What is the Emissions Trading Scheme and what role does it play in the EU’s climate change policy?

The Emissions Trading Scheme (ETS) that has been established at EU level exemplifies what is referred to as ‘cap and trade’ or emissions trading. This practice is that of creating economic incentives in an effort at reducing pollution levels. In order to achieve this, the competent authority would establish a limit on the amount of pollution that can be emitted. Organisations would then be able to purchase certificates that would effectively entitle them to emit pollutants.

It is not only those organisations that need to emit pollutants that can purchase these certificates but in theory these could also be bought by environmental organisations which could push up the price as is consistent with the law of demand.

There a number of these kinds of schemes around the world. However the one that was developed by the EU is by far the most advanced and has been created with the scope of reducing greenhouse gas emissions. It is indeed a major pillar in EU climate change policy which covers over and above 10,000 installations in industrial sectors that have been estimated to be responsible for over 40 per cent of greenhouse gas emissions.

In the run-up to Copenhagen Summit in December last year there was a great deal of pressure being exerted within the EU in order to ensure that any problems concerning the ETS would be resolved. This because the ETS has been considered to be a grand success story of the EU with regards to the international efforts being made to combat global warming. The main issue of contention here was the credibility of the ETS, seeing as information at hand showed that the system was extremely vulnerable to abuse by professional fraudsters who used a complex system of cross-border trades to avoid paying VAT.

In fact a report on VAT Fraud on which I was rapporteur a few months ago dealt with precisely this issue. This report tackled a Commission initiative of introducing a reverse charge mechanism that would at least in theory eliminate the possibility of missing trader intra-community fraud that thwarted the success of the ETS. The Commission proposal was not limited to ETS but also included other goods that were susceptible to this kind of fraud. Generally speaking these tend to be objects that are small in size but high in value such as sophisticated computer chips and mobile phones. While the problem was urgent on all counts ,the report was adopted under a special procedure and within a much shorter timeframe specifically in view of the negotiations that were due to take place in Copenhagen. With the mechanism in the pipeline, European leaders could be rest assured that their bargaining power would not be prejudiced. Copenhagen was nevertheless a great disappointment – however efforts are still underway and I am hopeful that we will see more concrete action being taken in the near future.

The major development with regards to the ETS is that a larger proportion of carbon certificates will start being auctioned off as of 2013 as well as other pollutants being added to greenhouse gases. This should increase their use and distribution and will be a further step towards a low carbon society.

David Casa is a Nationalist MEP