BACKGROUND AND CONTEXT

It all began with the oil crisis in 1973–74.

It may sound like the beginning of a fairy tale, but it was neither a happy beginning nor fantasy. Two countries in the world were almost totally (99 per cent) dependent on imported fuels to cover their energy needs. These were Japan and Denmark. The oil embargo and the massive increases in oil prices therefore had serious effects on Denmark and on Danish society, including an economic decline due to the then energy dependent growth model. These events became the trigger for change. The energy sector could not be left solely to the market, rather the State had to intervene and it has done so ever since.

The developments are well-illustrated by the following energy policy statement from March 1979:

In seeking to resolve these problems and establish more independence from external sources and increase flexibility, the Government and the industry undertook a series of comprehensive decisions and actions implying a development ranging from no intervention over increasing State influence with focus on first security of supply considerations solely to a much higher focus on sustainable development of the energy sector. Even though fuel shortages and power cuts rarely happen in the Western world, and Denmark has an electricity security of supply at 99.99 per cent, we are repeatedly reminded about how dependent society is on reliable and secure energy supplies and how energy failures are inflicting widespread damage on local economies.

Danish energy policy has developed remarkably over the years and implied several energy transitions. The first one followed the oil crises of the 1970s where the supply pattern changed from 100 per cent oil imports to coal supplies that had to be imported as well but with a much more varied supply pattern (eg from Poland, South Africa and South America). A second phase was subsequently based on indigenous production of natural resources.

Introduction

This chapter will focus on the rules and principles to the allocation of CO2 emission allowances in the EU and selected Member States i.e. France, Germany, Greece, Italy, Romania, Spain and the Netherlands. It will seek to address the conceptual distinctions as set out in Chapter 1(3) on what is allocated, how it is allocated and which form the allocated rights are granted in this specific field of law. Emission trading is characterised by an almost complete Europeanisation in the sense that European Union (EU) legislation governs almost completely the allocation of emissions rights and has during its existence been amended to leave very limited room for individual national legislation. Therefore this chapter devotes most attention to EU governance and gives a fairly detailed account of the EU emission trading system as developed under amended directives. It will, however, not consider the Member State reports separately but rather contextualize the EU rules and principles by providing examples of the implementation at the national level and practice based upon national reports.

First this chapter will highlight briefly the policy developments within the area of climate change and emission trading (Section 2) and then focus on the emission trading concept as such (Section 3). The need for applying for an emission permit is examined under Section 4, whereas the allocation of allowances is discussed under Section 5. Then follows under Section 6, a description of the control and enforcement instruments, and thereafter under Section 7 the linking of the emission trading system to the international flexible mechanisms. Finally, Section 8 completes the chapter with a brief conclusion.

Policy Developments

The United Nation Framework Convention on Climate Change (UNFCCC) was ratified by the then European Community in 1994 and the Kyoto Protocol in 2002. The European Union (EU) has been at the forefront of international efforts towards the adoption of the global climate deal at the Paris climate conference (COP21) in December 2015. The Paris agreement will be opened for signature on 22 April 2016 and is due to enter into force in 2020.