Agreement between policy and company behaviour

14 The European CO 2 emissions trading system In 2005, the European Commission set a ceiling on total CO 2 emissions by industrial plants in the EU. The plants include power stations, oil refineries, steel companies and glass, cement and paper producers. The companies in question are allocated emission allowances, which, in aggregate, make up the ceiling. If a participating company emits less CO 2 it can sell its unused allowances to other companies. If it emits more CO 2 it must buy additional allowances. This creates a price for CO 2 emission allowances. The participating companies are responsible for 40 of all CO 2 emissions in Europe. To date, the emission allowances have been allocated free of charge. The ceiling that will apply in 2020 was set in 2005. There has been some discussion of whether it should be lower i.e. stricter The ceiling for 2020 and subsequent years will be set in a series of steps, one being taken on 1 January 2013. The CO 2 emissions trading system will be an important factor in achieving the European target of reducing CO 2 emissions by 20 relative to 1990. Since it relates to only 40 of total CO 2 emissions, however, this is inadequate. To achieve the ultimate target, CO 2 emissions must also be reduced in other sectors. Our audit found that the CO 2 emissions trading system probably did not produce any energy savings in the Netherlands in 2005-2007. The allowances allocated to the Netherlands were higher than the actual emissions. Companies did not have to buy additional allowances until 2008, after which the system probably had an appreciable effect. Since then, however, there has also been a negative interaction with the national energy saving policy. This interaction occurs in two instances: 1. when the national energy saving policy is directed at companies subject to the CO 2 emissions trading system; 2. when the national energy saving policy is directed at reducing electricity consumption by companies or individuals that are not participating in the emissions trading system but do influence the electricity production of power stations. Power stations participate in the CO 2 emissions trading system. In both instances, energy savings lead to companies or power stations holding unused emission allowances. Sooner or later, these allowances will be used, after having been sold or otherwise, in the Netherlands or elsewhere in the EU. The CO 2 emission initially avoided thanks to the measures taken in the Netherlands will then occur at another date and probably in another EU member state. In consequence, all other instruments and measures taken to reduce CO 2 emissions in the sectors participating in the emissions trading system will 15 have only limited effect at European level. 10 At a European level, national funds for energy saving policy are spent inefficiently if the CO 2 emissions trading system works correctly. We drew the same conclusion in our 2007 audit of the implementation of the CO 2 emissions trading system Netherlands Court of Audit, 2007. The negative interaction does not mean there is no point to national energy saving policy. Since the European CO