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It is a great pleasure to be here in Finland, and a great honour to be invited to speak this afternoon. This seminar is particularly timely, both because of Finland's forthcoming EU presidency and in terms of the international climate change agenda itself.
As Hurricane Katrina reminded us so brutally, climate change threatens the prosperity and even the very stability of our societies if we do not succeed in bringing it under control. It is one of the gravest challenges in front of us.
The rapid rise in global temperatures is already changing the face of our planet by melting mountain glaciers, pushing sea levels higher and expanding deserts. And nowhere is warming faster than the Arctic. The Arctic sea ice is shrinking and thinning continuously even in winter, endangering the long-term survival of the indigenous human populations and the polar bears and other mammals they rely on for food.
I would like to focus today on the European Union's single most important measure for reducing greenhouse gas emissions - our ground-breaking Emissions Trading Scheme. Major decisions on the scheme's further development are facing the European Commission and Member States over the next few months. The recent shifts on the emission trading market should certainly be taken into account when discussing about the next trading period.
I will also look briefly at some of the other environment policy priorities that will be dealt with during Finland's presidency.
But let me turn first to the global context.
The international community is just about to start two years of crucial discussions on further global action to combat climate change after 2012, when the Kyoto Protocol targets expire. These will kick off in Bonn in just over 10 days time and continue at the annual United Nations ministerial conference on climate change in November, when Finland will be leading the EU delegation.
For the EU, the agreement to launch this process was perhaps the biggest success of last December's ministerial conference in Montreal, which I consider a landmark in global cooperation on climate change.
Most importantly, the Montreal agreement ensures that all countries which are part of the UN Framework Convention on Climate Change will be at the table.
This means that the United States, the world's biggest emitter, as well as Australia will be discussing how they can contribute to a post-2012 global action plan even though they have not ratified the Kyoto Protocol. This is a promising start.
The EU has made clear that the objective must be to limit the global temperature rise to not more than 2 degrees C above pre-industrial levels. This is necessary to prevent the harshest predicted impacts of climate change from becoming reality.
To achieve this, we believe global emissions will have to peak no later than 2025 and then be reduced substantially.
The EU cannot do this alone of course. Our share of global emissions is 14% and falling.
The European Commission therefore attaches a very high priority to ensuring that the broadest possible group of major emitting nations takes action. This needs to include the big developing countries like China and India whose emissions are rising especially fast, but we must find ways to involve them that do not hold back their economic development.
We are also convinced that Kyoto's flexible mechanisms - the Clean Development Mechanism, Joint Implementation and emissions trading - should be central to a future global climate regime.
These market mechanisms harness the creativity of the business community in finding ways to cut emissions at least cost.
They stimulate the development and deployment of the cleaner technologies that will be essential to the low-carbon economy of the future.
And by also promoting the transfer of cleaner technologies to less developed countries, as the Clean Development Mechanism is doing, they are helping these nations to develop more sustainably.
This brings me to the heart of my speech, the EU Emissions Trading Scheme or ETS.
The scheme is living proof of the EU's global leadership in combating climate change and our readiness to innovate.
In setting it up at the beginning of last year, we created the world's first international market in CO2 emission allowances - and also the biggest international emissions market of any kind. Some 11,500 energy-intensive installations producing almost half of the EU's total CO2 emissions are covered.
The ETS is potentially the nucleus for the international emissions trading system envisaged by the Kyoto Protocol from 2008. And it is helping to spread emission-saving technologies on the ground by accepting credits generated by Clean Development Mechanism and Joint Implementation projects.
Around 260 million allowances, worth more than 5 billion euro, were traded in the scheme's first year of operation. One recent market analysis anticipates that trading volume will triple this year.
The ETS is changing the mindset of business by making CO2 emissions a financial issue. Companies across the EU are establishing CO2 management systems. A whole new range of companies and services are emerging to take advantage of the opportunities the scheme has brought.
As you will know, however, the European emissions market has experienced a fair bit of turbulence recently. The price of allowances has dropped sharply on speculation by market operators that overall emissions last year will turn out to be some way lower than the number of allowances allocated.
