EU emissions reductions legislation
As part of its emissions reduction efforts, the EU set up an Emissions Trading Scheme (ETS) in 2005. The ETS is a market-based instrument covering some of the most polluting sectors of industry. Firms have their right to emit greenhouse gases capped. This provides an incentive for them to invest in cleaner technologies and improve the efficiency of their production processes, so as to reduce their emissions.

The environmental effectiveness of the scheme is provided by the cap, combined with the auctioning of emissions permits (literally paying for the right to pollute). In order for the scheme to function effectively as a market-based instrument, the caps must be in line with emissions reductions targets and permits should be completely auctioned. Any provision for external offsets (such as through the Kyoto Protocol CDM/JI mechanisms) should be taken into account in the setting of the cap.
 
The ETS will play a crucial rule in the EU's efforts to meet its emissions reduction target for 2020 and the Commission has proposed a revision of the scheme to achieve this. In addition, EU Member States will be set overall emissions reduction targets for those sectors not covered by the ETS (so-called 'effort-sharing').

In order for these proposals to be effective in combating climate change, the Greens believe they must be consistent with the science. That means that they should be based on an emissions reduction target of around 40% by 2020 (i.e. at the upper end of the range deemed necessary by the IPCC to give a 50:50 chance of preventing dangerous global warming). There should also be a clear pathway for post-2020 reductions with a view to meeting a reduction target of 80-95% by 2050.

It is also crucial that emissions reductions delivered under these instruments are domestic - i.e. take place within the EU - to be consistent with the reduction path set out by the IPCC. This means that any use of external offsetting (such as through the Clean Development Mechanism or Joint Implementation provided for under the Kyoto Protocol) must be additional to the EU emissions reduction effort - particularly in the case of the 20% reduction target.

Properly functioning emissions trading
A properly designed cap and trade system for greenhouse gas emissions can be a highly effective tool for delivering emissions reductions without penalising the consumer. However, the first phases of the EU's ETS have been undermined by the over-allocation of emissions permits and the lack of auctioning, which has led to windfall profits for polluting companies in some cases.

In December 2008, the EU adopted new legislation for a post-2013 ETS, which included exemptions from full auctioning for the power sector in central and eastern Europe. In addition, firms considered at risk of 'carbon leakage' (i.e. relocation to third countries with less strict laws on emissions), would benefit from the free allocation of permits. Under the criteria adopted in the final legislation, this would mean firms accounting for over 95% of emissions outside the power sector would be exempt from the full auctioning of permits.

The Greens believe the post-2013 ETS must include both rigorous caps and the full auctioning of emissions permits in order to ensure it will function effectively as a market-based tool for delivering emissions reductions. There are other methods for dealing with potential 'carbon leakage', such as through border tax measures on imports from sectors covered by the ETS, which would avoid undermining the scheme. The Greens will continue to work to ensure the post-2013 ETS functions on these lines.

Beyond industry
Rising to the climate challenge means taking action at all levels and not just industry. We need to change the way we produce and consume energy, significantly reducing our dependence on climate-damaging fossil fuels. This means saving energy and improving the efficiency of way we use energy, while significantly expanding in the share of green, renewable energy (notably for energy used in transport, electricity and heating and cooling), as well as tackling emissions from the transport sector.