Amidst different initiatives worldwide the European Union has decided to act proactively in order to tackle the emission curbing problem. The choice had to be made between coercion, via the implementation of a tax scheme based on emission volumes and a more encouraging approach based on allowances granted to big GHG emitters. This second initiative was chosen in 2005 and a new exchange market was organized to enable corporation to buy and sell GHG emission allowances, depending on their long/short positions against pre-determined emissions caps allotted to them by their national countries. About 10.000 energy-intensive plants across Europe are concerned by the original scheme. They are active in power generation, iron & steel production, glass, cement, pottery and bricks. Basically, each country devises a National Allocation Plan (NAP) for its concerned industries, to be approved by the Commission. Should an industry exceed its quota at the end a the review period, that it would incur a penalty fee between 40 and 100€ per exceeding ton of CO₂ equivalent (tCO₂e). Of course, this industry would then buy its lacking allowances either on the ETS market or, via a link made with the Kyoto protocol flexible mechanism, on the CDM-JI markets.

At the end of the first trading period (2005-2007) it became clear that all but one countries actually overallocated emissions allowances; this has coincided with a sharp drop in EUA's prices from an theoretical accepted level of about 30€ to around 13€ per tonne.

During the second trading period (2008-2012) a revised ETS scheme has been devised and approved by the European Parliament; aside form a generic reduction target of 21% below 2005 levels by 2020, several 'improvements' to the scheme have been made, amongst which:

- transforming the free allocation system (grandfathering) into a full fledged auctioning system, but for the industries at risk of major carbon leakage (relocation in countries less stringent on carbon emissions)

- Widening the scope of the involved industries, namely by adding the petrochemical,the ammonia and the aluminium sectors

- Adding two new polluting gases: perfluorocarbon and nitrous oxide

- Allow smaller installation (less than 25k tonnes per year to opt out, provided that enter recognized offset mechanisms

- Impose an average GHG reduction of 10% by 2020 on sectors not included in the ETS scheme (agriculture, forestry, transport, waste, building)

- Strongly encourage the use of Carbon Capture and Storage processes by considering the concerned GHG as 'non-emitted'

For further information, do not hesitate to enquire.