Carbopedia

The Regulatory Landscape of The European Union

The European Union has aggressively addressed the causes of climate change, as well as take steps to reduce its contribution to global warming by adopting strategies aimed at reducing GHG emissions.

Beginning in 1991, the EU introduced the first Community strategy designed to curb CO2 emissions while improving energy efficiency. The European Commission later launched the aptly-named European Climate Change Programme in 2000, with the goal of developing a viable strategy to implement the Kyoto Protocol, including the EU Emissions Trading Scheme.

With the ratification of the Kyoto Protocol in 2002, the EU demonstrated its collective commitment to reach its target GHG reduction within the period 2008-12.

The Emissions Trading Scheme was launched in January 2005. Phase I (2005-2007) was the initial trading period, with energy-intensive installations allocated free permits and permitted to buy and sell permits (or credits) to emit greenhouse gases as a result of operations. This represents approximately 40% of all EU emissions, which are capped at 6,600 MtCO2 during this period.

Phase II of the EU ETS (2008-2012) will impose tighter regulations on installations required to report on and offset their emissions and permits will be auctioned (with some exceptions).

Recently, the EU proposed a 20% reduction in emissions (of 1990 levels) by 2020, increasing to 30% if matched by incisive action taken by other developed nations. Moving forward, it appears that investment decisions will, most likely, be strongly influenced by the high likelihood of a carbon-constrained environment within the EU.