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B. Status of the EU ETS

1. First trading period
2. Second trading period
3. EU ETS review

2. Status of the EU ETS: Second trading period (2008-2012)

At the end of June 2006 EU27 Member States had to submit their second National Allocation Plans (NAPII) for the period 2008-2012 to the European Commission. 23 of these 27 allocation plans are now (22/08/07) decided on by the European Commission. Only the Portuguese, Danish, Bulgarian and Romanian allocation plans have to be decided on yet. The national allocation plans for the period 2008-2012 together with the decisions can be found on the European Commissionwebsite.

Of all the submitted allocation plans only the British, French and Slovenian allocation plan were accepted without problems. All other Member States have to adapt their plans with a downwards adjustment of the cap.

The European Commission, fearing another structural over-allocation for the period 2008-2012, introduced a mathematical NAP assessment tool in its decisions on the allocation plans. This so-called NAP formula consists of 3 main elements:

• the verified 2005 emissions of the EU ETS installations in a Member State;
• the relative evolution of the GDP until 2010 based on the PRIMES model (and for the years 2006,2007 and 2008 on a more recent modelling);
• the relative evolution of the carbon intensity (PRIMES) of the Member Stated until 2010. (this evolution is further corrected downwards with 2.5% in 2010 to accommodate for recent Climate Change policy).

The multiplication of the 2005 verified emissions with the 2005-2010 GDP evolution and the corrected 2005-2010 carbon intensity improvement results in the average annual maximal allocation for the period 2008-2012.

Next to the NAP formula other corrections to the allocation by Member States are possible when Member States fail to implement policies and measures for non EU ETS sectors, leading to a possible non-compliance with the Member States Kyoto target in the period 2008-2012. Similarly, Member States not on track for their Kyoto targets and therefore planning to use the Kyoto flexible mechanisms, need to demonstrate that the necessary funding and purchase agreement are in place for the use of CDM and/or JI credits in the period 2008-2012.

So far seven Member States have taken the European Commission to the European Court of Justice on the Commissions decision on their National Allocation Plan. In all cases the Member States dispute the use of NAP formula and/or the parameters used in that formula. Those Member States are: the Czech republic, Slovakia, Poland, Hungary, Estonia, Lithuania and Latvia. Court decisions on these cases are not expected before the start of the second trading period (2008-2012).

A new element in the allocation plans for the period 200!-2012 is the limit on the use of credits from CDM and/or JI projects by EU ETS companies. This limit is expressed as a percentage of the total amount of allowances to be allocated.

With 23 of the 27 allocation plans decided on, this percentage stand at around 13,6% of the total amount that can be allocated according to the decisions by the European Commission. In absolute terms it are around 259 million CERs and/or ERUs that annually can be used by EU ETS installations for compliance under the EU ETS.