The EU Emissions Trading Scheme (ETS) aims to reduce the European Union’s greenhouse gas emissions and stimulate the deployment of low-carbon energy technologies. This energy and climate package sets emission reduction targets for greenhouse gases. By 2020 total emissions should be reduced by 20%.

The EU ETS is one of the key legislations of the EU climate change policy. It covers about 40% of the European Union’s total carbon dioxide emissions with 11 000 industries including power generation.

A cap-and-trade approach was chosen because it guaranteed a limit on a sig­nificant part of the European Union’s emissions, it was compatible with the emissions trading provisions of the Kyoto Protocol (adopted at the United States’ insistence, ironically), and it was the only other instrument available. The support for the scheme is based on its capacity to deliver in several areas and to ultimately maintain credibility to domestic audiences, including policy makers, business representatives, non-governmental organizations (NGOs), and the general public altogether.

Emissions trading (“cap-and-trade”) is an economic policy instrument used to control emissions by providing economic incentives for achieving emission reductions. The idea behind a cap-and-trade system as an environmental policy tool is simple and straightforward. An emission trading system sets an absolute limit (or “cap”) on the pollution that causes the problem on the amount of a pollutant that can be emitted.

Within the framework set by the cap, companies or sectors under the trading system are given credits or allowances that represent the right to emit a specific amount, keeping in mind that the total amount of allowances distributed cannot exceed the cap. Companies that can easily reduce emissions will do so and those for which it is more expensive will buy credits. By limiting the total volume of pollution and allowing trading between sources a price is put on every unit of the emissions concerned. This means that environmental pollution — that used to be an external effect of its operation and came “for free” as far as emitters were concerned — now comes at a cost and will have to be taken into account in choices about future behavior, just like any other production factor.

The EU ETS functions in cycles of 5 years. The next cycle starts in 2013. The revised law sets new framework rules for the ETS after 2013, most notably by setting a single European Union-wide emissions cap and gradually phasing out free ETS allow­ances for most of the installations covered.

Many European member countries in the European Union rely on coal for electricity generation. Germany obtains over 40% of its electricity from coal and is the largest consumer in the European Union. Coal also accounts for over 40% of the electricity mix in other countries, such as the Czech Republic, Bulgaria, and Romania, and provides 29% of the European Union’s electricity. Poland relies on coal for 90% of its electricity generation.

The power, cement, chemical, and paper industries are scrambling to buy bio­mass in order to lower their carbon dioxide emissions. It will be more difficult in the future to obtain finance from big banks: HSBC and BNP Paribas, for instance, have introduced standards that prohibit the financing of dirty coal-fired power plants.

Should the European Union’s proposed new ETS starting in 2013 force pro­ducers to buy carbon credit permits, these industries will be confronted with huge extra costs. I believe that, for instance, the mining industry in countries like Poland, the Czech Republic, and so on will not survive if they do not cofire coal with biomass in the future to lower their carbon dioxide output. At some point in time free carbon allowances from the European Union will be gradually phased out and huge pollution bills will be presented to them. In Poland alone, 100 000 people work in the mining industry. Thus, the power plants need to prepare for the near future to avoid major increases in costs. Ifthe coal industry does not adapt to modern times and the rules and regulations of the European Union, it will be forced to dismiss massive amounts of people, which could create civil unrest.

Currently, 1 million tonnes of biomass is burned or cofired in power stations in the United Kingdom. Experts predict that the demand for biomass will expo­nentially grow up to 60 million tonnes a year by 2020.

Europe in general does not produce enough biomass, and some countries industries, and utilities are importing biomass from non-traditional sources. These supplying countries with plenty of biomass are the United States, Canada, Russia, Africa, and Brazil. In some countries demand for wood is outstripping supply by up to 600%.

The Confederation of European Paper Industries (CEPI) estimates that Europe will have a biomass deficit of up to 210 million tonnes of wood across all sectors by 2020 (http://pubs. iied. org/pdfs/17098nED. pdf).

Investing in biomass plantations is becoming very attractive as crude oil prices rise and the cost of biomass production is falling, since it is not labor-intensive. Biomass plantations may also be able to generate additional revenue streams, such as by selling carbon credits.

All these restrictions for power plant emissions are stimulating EU members to expand their biomass plants and thus their capacity to produce renewable energy. Table 8.4 shows the expansion plans of all EU members.

The European Biomass Association predicts that by 2020 the European Union will use 100 million tonnes a year of pelletized biofuels from about 13 million tonnes in 2010 (http://ec. europa. eu/energy/renewables/transparency_platform/ doc/2010_report/com_2010_0011_3_report. pdf).

Let us take Poland as an example. Poland consumes around 80 million tonnes of coal per year, which makes it the 10th largest coal consumer in the world and the second largest in the European Union, after Germany. Ninety-two percent of electricity and 89% of heat in Poland is generated from coal, and according to the official Polish Government Energy Policy Strategy, coal will remain the key ele­ment of the country’s energy security until at least 2030.

Although Poland’s electricity mix is expected to become more diversified over the coming years, coal is perceived by policy makers as a strategic energy resource for the country’s energy security and its consumption is not expected to decline over the next two decades.

Historically, Poland has been an important producer and exporter of coal. In the 1970s, Poland became the biggest coal producer in Europe and until 1979 was also the second largest coal exporter globally, after the United States.

Between the 1990s and 2000s, the coal industry underwent major restructuring, which led to the early closure of many coal mines and a sudden decrease in production output. In fact, due to this restructuring process, Poland’s coal pro­duction has spiraled into a steady decline. More recently, coal imports have exceeded exports for the first time in history.

8.10