Emission Trading Scheme & NER300

In 2005 the EU Greenhouse Gas Emission Trading Scheme (EU ETS) started operation as the world’s largest system for trading GHG emissions. It is based on Directive 2003/87/EC, which entered into force on 25th October 2003. Its principal function is to put a cost on emitting CO2. By auctioning permits to the power sector for emitting CO₂, major polluters have to pay for releasing GHG. It sends a clear message to investors: the cost of climate change, currently borne by society, will be increasingly shifted towards the polluter.

However, during the initial phase of the EU ETS (2005-2007) pollution credits were grossly over-allocated by several countries leading to an undesired effect: billions of Euros of windfall profits and no reduction in overall EU emissions, thereby finally undermining the scheme's credibility. This has prompted the EU to toughen its Emissions Trading Scheme in 2008/2009.

The new ETS (Directive 2009/29/EC), which will enter into force in 2013 and run until 2020, now also includes aviation and introduces among other aspects a step by step auctioning of CO2 allowances.

Part of the revised ETS is the so called “NER300”. Article 10(a) 8 of the new ETS contains the provision to set aside 300 million allowances in the New Entrants’ Reserve (NER300) to help finance installations of innovative renewable energy technology and carbon capture and storage (CCS). The European Commission estimates that the allowances, which will be sold on the carbon market, may be worth about €4.5bn (at a carbon price of €15 per allowance). The money will be made available to projects as they operate.

The Commission’s NER300 Decision defines in Annex I (A) the renewable energy technology categories eligible for support (biofuels, CSP, PV, geothermal, wind, ocean, hydropower). In addition to that, a category on the integration of RES power into the grid is included. These categories have been split further into up to 9 sub-categories, each containing a specific topic eligible for funding.

A first call for project proposals will take place in autumn 2010 (200 million allowances) and the second call will be open in 2012 (100m allowances). The intention is to sign grant agreements by the end of 2011 for the first call, and by the end of 2013 for the second call.

Member States will be asked to assess whether projects meet the eligibility criteria in the Commission Decision and provide a shortlist of projects that they support to the European Investment Bank (EIB). The EIB will undertake financial and technical due diligence and make recommendations for the selection to the European Commission, which will rank and select the final projects.