The European Union’s efforts to fight climate change with its landmark emissions trading system will face a crucial test this month, when companies must show whether they have exceeded their 2005 pollution limits. Power producers, steel manufacturers and other smokestack industries have to submit data by Sunday proving that they have not exceeded carbon emission limits established under the first year of the EU Emissions Trading Scheme.
The EU ETS, developed to meet commitments under the Kyoto Protocol, requires EU governments to limit how much CO2 their heaviest polluting industries can emit. Companies exceeding their limits can buy more carbon credits from cleaner companies which have credits to spare, but they face a 40-euro fine per ton of excess CO2 if their carbon books do not balance at the end of the financial year. While carbon prices have soared, not everything has gone smoothly for the scheme: five of the EU’s 25 states — Cyprus, Greece, Luxembourg, Malta and Poland — still have no registry where companies can access their carbon credits. Companies in those countries will not be able to surrender their allowances for checks by the European Commission, experts say.
“In the absence of the national registry, you’re never going to be able to surrender anything,” said Peter Zaman, a senior associate at Clifford Chance LLP, which advises banks and utilities throughout Europe on carbon-related issues. Zaman said companies in the EU’s other 20 countries could cry foul if their counterparts without national registries were exempted from this stage.
The European Commission has already launched legal proceedings against the countries for not complying with EU laws requiring the registries to be in place, a spokeswoman said.
The EU system covers more than 11,500 plants and installations including oil refineries, steel plants, power stations and cement factories. Companies will closely watch the publication of the emissions data on May 15, knowing that unexpected news could greatly impact the price of carbon credits, and therefore power prices generally. The market expects an emissions shortfall — meaning the amount of total EU-wide emissions is greater than the amount of original carbon credit allocations — with companies filling the gap by buying credits. “The market estimates a 80 to 90 million ton shortfall (in carbon credit allocations versus actual emissions),” said one London-based carbon trader.
Ruta Bubniene, policy officer at the Brussels-based Climate Action Network Europe, said the process would prove that some countries had allocated more rights to pollute than necessary. “Over-allocation will become very visible after the surrender of the allowances,” she said.
Penalty
Many firms will be unconcerned about fines now because they could borrow allowances already in their accounts for 2006 to cover shortfalls in 2005, according to Clifford Chance’s Zaman. But that will not be possible each year of the first 2005-2007 period of the EU ETS. “The critical compliance deadline from the perspective of an operator is the 30th of April 2008, and that’s when they’re more likely to be hit with the penalty,” he said.
(Kathimerini, 26/4/06)