Emissions tightening

The idea was a good one: companies that pollute the air and damage the climate should pay for doing so. That way they have an incentive to use more environmentally friendly production methods.

Back in 2005, the EU introduced the idea of trading in emissions certificates: companies initially get a number of free certificates; if they need more, because they emit a lot of carbon dioxide, they can buy more certificates. If they don't use all the ones they've got, because they are being particularly environmentally friendly, they can sell the ones they don't need.

Emissions trading was supposed to make the European economy increasingly green. The problem now is that the certificates are so cheap that they have no effect. The EU Commission originally expected them to sell for 20 euros per ton of CO₂ emitted. They rose at one time to 30 euros, but they're currently selling for just 6 euros.

The system works in principle

There are two reasons for this. One is political, another is economic. The member states give away around half their certificates to the companies. And production has fallen, and with it emissions, as a result of the economic crisis.

A further influence is the fact that many companies have reformed their production methods so that they really do need fewer certificates than they did. All these reasons together mean that there is a glut, and that pushes prices down.

The market needs clarity

"This is bad for Europe's innovation and competitiveness," said EU Climate Commissioner Connie Hedegaard on Wednesday (14.11.2012). The Commission wants to make emissions trading more effective. It wants to restrict supply in order to boost the price and restore the environmental incentive they were intended to create. The Commission wants to remove about a billion certificates from the market and auction them in a few years' time. But it could also simply withdraw certificates altogether in the long term.

One report estimates that unless something is done there will be about two billion certificates too many on the market by 2020. So far, though, this is only a Commission proposal. Hedegaard said, "Market operators must have clarity before year-end on this."

Competitive advantage or disadvantage

The member states have still to agree, and they are showing some resistance. Poland, for example, produces almost all its electricity with coal, which causes particularly high CO₂ emissions. The government wants a low price and opposes any intervention in the market.

In other countries, like Germany, industry fears that emissions trading would give Europe a competitive disadvantage against non-European producers, leading to companies taking their production abroad if the burden becomes too high.

Environmentalists, on the other hand, see a competitive advantage in saving raw materials, and they believe that the world economy will anyway have to move in this direction, so that the pioneers will be the winners in the end.

Foreign flights will enjoy privileges

But environmental organizations say that another EU decision is a dangerous setback. Hedegaard wants to exempt non-European flights from the climate charges applied to inner-European flights. The charges were harshly criticized by airlines from the US, Russia and China. Environmentalists said Hedegaard had buckled to pressure.

She doesn't agree. On Monday she said she wanted to create a positive atmosphere in talks with the International Civil Aviation Organization over a global system of charges. "For the first time in years, it seems that a global deal on the aviation should be within our reach," she said. "We must use that opportunity."

The EU had proposed such a scheme, but it introduced its own system when it became clear that there would be no progress. But critics say there is still likely to be no progress because of the resistance of the US and China, which have both applied massive pressure. The Chinese have put on ice a 12 billion euro ($15.3 billion) order with the European aircraft manufacturer Airbus, specifically because of the climate charge. That seems to have had an influence on the Commission's decision.