Transcript EU ETS - Intertanko

Introduction to the EU ETS
Giedre Kaminskaite-Salters
Senior Adviser on Climate and Clean
Energy
18 November 2008
Contents
1.
2.
3.
4.
5.
What is the EU ETS?
Global carbon market: an overview
Linking EU ETS with the global carbon market
EU ETS: teething problems
Revised EU ETS in Phase III
1. What is the EU ETS?
What is the EU ETS?
•
EU ETS – the cornerstone of EU climate change policy
– World’s single largest carbon market and greatest source of
demand for carbon credits
– Accounts for 67% (volume) and 81% (value) of global carbon
market
– Founded by Directive 2003/87/EC, “the EU ETS Directive”
– Imposes emission caps on installations regulated by the
Directive – the so-called “cap-and-trade” scheme
– Regulated sectors are: power generation, cement, glass,
ceramics, pulp, paper and steel production (approx.40% of the
EU’s emissions)
– ‘Operator’ of installation is required to hold a permit and
surrender enough allowances to meet the installation’s
emissions at the end of each year
What is the EU ETS? (part 2)
Background to EU ETS:
• EU founded the ETS in order to realise its commitments
under the Kyoto Protocol
• Kyoto Protocol set out targets for all developed countries
that have ratified it to reduce emissions of the “basket” of
greenhouse gases (GHG)
Concept of “compliance” - Kyoto vs the EU ETS:
• Kyoto Protocol is negotiated between governments imposing
targets on a country’s total emissions
• EU ETS is a scheme that works at company level based on
the EU ETS Directive as implemented by national legislation
What is the EU ETS? (part 3)
• Kyoto Protocol applies during 2008-2012 (the “first
commitment period”) – but what will follow?
• By contrast, EU ETS operates in phases
– New rules and caps apply phase by phase:
• Phase 1: 2005-2007 - “learning by doing”
• Phase 2: 2008-2012 - current phase
• Phase 3: 2013-2020 - rules currently
under review (discussed later)
2. Global carbon
market: an overview
Current Global Carbon Market
– Current policy framework has two pillars : Kyoto and the ETS
– Total size of the Global Carbon Market in 2007: $64bn
– Of this, the ETS accounted for $50bn, and Kyoto mechanisms $13.4bn
EU ETS
CCX
($72M)
($50bn)
Asia
60% of all projects*
Africa
0.8% of all projects*
South America
39.2% of all projects*
New South Wales
($224M)
Source: World Bank, Unep Risoe, Deutsche Bank
* Projets that issued credits
3. Linking EU ETS with
the global carbon
market
Linking with international Kyoto carbon
market mechanisms
Carbon allowances traded in the EU ETS:
• EUA = EU Allowance, allocated by the EU states to installations
covered by the EU ETS
• Certified Emission Reductions (CER) issued on the basis of UN
Clean Development Mechanism (CDM) projects that reduce GHG
emissions in developing countries
• Emission Reduction Units (ERU) issued on the basis of UN Joint
Implementation (JI) projects that reduce GHG emissions in
transition economies
• Using the Linking Directive, EU ETS installations may surrender a
CERs/ERUs up to a certain limit in order to satisfy part of their EU
ETS compliance obligations, in additions to EUAs
4. EU ETS: teething
problems
EU ETS: teething problems
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In Phases 1 and 2, each MS issued its own
National Allocation Plan (NAP) for each phase,
and allocations occurred at national level
Majority of allowances were given away for free
(rather than auctioned)
Problems
– 27 separate systems in different MS, each
with its own set of rules and procedures –
lack of harmonisation
– Haphazard implementation
– Windfall profits due to free allocation
Negative impacts on: carbon prices, volatility
in the market and emission reductions
5. Revised EU ETS in
Phase III
The “climate change package”
• 23 January 2008: the Commission published a
package of legislation which will govern the EU
climate change policy going forward
• One of the proposals = a revised EU ETS
Directive
• “Trialogue” currently in place; expect decision by
the end of December 2008
Revised EU ETS: the proposals
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Harmonisation of allocation rules
Increased auctioning of allowances (100% for the power sector)
A downward trajectory in emission reductions of 1.74% per annum from
2012 to 2020 compared with 2005 levels
New rules for the use of Kyoto credits (CERs and ERUs) in the scheme,
depending on the outcome of the international negotiations
Inclusion of new gases (perfluorocarbons and nitrous oxide)
Inclusion of new manufacturing activities (e.g. production of aluminium)
Inclusion of new sectors, namely:
– Aviation
– Carbon capture and storage (CCS)
– Forestry?
– Shipping?
Aviation in the New EU ETS
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Proposal published 20 December 2006; amends the EU ETS;
political agreement almost finalised
All flights leaving the EU and landing in the EU covered from
2012
Special aviation allowances issued
Overall target: 97% of average 2004-2006 emissions in 2012 and
95% from 2013 onwards
15% auctioning from 2012
Access to Kyoto credits (up to 15% of compliance)
Emission reduction targets, auctioning levels and access to Kyoto
credits subject to change as part of general review of the EU ETS
Shipping in the new EU ETS
• Currently outside the scope of the EU ETS
• Commission Proposal also does not cover
shipping, but states as follows:
• “The emissions trading system should only be
extended to emissions which are capable of being
monitored, reported and verified with the same
level of accuracy as applies under the monitoring,
reporting and verification requirements currently
applicable under the Directive. This is the case
for shipping, which is not included in this
proposal but might be included at a later stage
following a full fledged dedicated impact
assessment.”
Shipping in the new EU ETS
(Part 2)
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7 October 2008: European Parliament Environment
Cmt vote on the revised EU ETS:
“the Commission should, as soon as possible, propose
appropriate amendments, accompanied by an impact
assessment with a view to incorporating the
shipping sector into the Community scheme by
2013”
EU Commission maintains that an international
sectoral deal led by the IMP would be best, but there
are signals that the Commission is looking into
regulation with the expectation that the IMO process
will ultimately fail
UK regulatory changes
• Climate Change Bill: amendment accepted by
the Government in the House of Commons,
requiring the Climate Change Committee to
include aviation and shipping emissions when
setting carbon budgets (28 October 2008)
• However, no policy proposals as to how emission
reductions would be achieved
Many thanks!
[email protected]
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