EU unveils plans to beef up carbon trading scheme

Plans for a new European greenhouse gas reduction regime would see large swathes of industry having to pay for the right to pollute, raising electricity prices, for example, by as much as 15%. Safeguard measures to prevent factories and jobs being driven out of Europe have been delayed until the outcome of negotiations for a global climate pact.

In March 2007, EU leaders agreed on a binding target to reduce the overall greenhouse gas emissions of the European Union by 20%, compared to 1990 levels, by 2020. What's more, they agreed that this target would be raised to 30% should other industrialised nations, including the US, take similar steps.

A key mechanism in meeting this goal will remain the EU's Emissions Trading Scheme (EU-ETS), initially launched in 2005 in order to help achieve the Union's Kyoto goal of cutting greenhouse gases by 8% by 2012, by imposing caps on emissions from energy-intensive industries, such as steel, cement and power generation.

Some 10,000 energy-intensive plants across Europe - representing around 40% of the EU's total CO2 emissions - are currently covered by the scheme, which enables them to minimise the economic costs of the Kyoto commitments by buying and selling carbon dioxide permits among themselves.

According to the Commission, the scheme has proved successful so far, with the latest official data showing that the 15 EU members who originally signed up to Kyoto had achieved a 2% CO2 cut in 2005 compared to 1990 levels. Furthermore, projections imply that, based on existing policies alone, this figure should rise to 7.4% by 2012 – just short of the Kyoto target.