EU Emissions Trading System
Failing at the Third Attempt

by Carbon Trade Watch and Corporate Europe Observatory

first published 7 April 2011

Carbon emissions in the European Union are rising, despite the Emissions Trading System, the EU's flagship measure for tackling climate change. The third phase of the scheme, beginning in 2013, is supposed to rectify the “teething problems” that have rewarded major polluters with windfall profits and undermined efforts to reduce pollution and achieve a more equitable and sustainable economy. In practice, it will continue to subsidise polluters and help them avoid taking meaningful action to reduce greenhouse gas emissions.

This 11-page joint briefing from Carbon Trade Watch and Corporate Europe Observatory shows that:

  • The EU Emissions Trading System (ETS) has failed to reduce emissions. Companies have consistently received generous allocations of permits to pollute, meaning they have no obligation to cut their carbon dioxide emissions. Polluters need take no action domestically until 2017.
  • Companies can use offset credits, mostly derived from the UN's Clean Development Mechanism (CDM). Over 80 per cent of offsets used to date come from industrial gas projects, which the EU Climate Action Commissioner admits have a "total lack of environmental integrity".
  • The ETS is a subsidy scheme for polluters and energy-intensive industries, with the allocation of permits to pollute reflecting competition policy rather than environmental concerns. Power companies have gained windfall profits, little of which has been invested in transformings the EU's energy infrastructure.
  • In the third phase of the ETS, significant subsidies will continue to be paid to industry, despite the auctioning of permits in the power sector. Over three-quarters of manufacturing industries will receive free permits.
  • The performance “benchmarks” against which permits are allocated are lax, particularly in energy-intensive sectors such as cement, steel, paper and glass, rewarding the continued use of dirty and outdated production methods.
  • Although CO2 emissions from aviation will be included in the scheme from 2012, the sector will receive 85 per cent of its permits for free. Put simply, the third phase of the ETS will continue the same basic pattern of subsidising polluters and helping them to avoid meaningful action to reduce greenhouse gas emissions.