EU industry sees emissions rise

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Carbon dioxide emissions from Europe's heavy industry sectors rose by 1.1% in 2007, say carbon market analysts.

The estimate is based on initial data from the EU's Emissions Trading Scheme (ETS), which includes more than 10,000 large industrial plants.

Environmentalists say it shows that the scheme, the EU's main mechanism to meet its Kyoto target, is not working.

But market watchers say the ETS, in the long term, will help deliver the EU goal of cutting emissions by 20%.

"The main thing we have seen from the data released today, although incomplete, is that emissions are up from 2006 to 2007 by about 1.1%," explained Henrik Hasselknipp, senior analyst for Point Carbon, a research company.

He added that initial analysis of the data also showed that only a few countries' emissions had exceeded their national limit. Get the level of cap wrong and, as we saw in Phase One of the ETS, the carbon price could drop to very low, potentially unworkable, levels Robert Casamento,Ernst & Young

Most notable was the UK, he said, which went over its allocation by about 85m tonnes for the three-year period between 2005 and 2007.

He suggested that power generators in the UK, Italy and Spain were the only sectors that had exceeded their allowances.

Environmental group Greenpeace said the figures showed that the scheme was failing.

"From the numbers, it looks like emissions are going up and that proves that the ETS does not work, it means we are not protecting the climate," Brussels-based spokeswoman Mahi Sideridou told Reuters news agency.

Carbon capping

Under the ETS, energy-intensive plants are allocated a fixed amount of carbon dioxide they can emit.

These caps are defined within a National Allocation Plan (NAP), which each member state submits to the European Commission for approval.

The scheme will start including commercial flights from 2011

Participants of the scheme are able to buy and sell permits, known as EU Allowances (EUAs), to emit carbon dioxide.

Companies that exceed their allowances can buy unused EUAs from firms that are doing better at reducing their emissions.

Industries included in the ETS include power generation, iron and steel, glass and cement, but the Commission has announced plans to start including the aviation sector from 2011.

The scheme was launched in 2005 as the EU's main measure to cut emissions. Under the legally binding UN Kyoto Protocol, the EU is required to cut its emissions by 8% from 1990 levels by 2012.

The first phase, which ran from 2005 until the end of 2007, soon ran into trouble when it became clear than a number of nations had issued too many allowances.

As a result, the market value of tradable permits became almost worthless.

But James Burnham, spokesman for Climate Change Capital, an investment bank, said: "This is of no real interest to the market because everybody knew that Phase One was over-allocated anyway.

"That was the reason why the price of carbon crashed around May 2006 when the first emissions data from all of the installations in the EU ETS was released," he told BBC News.

"The first phase between 2005 to 2008 was always going to be a learning process anyway because there was no hard data on which to set each individual installation's allocation of permits."

He said closer attention was being paid to Phase Two (2008-2012) because the European Commission was setting much tougher limits on the amount of allowances member states could issue.

Robert Casamento, a director in the utilities team at Ernst & Young, said governments also had to submit meaningful NAPs to ensure the price of carbon was high enough to encourage investment in cleaner technologies.

"Get the level of cap wrong and, as we saw in Phase One of the ETS, the carbon price could drop to very low, potentially unworkable, levels," he warned.

"It is important that the regulators review its effectiveness on an ongoing basis."