The EU is focusing on emissions trading with its climate package. Within a strict CO₂ volume budget, market forces are to ensure that climate-friendly technologies have a competitive edge compared to other technologies. In general, E.ON supports the EU Commission initiatives which aim to create EU-wide consistent conditions for the CO₂ emissions trading system. To allow the system to achieve its aim of a most efficient CO₂ reduction, without subjecting the economies involved to unnecessary amounts of damage, the viewpoints listed below should be increasingly taken into account.

E.ON views fully auctioning certificates as a sensible step in climate policy in general, on the condition that all energy providers and energy-intensive companies have to be equally involved. The abrupt transition from the previously largely free allocation system to a completely auctioned system from 2013 could lead to a devaluation of previously made investments in our view. Possible disruptions would be at the expense of a balanced energy mix and therefore security of supply. It would also possibly obstruct the development of clean coal energy generation technologies. That's why we believe accompanying measures to be essential.

This includes relieving the burden on consumers. Income from selling certificates could be used to reduce taxes and fees connected to energy consumption, for instance. The research and development of climate-friendly technologies like carbon capture and storage - CCS could also be encouraged more strongly.

The EU Emissions Trading Scheme (ETS) was introduced in January 2005 to help meet the CO₂ reduction obligations set out by the Kyoto Protocol. The EU's ETS is the world's largest emissions trading system. It aims to provide incentives for investing in energy efficiency and clean technologies while at the same time keeping costs as low as possible. The scheme is currently based on the individually coordinated national allocation plans (NAP) of each EU member state, and works according to the "Cap and Trade" principle: Companies are obligated to either lower their carbon dioxide emissions to comply with the fixed caps for plant emissions according to the NAP or to purchase EU Emission Allowances (EUAs).

Phase one of the trading system ran from 2005 to the end of 2007. The second phase got underway at the start of 2008 and will end in December 2012, coinciding with the period stipulated by the Kyoto Protocol. The EU climate package in 2008 involved in-depth discussion about the design of the third phase starting from 2013 onwards. Debate focused on topics like the scope of emissions certificate auctions and the creation of guidelines governing the transition period on the road to full auctioning. The climate package presented to the EU Commission in January 2009 stipulates that the EU should cover 20 percent of its energy consumption with renewables by 2020. In addition, the carbon emissions rights are to be reduced by 21 percent by 2020 compared to 2005. From 2013, energy companies are to buy 100 percent of CO₂ certificates at auction. There are however some exceptional rules for the energy industry in Eastern Europe, as well as for Cypress and Malta. There are also exceptions in other industrial sectors as they will only have to purchase more certificates gradually. We believe it would be more effective for climate protection if these industries were to receive equal treatment.

The design of the third phase of the ETS is vital for the development of European energy companies. This relates to the issue of subsidies for new builds with particularly high efficiency levels, which are particularly important for technological development. It is also important to recognize climate protection projects according to the Clean Development Mechanism CDM mechanism within the ETS. As yet its scope and extent are not sufficiently transparent. Despite the uncertainty, E.ON Climate & Renewables is developing its own CDM projects, to allow the CO₂ emissions it avoids there to be added to E.ON's CO₂ balance.

In the energy market, distorted competition from the ETS between member states and non-member states cannot be ruled out. There is a concern that energy-intensive industries relocate to neighboring countries or to other regions where the costs of carbon does not have to be internalized. This fear is often referred to as 'carbon leakage' and is best addressed through the development of a global carbon regime. In our role as a driving force behind innovation, we also recognize the great opportunities offered by the climate package as well as the challenges named above. It forms a good starting point for developing a worldwide CO₂ trading system.

E.ON was not alone in pinning high hopes on the COP15 UN Climate Change Conference which was held in Copenhagen in December 2009. After all, the event centered on nothing less than negotiating a follow-up treaty to the Kyoto Protocol which expires in 2012. Although the conference fell significantly short of expectations and did not initially provide satisfactory results, we continue to hope that binding climate protection goals can be agreed in 2010. E.ON is pushing for an ambitious and obligatory political framework for effectively fighting climate change - a stance underscored by a position paper on Copenhagen published in May 2009.