At the start of 2005, the EU launched its internal CO2 emissions trading scheme which should help the Union to meet its commitments under the Kyoto Climate Protocol. The Union’s own trading mechanisms will not, however, be enough to reduce emissions globally.
As the EU accounts for only ten per cent of global greenhouse gas emissions, future climate obligations should involve a much larger number of countries.
Under the Kyoto Protocol, industrial countries will strive to cut their greenhouse gas emissions by five per cent from 1990 levels by 2008-2012. The EU has adopted a reduction target of eight per cent.
Emissions trading weakens the EU’s industrial competitiveness
China, India, the United States, Australia, Japan and South Korea have signed a pact to reduce greenhouse gas emissions. The Asia-Pacific Partnership on Clean Development and Climate is based on developing and transferring technology. The forest industry views the new pact as an alternative to the country-specific emissions allowances in the Kyoto Protocol.
The new partnership is designed to reduce greenhouse gas emissions by developing new technologies. This includes making more efficient use of energy, recovering and storing carbon dioxide, combined heat and power generation, nuclear power, geothermal energy, new coal technologies, bioenergy and other renewable energy.
The nations participating in the project consume about half the world’s energy and are responsible for half of emissions. They also represent about half of the world’s economy and population. The Finnish forest industry would have much to contribute in the development and transfer of new technologies, for instance with respect to bioenergy.
The new partnership adds weight to the European industry’s view that climate policy after 2012 will not be based on the Kyoto model.
EU emissions trading has caused many problems this year. The forest industry’s competitiveness has suffered in Europe because emissions trading has raised the price of electricity and raw materials.
Emissions trading system in need of an overhaul
The EU should display political courage and examine the emissions trading system’s actual emissions-reducing effects in relation to the costs caused by it. If, however, the Union decides to continue with the emissions trading scheme in spite of significant drawbacks, it should adjust its operating principals so that trading could become a globally functioning tool of climate policy. The EU does not have an internal climate, which is why emissions trading, in its present form, is unable to provide a solution to global climate problems.
There is no clear evidence for the cost-effectiveness of emissions trading. The studies into the matter conducted so far have neglected to take into consideration that the emissions trading scheme is not global. In everyday practice, emissions trading is blighted by problems that are not discovered in theoretical analyses. Emissions trading does not take into account, for example, the possibility of carbon drain or problems related to the burden-sharing between countries or the initial allocation of emissions allowances.
Emissions trading weakens the competitiveness of forest industry corporations with global operations because they are unable to transfer the additional costs caused by the system into product prices, which are determined on the global markets. The EU should be attempting to remove this uncompetitive cost burden. This would require a sufficiently well-functioning emissions trading system that would prevent unreasonable increases in the price of emissions allowances. One development alternative would be the setting of a price cap for emissions allowances.