allowance allocation in the eu ets iddri 16 october 2003 fiona mullins associate fellow, royal...
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Allowance allocation in the EU ETS
IDDRI
16 October 2003
Fiona MullinsAssociate Fellow, Royal Institute of International Affairs
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Structure of presentation
1. Challenges of the allocation process
2. Comparison of national approaches
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EU Emissions Trading Scheme• First period 2005-2007, second period 2008-2012
• Learning; pre Kyoto
• Defines participants, gases and sources• Defines processes:
• methods and timing for monitoring, reporting, compliance processes• registry form and function• compliance timing and methods
• Defines penalties• Defines regulatory basis (IPPC permitting)• Defines unit of trade: EU Allowance; full transferability of EUAs
within EU• Defines some sort of linking: JI, CDM, non-EU schemes
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Allocation Challenges
Number and complexity of decisions
Tight timeframe
Need for coordination on some issues
Allocation defines environmental outcome and price Approx 5 billion tCO2 allocated over three years (2005-2007)
Prices: Euros 5 to 15 per tonne?
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Number & complexity of decisions
• Allocation and consultation processes • Information and data required• Banking, auctioning, pooling, opt out• Closure and new entry• Other policies, longer term considerations
Lack of capacity, awareness and time
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Timing
2003
Aug Sep Oct Nov Dec
Transposition (?)
Aug Sep Oct Nov Dec
Approved NAPs
2004
Jan Feb Mar Apr May Jun Jul
Industry consultation
Final NAPs
Issue permits
Jan Feb Mar Apr May Jun Jul
Monitoring & registries guidance
Aug Sep Oct Nov Dec
Issue 2005 EUA
2005
Jan Feb Mar Apr May Jun Jul
2004
20062005Aug Sep Oct Nov Dec
2006
Jan Feb Mar Apr May Jun Jul
2005
Decide allocationsSurrender allowances
Annex III guidance
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Coordination needed/useful on:
1. Banking
2. New entry & closure
3. Definition of “installation”
4. Definition of “allowance”
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Allocation: different levels
EU ETS
Size of the national pie: Kyoto or national
transportdomestic
Elec Iron/steel Minerals Paper
Installation 1 Installation 2 Installation 3
1
2
3
4
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General trends in allocation• Total, top-down allocation:
• Politics dictates: Kyoto targets (or Kyoto plus)
• Sectoral, top-down allocation: • data and modelling constraints dictate• modelling projections + regulatory info
• Allocation to installations: data constraints dictate:
Allocation = (historic emissions +/- adjustment) x correction factor
Adjustments for: CHP, early action, process industry expansion, performance against benchmark
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Germany: Top down Major controversy
Inter-linked with prior policy commitments Will affect prices and environmental integrity of the EU ETS
General principle: Same reduction as for VAs: 45mtCO2 pa by 2010 (less approx10mt
for non EU ETS industry) VAs provide the basis
ie regulatory basis rather than projected emissions emissions for 2005-2007 can be calculated back (growth rate
implied in VAs, fuel mix and energy efficiency assumptions) VAs do not specify targets for EU ETS industry sectors (or
installations) Participation in VAs is as low as 50% in some sectors, close to
100% in others
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Germany: bottom up Data constraints Wide range of options
Base-year or base-period of emissions 2000-2002 Different approach for process industries than for fuel combustion Grand-fathering alone (less x%) possible for some Bench-marking likely where data available: Additional allowances for
any that beat benchmark eg CO2/kWh for base-period; or BAT
NO auctioning for first or second periods NO opt-out envisaged as limited to first period
Set aside for new entrants
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Netherlands: Top-down
Using official projection Approx 90mtCO2 (not including coal covenant and second LTA
on energy efficiency) Precise portion of EU ETS industry cap relative to non EU ETS
is being calculated
Assumes 50% imported emission reductions to meet Kyoto target
NO separate EU ETS sector constraint (?)
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Netherlands: bottom up
Two main options: Historic base-year or base-period (fall-back option) with some
flexibility on choice of base-year possible Historic plus benchmark coefficient
Many variations possible Benchmarks:
Available from LTAs but difficult to translate them to absolute CO2
May use LTA benchmarks to reward more efficient installations with more allowances
May use forecasts for major industrial companies to adjust allocation
Allocation methods define share ie must add up to total
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Sweden: top-down
Flexmex Commission 2 proposal:
24.3mt CO2
Ceiling allows for projected emission increases and new entry
EU ETS installations emit 19mt currently
Sector/activity mtCO2
Fuel combustion 10.8
Non-substitutable emissions
plus forecast expansion
6.2
2.3
Statistical uncertainty
2
Capacity expansion
2
New entry (nearing completion now)
0.6
Total 23.4
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Sweden: bottom up All installations have right to 1998-2001 emissions level
4 yr avg (3 yr if special circumstances)
Additional allowances allocated in priority order: 1998-2001 emissions allocated to all Producers with non-substitutable emissions to allow for forecast
production expansion New entry set aside (allocated on basis of forecast emissions)
Benchmarking could be considered, although data constraints limit possibilities
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Comparison of approaches
Issue Fr It Ge Ne Sw UKTotal:
• Kyoto target Y Y Y Y Poss Poss
• National target N N N N ? Poss
• Import KM units N Y N Y N N
Sectoral:
• Historic basis Y ? N Y Y N
• Projection basis Y ? Y Y Y Y
• Regulatory basis N N Y Y N Y
Installations:
• Historic basis (1997+) 2002
Y? 2000 - 2002
1999 - 2002
1998 - 2001
1998 -2002
• Benchmarks N (?) N(?) N(?) Yes N(?) N
Auctioning: N (?) N N N N N (?)
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Source: European Environment Agency
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Contact details
Fiona MullinsAssociate fellow (climate change)Royal Institute of International Affairs
Tel: 01865 292983email: [email protected]