The European Commission (EC) has approved the Danish scheme for tradable carbon dioxide emission permits, the first of its kind in the EU. The state will allocate free emissions permits to electricity producers based on their historical emissions for 1994/1998. New entrants to the Danish electricity market, before the end of 2003, will be allocated emission permits based on objective and non-discriminatory criteria, subject to approval by the Commission.
The EC said it welcomed the Danish scheme, since it was important to gain experience ahead of the International Emissions Trading to be introduced under the Kyoto Protocol in 2008. It warned, however, that giving producers emission permits for free constitutes state aid under the EC Treaty, although it could approve the aid if it contributed to environmental protection.
The system is based on an annual, national ceiling for the allowable emissions from electricity production. It is limited to the electricity sector, since it alone is responsible for about 40 per cent of the total Danish CO2 emissions. The ceiling is reduced each year, going from 22 million tonnes in 2001 to 21 million tonnes in 2002, and 20 million tonnes in 2003, when the scheme ends. The basic quotas allocated will only cover about 70 per cent of the historical emissions of each electricity producer.
Under the Kyoto Protocol, the EC committed itself to reducing its emissions of greenhouse gases by eight per cent during the period 2008/2012 in comparison with their levels in 1990. A burden-sharing scheme has been agreed internally in the EU, which for Denmark implies a reduction by 21 per cent in the period 2008-2012 compared with 1990.
The scheme follows the January launch of the Prototype Carbon Fund by the World Bank, starting its operations in April. Governments and companies have invested a total of $85 million to develop projects, reducing emissions that may be set against Kyoto commitments
