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Sectoral expansion of the EU ETS

A Nordic perspective on barriers and solutions to include new sectors in the EU ETS with special focus on road transport

image of Sectoral expansion of the EU ETS

The European Emissions trading Scheme (EU ETS) was launched in 2005. The scheme started off with a limited scope, but has gradually expanded, in terms of geographical, sectoral and gas coverage. This report analyses the possibilities for further sectoral expansion in the Nordic countries. The analysis is done in terms of barriers and solutions for inclusion of four major sectors currently outside the scope of the scheme: transport, heating, agriculture and fisheries, and waste. Focus is on the road transport sector, which is a major source of greenhouse gas emissions in the Nordic countries. The main barriers identified for inclusion of road transport are related to the overlap with existing policy instruments, high administrative costs of downstream inclusion, and potential loss of fiscal revenue. Experiences from other trading schemes show that the barriers can be overcome.

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Introduction

The EU ETS commenced in 2005 and its purpose has been to allow for the EU to meet its international emission reduction targets in a cost efficient way (EC, 2003). The Commission opted for a learning-by-doing approach to prepare the Community for the start of international emissions trading under the Kyoto Protocol in 2008 (CEC, 2000, p. 10). To start with, the aim was to create the critical mass for a liquid trading market and establish the necessary monitoring, reporting and verification infrastructure. For this reason, the EU ETS Directive focused, like all successful applications of cap-and-trade systems in various environmental domains have done, mainly on large stationary sources and only on CO2 emitters, while in principle the EU ETS Directive covers all greenhouse gases, see Annex II of the Directive (CEC, 2008, p. 32). The limited scope covering power generation and energy-intensive industrial sectors meant starting off with a small number of economic sectors but with significant emissions for which monitoring and verification of emissions was feasible. The intention was, however, for the system to be open for gradual geographical, sectoral and gas coverage extension (CEC, 2000, p. 10).

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