THE EU EMISSIONS TRADING SCHEME FACES SURMOUNTABLE OBSTACLES

With the January 2005 start date for the EU Emissions Trading Scheme (ETS) quickly approaching, and numerous decisions on its final shape yet to be made, the European Union faces increased scrutiny about the centerpiece of its climate change program. This Decision Brief highlights factors that could derail the process and delay the start date. CERA believes that the ETS will proceed despite any delay.

- Delay in setting targets and building the market infrastructure. The drafting and subsequent approval of National Allocation Plans (NAPs) could take more time than anticipated. As member states struggle to develop NAPs that address both environmental objectives and economic realities, the target of March 2004 for submitting the NAPs to the European Commission becomes more elusive.
- Deferring the difficult choices. Without clarity regarding the role of project-based credits, companies do not have the framework for making necessary investment decisions.
- Uncertainty of the Kyoto Protocol's future. Russia's ratification of the Kyoto Protocol is far from certain. Even without ratification, there is sufficient momentum and both intellectual and political commitment to make the ETS happen. Any apparently independent move by Europe would be in the context of a dialogue regarding a broad new international framework.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.