Under the Kyoto Protocol, the European Union agreed to reduce its greenhouse gas emissions by 8% below 1990 levels. Subsequently, this target was reallocated internally, so that countries with a greater ability to cut emissions (Germany, Denmark, UK) have taken on tougher targets, while others have been allowed to let their emissions grow. This is known as the ‘EU bubble’: in order to comply with the Kyoto obligation, all Member States and the European Union as a whole must meet these targets.
This has set the stage for the development of Europe-wide policies (in parallel with a number of national initiatives), with the introduction of emissions trading being the first of these.
The main components of the EU ETS are:
- A mandatory absolute emissions cap on participating firms, covering CO2 and, when accurately measurable the 5 other greenhouse gases.
- Targets to be set and allowances allocated by national governments on the basis of their Kyoto commitments and European competition rules.
- A pilot phase to promote early action between 2005 and 2007, and a full operational phase during the 2008-12 Kyoto commitment period.
- A fine for non-compliance of €100/tonne CO2 emissions (€50 during the pilot phase).
- Monitoring, reporting and transparency provisions.