Commission takes tough line on greenhouse gas emissions

The food processing industry is a major energy consumer and discharger of greenhouse gas throughits reliance on cooking, refrigeration, freezing and air compressor systems. Companies must buyextra allocations through the trading scheme if they exceed the allocated limits or face fines. Theadded costs have added to the burden companies face in meeting the bloc's environmental controls.

The decisions on Belgium and Holland's allowances were made as part of the Commission's ongoingreview of member states' national allocation plans, submitted for the second phase of the EU Emissions Trading Scheme(ETS)s. The allocations must be approved by the Commission and will be in effect for the 2008-2012 trading period.

ETS is part of an EU programme to progressively put the brakes on industry's production carbondioxide (CO2) , linked to causing a general rise in the temperatures worldwide. Each member statemust detail its allocations and programme to reduce CO2 in a National Allocation Plan (NAP).

The plans determine each member state's "cap" or limit on the total amount of CO2 that installations covered by theETS can emit, and set out how many CO2 emission allowances each plant will receive.

Both Belgium and the Netherlands have accepted the Commission's proposed changes. Belgium had proposed a cap of 63.33million tonnes of CO2 emmissions and was allowed 58.5 million tonnes in the second phase, a cut of7.6 per cent.

In the first phase of the scheme, which runs from 2005 to 2007, the country had allocated 62.08million tonnes per year to affected industries. In 2005, the country had verified emissions of 55.58million tonnes.

The Netherlands' allocation for the second phase was cut by 5.1 per cent from what it asked to 85.8 milliontonnes. During the first phase the country was allocated 95.3 million tonnes a year and had verifiedemissions of 80.35 million tonnes in 2005.

All the EU's member states were due to submit their national allocation plans by 30 June lastyear. The Commission has so far assessed the plans submitted by Germany, Greece, Ireland, Latvia, Lithuania,Luxembourg, Malta, Slovakia, Sweden, and the UK. All of the countries, except the UK, have beenordered to cut their proposed allocations by an average of 7 per cent.

The Commission also said it is proceeding with infringement procedures against Denmark and Hungary for not submitting their NAPs yetby the deadline. The rest of submissions made by the member states will be assessed during the restof the year.

ETS is part of the bloc's plan to reduce greenhouse gas emissions to meet internationalcommitments under the Kyoto Protocol. The "cap-and-trade" scheme, which took effect fromJanuary 2005, allows companies to buy and sell CO2 emissions rights on specially constructedInternet sites.

Plants that emit more CO2 than their allocation need to buy allowances to cover the extraemissions. Companies that emit less than their allocation are able to sell the allowances tocompanies that need them.

The cuts made to the proposed allocations in the second phase are part of the Commission plan toensure that member states are not overly generous in the second phase.

Preliminary data from the first year of the EU's greenhouse gas trading scheme served tohighlight problems in the allocation of plant outputs and in the tracking of CO2 emissions.

The data indicated that the European Commission had set allocation limits at too high a level.Figures published in May 2006 showed that CO2 emissions were 44 million tonnes under the levelpermitted in 2005. The result was that carbon prices under the trading scheme fell dramatically,reducing the incentive for companies to cut emissions.

The cuts to national allocation plans for the second round is part of the increasing pressure theCommission is putting on industry to reduce emissions . This year the Commission proposed to cut greenhouse gases by20 per cent by 2020 compared with 1990 levels. Germany, which took over the EU Presidency this year, hasannounced support for a 30 per cent reduction, according to Eupolitix.com, an online newssource.

The ETS currently covers around 11,500 installations that account for about half of the EU's CO2emissions. Arriving at an EU-wide definition of which installations fall under the scheme is part ofthe challenge regulators face in complying with the agreement.

Under the scheme companies can be fined about €40 per excess tonne of CO2 emitted, a priceabove allocations being traded on the market.

During the second phase the Commission plans to include additional, smaller sites below thecurrent capacity threshold. Below a rated thermal input of 20 MW, actual direct emissions wouldtypically be less than 5,000 tonnes CO2/year.

The second phase of the EU ETS will be expanded to cover additional activities at 160 installations, estimated to be responsible for collectively outputting 9.5 million tonnes of carbon dioxide. The plants are currently not covered in the current phase of the scheme.

The food and drink sector accounts for 3.1 per cent of the estimated allocations in the UK.

The market in trading emission rights is estimated at about €35 billion (US$43bn) per year.