Thank you.
First of all, the creation of the EU ETS was a huge undertaking. Basically, in three years we created a new commodity market, so it's a major step forward. It's a commodity market where we have increasing volumes of trade over time. In the first three years there have been a number of criticisms that are well founded, and we've been addressing them.
The first problem we faced was a price crash that happened around May 2006. That was simply an issue of scarcity. When the EU ETS was set up we didn't have verified emissions data for the installations covered, so we used the best available data, which turned out to not be good enough.
In May 2006 we had the first release of verified emissions data because that data was required under the EU ETS legislation. So the first time that data became available was when the legislation made it an obligation to report it. At that stage, it became clear that there were too many allowances in the market, therefore the price crashed. It was simply economics.
We've addressed that in phase two. Now we have verified emissions data. The allocation for phase two has been based on making cuts from the verified emissions data for 2005, and we now have data for 2006. So it's clear that the market is now short, and that's why the price for the second trading period is now well above 20 euros per tonne and has been for some time.
But there are other areas where we've learned simple things like how to release data so as not to give the same data to the market at the same time, which is not always obvious for an environmental regulator. Another important factor is simplification of the legislation. The drop from 11,000 to 10,000 is simply because some of the smaller operators who find it too much of a burden have been dropped to focus on the bigger operators.
Another important change will come in 2012 under our proposals that were published in January. We're looking for an EU-wide cap, rather than individual member states, to simplify the system, but also far more auctioning to deal with the issue of windfall profits. Sectors that can pass on costs to customers shouldn't get the free allocations they've been getting so far.