EU Emissions Trading Scheme (EU ETS)

Introduction
On 22 July 2003 the European Council adopted the European Directive for an Emissions Trading Scheme (ETS). The EU ETS is one of the policies being introduced across Europe to tackle the emissions of carbon dioxide and other greenhouse gases, and combat the serious threat of climate change. The scheme will commence on 1 January 2005. The first phase runs from 2005 – 2007 and the second phase from 2008 – 2012, to coincide with the first Kyoto Commitment Period. Further 5-year periods are expected to follow. Unlike the existing UK Emissions Trading Scheme, which many of Target 2010’s members have successfully used on a voluntary basis, the EU ETS will be mandatory for those sectors covered by the scheme rules.
 

The scheme will work on a “Cap and Trade” basis. EU Member State governments are required to set an emission cap for all installations covered by the scheme. Each installation will then be allocated allowances for the particular commitment period in question. The number of allowances allocated to each installation for any given period will be set down in a document called the National Allocation Plan. Member States’ National Allocation Plans had to be submitted to the European Commission by 31 March 2004 at the latest.

 
Anyone not covered by the scheme will be able to open an account on the registry (to be launched by 1 January 2005) and buy and sell allowances.

 
Those Involved
The following sectors are initially covered by the European Scheme:
Energy:

• Combustion (over 20MW thermal rated input, aggregated for all on-site activities), excluding waste combustion
• Mineral oil refineries
• Coke ovens

Metals:

• Ores
• Pig iron and steel (with a capacity over 2.5t per hour)

Minerals:

• Cement
• Lime
• Glass
• Ceramics

Others:

• Pulp
• Paper

Companies affected should have applied for a permit from the Environment Agency prior to 31 March 2004. Those who failed to apply on time may not receive their initial free allocation of carbon dioxide allowances from Defra. Companies require these allowances in order to be able to emit carbon dioxide to atmosphere, from 1 January 2005.

 
It is estimated that 1,300 businesses and organisations in England and Wales are likely to be affected by the forthcoming Regulations. When it starts on 1 January 2005, the European greenhouse gas trading scheme will cover over 40% of European carbon dioxide emissions, representing an important contribution to the efforts by European countries to implement their commitments under the Kyoto Protocol.

 
Casting Sector
Target 2010, in conjunction with the Cast Metals Federation, the Foundry Industry Environmental Committee and Castings Technology International, has been involved in the consultation process with Defra, with the object of gaining exclusion for the casting sector from the EU ETS, until at least its second phase in 2008.
 

On 19 December 2003 Defra published its first Guidance Note for the scheme. In summary, the inclusion of companies in the EU ETS in 2005 depends upon the definition of a ‘combustion unit’. The new guidance states, ‘Whether an installation produces an energy product or not will be a matter for the regulator to decide, on a case-by-case basis, but it is anticipated that it will include appliances for the production of electricity, heat and mechanical power, for use in other units which are technically linked but physically separated from the generating unit’. This definition includes electricity generators, boilers, combined heat and power systems (CHP) and gas turbines.
 

The guidance states that appliances not classed as combustion installations for the purpose of the EU ETS in 2005 include furnaces, ovens, dryers, re-heat furnaces, and non-ferrous metals production. This was the first indication from government that the castings sector would not be included in the initial phase of the EU ETS.

 
The Future
The EU ETS is seen as costly and highly bureaucratic, requiring companies to have permits to operate and annual verification of emissions data. In addition, it appears to lie uncomfortably alongside the Climate Change Levy Agreements (CCLAs), with opt-outs possible for those sectors with such agreements, providing “equivalency” can be proven.

 
The UK has now sent its National Allocation Plan (NAP) to the European Commission for its consideration, prior to the introduction of the first phase in January 2005. To date, no foundry across Europe has been involved in the various member states’ NAPs and unless the EC has a change of mind, no foundries will be involved in 2005.

 
As yet, there is no clarification of what will happen subsequently, although it appears likely that the casting sector will be drawn into the second phase in 2008. Should this happen the future of existing CCLAs beyond 2008 is unknown. For instance, will opt-outs still be allowed on the grounds of “proven equivalency” between CCLAs and the EU ETS? Will composite agreements be permitted?
 

If “equivalency” has to be shown, two immediate problems must be considered. Firstly, EU ETS targets are based upon absolute energy (kWh), whereas the casting sector CCLA is a relative target (kWh/tonne). In addition emissions trading under a CCLA is carried out under the UK Emissions Trading Scheme, which is not compatible with the EU ETS.
 

For further information, logon to:
www.defra.gov.uk/environment/climatechange/trading/eu/index.htm

Or contact Martin Fallon or Roy Wootton, General Manager of Target 2010 at Cti’s Alvechurch Office.