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1 1 1 1 13 33 38 8 (2008) 20 ELM : PROPOSED MODIFICATIONS TO THE EMISSIONS TRADING DIRECTIVE : POCKLINGTON
the EU ETS, such as the aluminium sector which so far has by 2020, to mandatory reductions of greenhouse gas
been excluded but, due to the energy intensity of its emissions exceeding the minimum reduction levels
operations, is a significant indirect emitter of greenhouse agreed upon by the European Council, paragraphs 2,
gases. 3 and 4 shall apply (emphasis added).
The consequence of this is that the current directive
proposals allow for transitional arrangements for Annex I When considered alone this is not very meaningful: a
activities but no such measures for activities outside the restrictive interpretation of the term ‘international’ could
direct influence of the EU ETS. Two options may be imply that the conclusion of an agreement with any non-
considered: allocation for indirect emissions; or a carbon EU country would be sufficient to trigger the relevant
equalisation system. provisions in the directive. Conversely, a broad
interpretation might suggest that the terms in the article
Carbon equalisation system would be so strict that it would be unlikely that such an
agreement would never be reached.
Although nominally covered in Article 10b, which states Some assistance in the interpretation is available
that the importers of products produced by impacted elsewhere:
sectors or sub-sectors may be included in the Community
EU ETS scheme, more details of the Commission’s thinking • Article 10a (1) uses slightly different terminology,
are given in Recital 20. referring to ‘mandatory reductions of greenhouse gas
The objective of such a scheme is to put European emissions comparable to those of the Community’
installations that are at significant risk of carbon leakage • Recital 19 speaks of ‘other developed countries and
on a comparable footing with those from third countries. other major emitters of greenhouse gases’
This might involve applying ‘requirements to importers • Recital 25, (in relation to CDM credits), states ‘once
that would be no less favourable than those applicable to a future international agreement on climate change
installations within the EU, for example by requiring the has been reached, ... once those countries have ratified
surrender of allowances’. the international agreement’
Such action would need to be consistent with • the Environment Council Conclusions of 20 February
41
international obligations including the World Trade 2007 refer to ‘a global and comprehensive post-
Organisation (WTO) agreement and the principles of the 2012 agreement is concluded’.
United Nations Framework on Combating Climate Change
(UNFCCC), in particular the principle of common but However, the present proposal terminology is incomplete
differentiated responsibilities and respective capabilities, and ambiguous, and needs to be modified to clarify the
taking into account the particular situation of least scope of an international agreement, in relation to
developed countries. This would involve importing companies conditions on the number of parties involved and the
surrendering allowances as though they were regulated under overall target, and when it is deemed as having effect in
the EU ETS, and could be achieved by imposing a carbon relation to the directive. Whether the latter is on signature
levy at the EU border. Although the REACH regulation or on ratification, current wording suggests that such an
effectively imposes controls beyond EU borders, since trading agreement need only be effective by 2020, ie if
with the Community is not possible unless importers meet concluded/ratified shortly after COP 15, European
the requirements of this onerous legislation, the direct industry would be subject to the tighter targets etc from
cost link of such a measure would make the introduction 2013, while other signatories need only comply by 2020.
of a carbon levy much more contentious. Of particular interest to energy-intensive industries in the
It is acknowledged that if introduced, this is likely to EU will be the implementation of the international
lead to retaliatory trade sanctions being placed upon agreement rather than its conclusion, as Article 28(1)
European products. However, while it remains an option, states that this will determine the ‘levels’ of the global
the threat of trade barriers is a potential political tool for trading playing field. ‘Conclusion’ could mean ratification
persuading reluctant countries to sign up to an by the EU, in which case this alone would not provide
international carbon trading regime. industries within the scheme with equivalent market
conditions.
International agreement With regard to triggering an increase in target
reduction from 20 to 30 per cent by 2020, to ensure a
The conclusion of an international agreement triggers a level playing field for energy-intensive industries within
number of provisions within the proposed directive. It is the EU ETS, the international agreement will need to take
therefore important to analyse what the Commission into consideration:
regards as an international agreement, and what the
resulting consequences would be.
Article 28(1) provides the definition of an
international agreement in the context of the directive:
41 Conclusions adopted by the Environment Council on 20 February 2007
Upon the conclusion by the Community of an para 10: ‘EU objectives for the further development of the international
international agreement on climate change leading, climate regime beyond 2012’.

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