This speculation has been triggered by the release of data from a limited number of countries showing that emissions were indeed below expectations.
We of course have to wait for the full EU picture. Only when we have received emissions data from all 25 Member States will we have a better understanding of the situation on the market. But, in any case, the recent events will certainly allow us to draw lessons for the next period and allocation plans.
The forthcoming NAPs are particularly important because the second trading period, from 2008 to 2012, is also the period during which Member States have to reach their Kyoto targets. These targets are binding under EU law for the 15 'older' Member States.
The bottom line is thus that Member States have to take enough action in the second period - through emissions trading as well as other measures - to ensure those targets are met.
Where Member States which have not met their target yet - which is the case for most, including Finland - this is likely to require a tight cap on the number of emission allowances in their new NAP.
As well as getting ready for the next trading period, we are also preparing for the separate task of reviewing the Directive that set up the ETS. In the light of experience to date, the aim is to see how we can streamline the scheme, improve it where necessary and expand it for subsequent periods.
Without wanting to prejudge the outcome of the review, I can see three key issues that will certainly need to be discussed.
First is the question of how long trading periods should be. Emissions trading cannot function without a stable and predictable framework, and the length of the trading period is very important for this. We need to assess to what extent the trading period should be lengthened to provide more certainty to business.
Another important issue for the functioning of the market is transparency and simplicity. This implies that Member States must refrain as far as possible from using special rules, exceptions or adjustments to the market during the trading period.
Now that the EU has made the political choice of using a market-based mechanism, we have to be consistent and let the market decide within the framework of the total number of allocations set by public authorities.
The third issue is harmonisation. In a system based on national allocation plans, total harmonisation of Member States' approaches to emissions trading will probably never be possible. It would be against the principle of subsidiarity.
However, there are many areas where the Commission can promote a more consistent interpretation of the Directive across the Member States. When this is possible, the Commission should not refrain from doing so. One such area is the type of installations covered by emissions trading.
Ladies and Gentlemen,
Finland's presidency will be a very busy period for climate policy both internally and externally.
On top of the review of the ETS, the Commission's vetting of the NAPs and a likely build-up in the momentum of the international talks on action post-2012, we also intend to make a formal proposal to bring aviation emissions into the ETS.
In addition we will be reviewing our strategy on reducing CO2 emissions from cars and coming forward with a communication on the costs and benefits of post-2012 action, as well as Green Papers on carbon capture and storage and on adaptation to climate change.
And from June until November the Commission will be running a major climate change awareness campaign across Europe to remind the public how we as individuals can all help to reduce greenhouse gas emissions in our daily lives. I much appreciate the great support and cooperation we have received from the authorities here in Finland.
I am confident the Finnish presidency will see progress on a number of other important issues too. Let me just highlight three areas.
By the end of the year Council and Parliament should be able to finalise REACH, our major overhaul of EU chemicals legislation that will increase protection of health and the environment by providing better information about chemicals' properties. A deal on this will be a huge step forward.
The second area is our Thematic Strategies, which amount to a new generation of environment policies that provide us with a roadmap of objectives and actions for the medium term and considerably strengthen the integration of environmental considerations into other sectors.
I appreciate the Finnish presidency's intention to push for progress on the framework directives that are central to the strategies on the marine environment and waste, and also the directive on air pollution if it is not agreed at the June Environment Council.
Thirdly, I am very pleased that Finland will immediately take up the major Communication and action plan on biodiversity that the Commission will be putting forward within the next couple of weeks.
Halting the loss of biodiversity is every bit as important as winning the battle against climate change because once species have become extinct they are gone forever. It is not too late to meet our target of halting biodiversity loss in Europe by 2010 if we implement the action plan fully and speedily.
Ladies and gentlemen,
As you can see both the Finnish presidency and we in the Commission have no shortage of work for the months ahead. I look forward to working closely with Minister Jan-Erik Enestam and other members of the Finnish government in meeting these challenges together. They can be assured of my full support.