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Can EU states set CO2 limits for installations?

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As the parliament debates an IPPC directive revision that will not create an EU emissions performance standard for CO2, member states ponder setting their own.

Is it legal, or isn't it? Member states’ confusion about whether they can set their own emissions performance standards (EPSs) for power plants was illustrated this autumn when the British and Dutch governments took opposite stances on the issue.

The UK is moving forward with plans to set emission limits on power plants, assuming this will be allowed under EU rules. In the Netherlands, following a parliament resolution calling for an EPS, the government suggested member states could not adopt their own caps. Asked for clarification, the European Commission has remained tight-lipped.

In effect, both stances could be right. The confusion centres on article 9 – previously article 10 – of the commission’s proposal to revise the IPPC directive on industrial pollution. The provision, part of an overall effort to align the directive with the EU’s emissions trading scheme (EU ETS), stipulates that EU ETS permits cannot contain an emission limit value unless it is needed to ensure the health of the local population.

UK plans individual caps

Over the summer the UK government wrote to the commission to inform it of plans to introduce caps for individual UK plants through the permitting regime. On the grounds that “the EU ETS is not, on its own, likely to be sufficient”, the British government said it would look at setting limits to settle uncertainties about future carbon prices. The commission response was that article 9 rules out introducing an EPS in the existing permitting regime.

Green group WWF argues that forbidding member states to set their own caps is illegal, because article 176 of the EU treaty allows countries to enact stricter national environmental laws. The commission maintains that article 9 does not violate this principle because there are ways to set the caps outside the parameters of the EU ETS and IPPC directives. But it has been vague about how this could be done.

“Behind the scenes, the commission has said that if a member state sets an EPS in a new national permit, separate to the IPPC-ETS permit, that would be lawful,” says the WWF’s Mark Johnston. “But even if that possibility makes the provision lawful, it’s still misleading.”

Fierce opposition

At the heart of the issue is the question of whether the EU ETS is working. NGOs have argued it cannot by itself provide a carbon price high enough to drive short- and medium-term investments in low-carbon technologies. But industry groups are opposed to two separate sets of legislation on CO2 emissions.

“Adding an EPS on top of the CO2 cap set for the EU ETS would not accelerate development of clean coal technology such as CCS, but would instead tend to force closure of coal-fired plants and incentivise construction of gas-fired plants,” says Chris Boothby of power industry group Eurelectric. “This would potentially lock more gas into the European electricity system for decades.”

He also highlights the potential anti-competitive effect on power plants of the country adopting the EPS. “If applied at national level, the member state would accrue additional costs, while the benefits – fewer plants needing emissions allowances leading to a lower CO2 price – would accrue to other member states.”

Mr Johnston says the reluctance of the commission to address the EPS issue isn’t just because of fierce industry opposition. “If one or more member states enact caps it’s an implied criticism of the EU ETS,” he says. The commission has agreed to review the need for an EU-wide EPS, but stresses this will not happen for a few years.

Little enthusiasm

The European Parliament has also not been enthusiastic about an EU-wide EPS. Though several MEPs tabled amendments to the IPPC revision calling for large power plants to be subject to emission limits of 450 grams of CO2 per kilowatt hour, the parliament’s environment committee rejected the proposal in January 2009.

At a conference organised by Eurelectric in October, IPPC rapporteur Liberal Democrat MEP Holger Krahmer, said he would not reopen the debate on an EU EPS. The EU has made a “clear policy choice to use the emissions cap-and-trade system”, he said, and should not change course now.

While an EU-wide EPS appears unlikely any time soon, the issue of national caps is very much open. WWF is consulting with lawyers about the legality of article 9 and in January will present its position to the parliament, when it holds a second reading of the IPPC recast. Whether the provision is legal or not, WWF will argue it should be deleted because at the very least it creates confusion. The environment committee will vote on 23 February, with a final parliamentary vote in May.

Mr Johnston hopes that after Copenhagen the commission will be more forthcoming about the EPS issue. He notes that the climate bill proposed in the US senate contains a dual cap-and-trade/CO2 limit approach. The discussion that will be taking place around that in the winter, at the same time as the European Parliament discussions on IPPC, could change some minds about EPSs.

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