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EMISSIONS TRADING – AN OPPORTUNITY
AS WELL AS A CHALLENGE FOR SCOTTISH BUSINESS
By John Purvis
Member of the European Parliament for Scotland
As part of a range of measures aimed at reducing
greenhouse gas emissions, the European Union is
to implement a new scheme in January 2005 which
will set up a market across Europe for the trading
of carbon dioxide emissions. Under the Emissions
Trading Scheme, national governments will allocate
an emission allowance to individual companies.
Any that is able to reduce its greenhouse gas
emissions to below its quota will be able to sell
the unused portion to other companies within the
EU that have exceeded their own allowance.
The scheme offers industry a double incentive
to introduce technological innovation. As well
as the reduced costs from more efficient operation,
the sale of emission permits will enhance company
bottom lines. The Scheme also offers the opportunity
for businesses to develop trading links with counterparts
in other countries. With the 10 new Accession
States likely to see the greatest growth across
Europe in years to come, the development of links
with these emerging countries would be an astute
move by any company wishing to develop and expand.
Background
The EU has agreed to an overall reduction of
8% of its 1990 level of emissions by 2010, with
the UK's share being 12.5%. The Emissions Trading
Scheme is part of a whole programme of EU environmental
legislation aimed at reducing emissions, including
promotion of renewal energy, biofuels, combined
heat and power, improved energy efficiency, and
improvements in the transport and waste management
sectors. It will also work alongside requirements
for efficient use of energy in installations in
the Directive on Integrated Pollution Prevention
and Control.
Implementation of the Emissions Trading
Scheme
The EU scheme will start in January 2005 and
is mandatory for electricity generators exceeding
a thermal input threshold of 20 MW, oil refineries,
iron and steel manufacturers, paper, pulp and
board manufacturers and the mineral industry -
which account for about 50% of all of the UK's
CO² emissions. Each EU country must devise
its own National Allocation Plan, setting out
total allowances allocated to the different industry
sectors and how they will be distributed between
individual installations. By the end of March
2004, all installations covered by the scheme
must hold a trading permit. Installation allowances
will be allocated by the end of February each
year and must be surrendered by the end of April
the following year.
The European Parliament is also hoping to be
able to extend the Scheme to allow companies to
acquire credits by financing projects in and transferring
know-how to developing countries or countries
whose economies are in transition. This would
help poorer countries use energy more efficiently
and develop in a more sustainable way.
UK plans for emission reduction
The UK's plan, agreed between the UK Government
and the devolved administrations, aims to reduce
CO² emissions by 20% - stricter than the
EU requirement. Scotland, which produces about
12% of the UK's total carbon emissions, wants
to make its due contribution to meeting this target,
but it faces a greater challenge. Between 1990
and 1998 the UK's emissions as a whole dropped
by 9%, whilst Scotland’s emissions only
reduced by 3%. Over the same period, emissions
from the Scottish energy sector increased by over
13%, largely due to an increase in coal-fired
electricity exports to England.
Scotland has the ambitious target of generating
17-18% of its electricity from renewable sources
by 2010 – though it is doubtful if these
targets can be reached with renewable energy sources
still at an early stage of development. Wave power
is emerging as a very promising energy source,
but is not yet commercially operable. Energy from
wind power is technologically proven but an enormous
number of wind turbines will have to be built
to meet demand and they are still not able to
produce a predictable or constant supply. They
are also beginning to excite public resistance.
Nuclear energy is able to produce large volumes
of electricity with very few greenhouse gas emissions,
but the UK Government has decided not to replace
older plants, making Scotland’s emissions'
targets even harder to reach.
Nevertheless, emissions trading may be a good
opportunity for Scottish companies to increase
their profits and help improve our environment.
Meeting our emissions targets is a major challenge.
Emissions trading should help to square this difficult
circle.
John Purvis MEP
Vice Chairman of the European Parliament's
Economic and Monetary Affairs Committee
and Member of the European Parliament’s
Committee on Industry, External Trade, Research
and Energy.
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