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PROPOSED MODIFICATIONS TO THE EMISSIONS TRADING DIRECTIVE : POCKLINGTON :: :: : (2008) 20 ELM 139
• the overall, absolute emissions reduction and but not between phases. Furthermore, unlimited banking
equivalence in the reduction trajectory for the traded is permitted between compliance years within phases.
sector Under the proposal, banking will be allowed between
• effort sharing/reduction commitment of the traded phases, and every allowance that is not surrendered or
sector retired in Phase II may be used in Phase III. This will be
• equivalent cost for the traded sector ie equivalent achieved through the replacement of the Phase II
carbon cost allowances with Phase III allowances at the same face value.
• a critical mass of production (or emissions) from the It is anticipated that this will have the effect of reducing
activities listed in Annex I of the current Emissions the volatility of carbon prices towards the end of Phase
Trading Directive III.
• the type of scheme in the signatory nations (absolute/ In relation to the Kyoto flexible mechanisms – clean
relative targets). development mechanism (CDM) and joint implementation
(JI) – the proposal sets out complex regulations on the
Sectoral agreements treatment of the resulting certified emission reductions
44
43
(CERs) and emission reduction units (ERUs), both
Independent of the proposals, certain sectors such as the before and after the establishment of an international
42
cement industry are already well advanced in the agreement.
development of a global scheme for the reduction of
carbon dioxide emissions. Article 10b includes a statement Use of project credits
to the effect that, subject to mandatory enforcement, any
sector agreement that has the potential to result in global If operators have not taken full advantage of their ability
emissions reductions that can be monitored and are of to use project credits up to the end of Phase II of the
the magnitude required to address climate change scheme, they may apply to the competent authority for
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effectively will be taken into account when considering their continued use. The proposal allows for the
what measures are appropriate to prevent carbon leakage. competent authority to make an exchange of CERs and
Sectors such as cement are in a stronger position than ERUs up to the end of 2014, provided that the credits
others in relation to the establishment of a global sector originate from projects approved during Phase II. For CERs
agreement. A substantial proportion of the global industry from the least developed countries the exchange may take
supports the World Business Council for Sustainable place up to 2020, unless an international agreement is
Development Cement Sustainability Initiative (WBCSD concluded earlier. Once an international agreement on
CSI), which has developed a reporting protocol and is climate change has been reached, only CERs from third
well on the way to agreement of a benchmarking scheme. countries which have ratified the international agreement
Although the wording is little clearer than that elsewhere will be accepted in the Community scheme.
in the proposal, it is evident that such a sectoral scheme These restrictions on the use of credits from activities
would be in addition to rather than instead of the EU ETS, outside the community scheme are unlikely to be well
although the existence of the former might trigger received by many of the scheme’s participants who believe
favourable treatment within the trading scheme. However, that climate change is a global problem and that
a global sectoral scheme has a number of potential drawbacks: reductions should be made at the lowest point of cost.
However, the critical questions regarding many of these
• all global operations for missing targets would be projects have been of additionality and whether many of
subject to a penalty, adding to costs them would have gone ahead without the link with EU
• unless competing products were paid for their CO ETS.
2
emissions, there would be little incentive to join
• non-EU states may see sectoral agreements as a Monitoring and reporting
precursor to local legislation in the absence of
sufficient assurance Monitoring, reporting and verification are central to the
• participants would require equivalence of treatment efficient operation of any trading scheme, and the
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which may be difficult to enforce globally. Explanatory Memorandum notes that the present
scheme should only be extended to emissions capable of
Consequently, such sectoral agreements are probably a being monitored, reported and verified with the same level
long-term rather than a short-term possibility. of accuracy as applies under the present scheme. However,

Validity of allowances

Under Article 13 of the Emissions Trading Directive, 43 Certified emission reductions (CERs) result from CDM projects
borrowing is permitted up to one year ahead within a phase undertaken in developing countries.
44 Emission reduction units (ERUs) result from JI projects carried out in
countries with an emissions reduction commitment under the Kyoto
Protocol.
45 Proposal for a Directive amending Directive 2003/87/EC (n 2) art
42 Through the World Business Council for Sustainable Development 11a (2).
(WBCSD) Cement Sustainability Initiative (CSI). 46 Explanatory Memorandum p 4.

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