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Europe Rewired: A Giant Awakens

EU nations are taking slow steps toward an integrated energy market, but they are many paces ahead of U.S. efforts.
Fortnightly Magazine - February 2004

of prices in the wholesale market. We understand that the stranded costs have to be included in the picture, but do it in such a way that does not affect price formation in the future.

However the regional approach to power markets works out across the continent, the clear implication of European integration will be that each nation's individual regulation of its energy will need to be done with an eye toward Brussels, suggests Ofgem's Boaz Moselle. Even though the United Kingdom is something of a "regulatory island," the onus will be on the agency to act more in harmony with its European counterparts. "The success of EU liberalization has a major impact on Great Britain," Moselle says. "Regulations will come from Brussels whether or not we participate … [but] they will be different if we don't."

EU Emissions Trading Plan Not Dependent On Kyoto Protocol Ratification

Despite rejection of the Kyoto Protocol by the United States, and on-again/off-again support from Russia, the European Commission continues to support the Kyoto Protocol as the best framework to combat climate change. "We are not changing our position or going back on the targets that we have agreed," says Romano Prodi, president of the commission. The Kyoto Protocol commits EU member states to reduce their greenhouse gas (GHG) emissions by 8 percent by 2008-2012, with reference to a 1990 baseline.

All EU members, including the 10 accession states that will join in May, have ratified the treaty.

Prodi notes that EU greenhouse gases were reduced by 2.3 percent by 2001, but increased economic activity has led to increased emissions in the past two years.

Besides promoting renewable resources, the commission has adopted an emissions trading plan that begins in January 2005, covering all 25 members of the union.

"This will be the largest cap and trade scheme to date," says Olivia Hartridge, administrator of the European Commission's trading program, which also developed the world's first GHG trading platform in the United Kingdom. The commission finalized its directive outlining the plan in October 2003 [2003/87/EC].

More than 15,000 industrial and commercial entities will participate, and there is much work to be done, she adds. Top on the agenda will be for the European Commission to formalize emissions-credit allocation rules for its members by the end of 2003, then establish technical regulations in early 2004. Member states must enact national allocation plans by March 31, 2004.

The timetable has been known for months, but "a lot of people had trouble seeing or believing this is happening," says Andre Marcou, president of the International Emissions Trading Association.

Both Hartridge and Marcou emphasize that the European trading scheme will proceed whether or not Kyoto is fully ratified by Russia. "If Kyoto does not come into force, this directive will not fall," Hartridge affirms.

"In the long run, Kyoto is a useful first step, but the carbon market is different. It is about changing the way you think about economic decisions," Marcou says. "We need a number of tools. A market mechanism does not produce reductions by itself. It puts