Most Emissions Cuts To Come Through Trading Scheme

The largest portion of the proposed emission cuts will come through the European Union’s emissions trading scheme (ETS).  The program was launched in 2005, and it covers fixed installations such as factories and power plants.
The European Commission will set a cap on carbon emissions that is portioned among companies according to historic output.  This process puts a price on an emissions permit that can be sold.  The ETS’s goal is to give an incentive to reduce emissions and reward efficient industries.
From 2013 the ETS will expand to cover almost half of the economy.  Currently, more than 90 per cent of permits are given away.  However, after the reform the bulk will be auctioned by governments which could raise €30bn-€50bn ($44bn-$73bn, £22bn-£37bn) a year. The Commission will smooth out discrepancies in permits by setting caps by sector, not country. It will reduce permits by 21 per cent, from 2.1bn tonnes of CO 2 in 2005 to 1.7bn by 2020.  There is a possibility that rather than cut emission themselves, governments or companies could invest in reductions outside the EU.  This would enable them to receive credits for about a quarter of the total cut.