The Commission is to announce its climate and energy legislative package, which will include its proposals for revising the EU Emissions Trading Scheme (ETS), on 23 January. Leaked copies of the EU ETS proposal suggest that an EU-wide cap will be provided in the directive for phase III, which would run from 2013 to 2020, with the cap set at a level that will achieve a 21 per cent reduction compared to the 2005 EU ETS emissions level. The Commission is said to be pushing for at least twothirds of allowances to be auctioned, with 100 per cent auctioning in the power sector. We will report separately on the package following its release.

Meanwhile, the European Council adopted its first reading position on the proposal to include aviation within the EU ETS immediately before Christmas. The Council rejected the Commission’s proposal for a two step entry of flights into the scheme, opting instead for all flights within and into and out of the EU to be covered from 2012. The first reading position also saw:

  • allowances capped at 100 per cent of average emissions in 2004-6, and the same cap in phase III;
  • 90 per cent of allowances to be allocated free – the Commission had proposed auctioning of 3-5 per cent of allowances in the first trading phase, MEPs voted for 25 per cent auctioning; 
  • an exemption for operators with low traffic levels; and 
  • bans for operators who persistently fail to comply with the directive’s requirements.

The proposal will now go to a second reading, which is expected to take place in the spring.

Finally, the Commission has announced a further delay in linking the Community Independent Transaction Log with the International Transaction Log. Until the link is established EU ETS operators will be prevented from using Kyoto project credits to offset their emissions. The link should be established by April 2009, when allowances to cover emissions made in 2008 are required to be surrendered.