious aspects of them. With regard to emissions trading speciﬁcally, a Communitywide approach was seen as preferable to one with differing member-state systems,
1 International Environment Reporter (27 May 1998), ‘EU Divided on Whether toLimit Use of Emission Trades for Meeting Targets’, 21:11, 503.2 International Environment Reporter (24 June 1998), ‘EU Agrees on Burden-sharingPlan for Emission Cuts under Kyoto Protocol’, 21:13, 609.3 European Commission (June 1998), COM(98)353, Commission Communicationto the Council and the Parliament. Climate change – Towards an EU Post-Kyoto Strategy(Brussels).4 Ibid., 12.5 Ibid., 2.
Development of the EU ETS
37
in order to facilitate administrative implementation of the system and prevent newbarriers to trade.6The lack of national and international experience pointed towards a step-by-stepapproach.7 This could mean initially limiting:•••
the number of gases included to CO2, the best-documented greenhouse gas;trading to best-known sources, such as large combustion plants;trading to member-states and not private entities.
Importantly, the Communication stated: ‘the Community could set up its owninternal trading regime by 2005 …. This would provide the Community withinvaluable practical experience of trading … and ensure that the Community wouldbe better prepared at the start of international emissions trading with effect from2008’.8 This led on to a request to the Council for more general endorsement of‘the introduction of the ﬂexible mechanisms in a step-by-step and co-ordinated waywithin the Community’.9 Hence, it seems reasonable to conclude that the idea of aninternal EU Emissions Trading Scheme was now ofﬁcially launched – cautiouslyand tentatively – by the Commission.With regard to international emissions trading within the context of the KyotoProtocol, the Communication emphasized the principles of openness, transparency,non-discrimination, and a stepwise approach (similar to the more speciﬁc Communitycontext). Furthermore, it was stressed that emissions trading and ﬂexibilityinstruments should in principle be ‘supplemental’: the main means of meeting Kyotocommitments should be provided by domestic action, as stipulated in the KyotoProtocol. The idea and possibility of a ‘concrete, quantitative’ ceiling on all threemechanisms taken together was launched to facilitate domestic action, and the needfor strict monitoring and the possibility of international sanctions, ‘even penalties’,was emphasized.10 The Commission concluded by promising to present a morecomplete post-Kyoto strategy in the ﬁrst half of 1999, and again it was underlinedthat the EU would have to make demonstrable progress by 2005.11The discussion of a possible EU ETS was taken a bit further in the May 1999Communication Preparing for Implementation of the Kyoto Protocol.12 This wasbased on the conclusions of the Vienna European Council in 1998 and served asthe Commission’s input to the 1999 European Council Summit held in Cologne.In Vienna, climate change had been deﬁned as one of the most challengingenvironmental problems for the coming decades, and it was agreed that theCommunity should intensify its work on common and coordinated policies and6 Ibid., 2, 18.7 Ibid., 19.8 Ibid., 20.9 Ibid., 21.10 Ibid., 24, 25.11 Ibid., 29.12 European Commission (19 May 1999), COM(99)230, Commission Communicationto the Council and the Parliament. Preparing for Implementation of the Kyoto Protocol(Brussels).
38
EU Emissions Trading
measures. Emissions were on an upward track, and more needed to be done to curbthis trend. Accordingly, the focus in the May 1999 Communication was on progressin policies and measures at the Community level and possible new initiatives. Thisincluded ‘common and co-ordinated measures’, targeting sectors like transport andhouseholds; ‘ﬁscal incentives’, mostly focused on a possible energy products tax;‘environmental agreements’, which were described in positive terms, but the need toconclude new ones quickly was emphasized, again with reference to the importanceof making ‘demonstrable progress by 2005’.13With regard to ﬂexible mechanisms, it was noted that they were new and‘fundamentally different’ from previous EU environmental policy. There was aclear need for more knowledge about the mechanisms.14 Global emissions tradingwould not start until 2008, and would probably not be based on particularly detailedrules and guidelines. In the meantime, ‘the best preparation for the Communityand its Member States might be to develop their own trading experience’; the 1998Communication had already launched the target date of 2005.15 This conclusion mustbe seen in light of the failure to deﬁne the rules for international emissions trading atthe 1998 CoP in Buenos Aires.16 A possible broad consultation exercise in the year2000 and a subsequent Green Paper were proposed. Two main themes for the GreenPaper were indicated: ﬁrst, the participation of private entities, which could increasecost-effectiveness but also lead to tricky issues of harmonization and competitivedistortions. Second, compatibility with existing EU environmental policy wasemphasized. Although both an ‘upstream’ system (targeting fossil-fuel producersand importers), and a ‘downstream’ system (targeting end-users of energy), wereconceivable, the latter would be most in line with a cautious, stepwise approach.Such a system could start with large emitters or a single economic sector, and themost accurately measured gas – CO2.17With regard to the links to the two other main ﬂexibility mechanisms in the KyotoProtocol – the JI and the CDM – it was noted that the CDM could start already fromthe year 2000. Here it was emphasized that none of the three mechanisms should bedisadvantaged against the others through special fees or administration costs.18 Theissue of EU enlargement was also brieﬂy commented upon: the Community shouldassist the candidate countries in developing their institutional and technical capacityand raise the proﬁle of climate policy issues with stakeholders and the public in thesecountries.19
13 Ibid., 8.14 Ibid., 14.15 Ibid., 15.16 These rules were not ﬁnally agreed until CoP-7 in Marrakech in October 2001.17 European Commission (19 May 1999), COM(99)230, Commission Communicationto the Council and the Parliament. Preparing for Implementation of the Kyoto Protocol(Brussels), 15–16.18 Ibid., 16–18.19 Ibid., 20.
Development of the EU ETS
39
But it was the Green Paper on greenhouse gas emissions trading within theEuropean Union,20 published in March 2000, that really started to give ﬂesh andblood to the idea of an EU Emissions Trading Scheme. The Green Paper markedthe start of a broad EU consultation process. At the outset, it was emphasized thatEU emissions trading should complement and be compatible with other policies.21Although previous Communications had stressed that this instrument was new to theEU, the GP noted that there were in fact relevant earlier EU instruments – quotas forOzone Depleting Substances, for ﬁsh catches, for milk.22 The Commission now cameout more clearly in favour of involving private entities (companies) in emissionstrading, seeing this as a ‘unique opportunity for cost-effective implementation’.23With regard to the design options described in Chapter 2, the Commission ﬁrstargued that a main attraction of emissions trading was that it would provide certaintyas to the environmental outcome. This means that the Commission preferred acap-and-trade system, based on a total cap on emissions from the sources coveredby the system, rather than a baseline-and-credit system. Various issues related tocoverage were also discussed. Although in principle the best thing would be a broadand comprehensive system covering all six main GHGs and sinks and all emissionsources, there were ‘sound scientiﬁc and practical reasons’, not least related tomonitoring, for not necessarily pursuing that option further, and instead restrictingthe scope to large ﬁxed-point sources of CO2.24 This reﬂected the preference for adownstream system, as signalled back in 1999. The Large Combustion Plant (LCP)and Integrated Pollution Prevention and Control (IPPC) Directives offered usefulreference points. The following sectors were suggested for initial inclusion, coveringaround 45 per cent of EU CO2 emissions (with electricity and heat productionaccounting for 30 per cent of EU CO2 emissions alone):••