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On the 26 September 2011, the European Commission announced the details of the EU ETS allocations for the aviation sector. In the trading period from 1 January 2012 to 31 December 2012 (i.e. Phase II), 85% of the aviation allowances will be allocated free of charge to aircraft operators. In the period from 1 January 2013 to 31 December 2020 (i.e. Phase III), this will be 82%. 15% percent of the remaining allowances in each period will be auctioned, and in 2013-2020, 3% will be set aside in a special reserve for new entrants and fast growing airlines.

Denmark is one of the most pro-climate Member States in the EU, and has repeatedly stated its ambitions to take the group of EU nations to a target of a 30% cut in emissions by 2020, from 1990 levels. Given that the first 6 months of 2012 are likely to be most crucial in the reforming of the EU ETS’s Phase III, and that the reform of which is being led by the EU Parliament (and that the EU Presidency works very closely with EU Parliament), this could not have come at a better time.

California’s cap-and-trade scheme, a part of the state’s AB 32 climate plan, which is designed to tie-in with the Western Climate Initiative, officially begins on 1^st January 2012, but compliance is not actually mandatory until 2013. The scheme has had many legal challenges, but which all seem to now have been overcome with the Scheme ready to begin, unfettered. The scheme will allow up to 8% of compliance to be satisfied with offsets, but only from either forestry, urban forestry, dairy digesters or HFC projects within the US, initially. A framework for inclusion of international offsets is in place.

The forthcoming EU plenary vote on the proposed EU Energy Efficiency Directive (EED) will hopefully restore a functioning price signal for abatement through passing of amendments to reduce the supply of EUAs in Phase III of the EU ETS. It is noteworthy to highlight when tracking this development in 2012, that at this week’s EU Parliamentary committee on Environment, Public Health and Food Safety (ENVI), all the proposed amendments were passed. The proposal winning near-unanimous support encourages the withholding of a ‘significant number of allowances’ but does not specify any volume. However, the more specific proposals – an increase in the linear reduction factor of the cap, from 1.75% to 2.25%, and a set-aside of exactly 1.4bn EUAs – passed the ENVI vote, as well, but only by a slim majority, and suggests it may not pass the EU ITRE committee vote, and hence never get to the EU Plenary stage.

Participants in the Kyoto Protocol’s second commitment period must submit their targets by the 1^st May 2012. Since Canada, Russia and Japan have pulled out, only the EU-15 remain (with a group target) such as Hungary, Poland, Croatia, New Zealand, Ukraine, Norway, Australia and Iceland. Before it is possible to set the targets, a decision needs to be taken as to when the second commitment period will end. Since the Durban Platform seeks to be put in place a successor treaty by 2017, or by 2020 at the latest, the second commitment period could run anything from 5 to 8 years.

Rio+20 takes place on the 20 year anniversary of the 1992 United Nations Conference on Environment and Development in Rio de Janeiro, and the tenth anniversary of the 2002 World Summit on Sustainable Development in Johannesburg. The purpose of the conference is to secure a political commitment on sustainable development, assess current progress towards this goal, and take a look at what still needs to be done.

Australia begins its trading scheme in 2012, starting with a fixed price for allowances for the period 2012-2015. This later transfers to a floating price in 2015, although this outcome is dependent on internatinoal action, and the success of the fixed price period. The price will start at AU$23/tonne, which will only achieve very marginal abatement, contributing to the 5% reduction target in 2020. This is due to the relatively high carbon intensity of Australia's economy, due to cheap domestic coal reserves, making it more difficult to cut emissions. Australia will also begin use of domestic offsetting through the Carbon Farming Initiative, as projects begin the approval process from 6^th January 2012.

The NER 300 was passed to the EIB on 2^nd December 2011, and as the monetisation must be completed within 10 months, this means that the EIB must have sold 200 of the 300 million allowances by 2^nd October 2012. The natural assumption is that sales will be of 20 million each month over 10 months. However, the recent opacity surrounding the sale of an unknown volume at an unknown price of the NER 300 allowances to utilities undermines this assumption, and leaves little clarity surrounding the sale of the remaining 100 million in the 2^nd tranche.

Although the pundits suggest the Republican presidential hopefuls do not present a significance challenge to Obama, there is still a very real possibility that the tables could turn, particularly with the economy continuing to stagnate and congressional approval ratings in the gutter. Many Republican candidates have set their sights on the weakening or outright dismantling of the Department of Energy or Environmental Protection Agency (EPA). If this were to pan out, we could be fairly certain that the US will pull out of international agreements and attempt to destroy international efforts.

The date and venue for COP18 (Qatar, 26 November to 7 December 2012) was decided at COP17 in Durban in December 2011. COP18 will be the first meeting of the four years of no-doubt painful and protracted negotiations on emissions targets, which are all to be laid down by 2015 at the latest. At COP18, the ‘on-the-ground’ meaning of the legal nature of the language used in the text should start to become clearer, whilst it will also become apparent whether all countries do actually intend to press ahead with legally-binding emissions targets. Indeed with the ambiguity on the legal nature of the agreement, we can expect fighting over the legal nature of the agreement and, therefore, the depth of emissions cuts.