ETSS AROUND THE WORLD: A STATUS UPDATE

Chris Kardish19 September 2019

International Carbon Action Partnership Secretariat (ICAP)

1. The global spread of ETSs and key statistics

2. A more detailed, region-by-region perspective

3. Key reforms in established systems

4. Outlook in the near future

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Outline

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Global ETS, 2019• 20 ETSs worldwide, regulating emissions from 4.5 billion tons

CO2e

• 6 ETSs planned and 12 under consideration

Global emissions coverage over time

2005: 2.1 GtCO₂e ≈ 5% of global emissions

2019: 4.5 GtCO₂e ≈ 8% of global emissions

2020: 7.5 GtCO₂e ≈ 14% ofglobal emissions (China!)

Key statistics on emissions trading 2019

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8% of global GHG emissions

are covered by an ETS.

37%of global GDP are using emissions trading.

Jurisdictions making up

1/8 of the global population livesunder an ETS in force.

1. The global spread of ETSs and key statistics

2. A more detailed, region-by-region perspective

3. Key reforms in established systems

4. Outlook in the near future

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Outline

Europe – over ten years of experience with emissions trading

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EU Switzerland

Kazakhstan

Ukraine

Implemented Scheduled

North America – new systems and other potential expansions at sub-national level

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Nova Scotia

QuébecOntario (no longer operating)

Regional Greenhouse Gas Initiative (RGGI)

New JerseyVirginia Massachusetts

California

Oregon

New Mexico

Latin America– Mexico coming online; other key economies considering ETS

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Mexico

• ETS simulation completed in 2018

• Pilot ETS scheduled for 2020

• Mandatory ETS scheduled for 2023

Chile

Colombia

Three systems under consideration

Asia–Pacific: the most active region globally

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• 12 operating ETS• 2 scheduled ETS• 4 additional systems

under consideration

1. The global spread of ETSs and key statistics

2. A more detailed, region-by-region perspective

3. Key reforms in established systems

4. Outlook in the near future

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Outline

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1. Increases in ambition – increasing rate at which cap reduces in size (“cap decline factor”)

2. Allocation – increasing auctioning and better targeting free allocation to those sectors that need it most

3. Market Stability – introduction of instruments to manage either allowance quantity or price, reflecting experience of the past (leading toward “hybrid instruments”)

4. Offsets – increasing the emphasis on domestic abatement, at least in the short-term

Key reforms in established systems in preparation for the 2020’s

The spread and diversification of market stabilityinstruments

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MARKET STABILIZATION AT THE UPPER BOUND

MARKET STABILIZATION AT THE LOWER BOUND

Auctioning ranges across ETSs

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Notes: * Auctioning is the only RGGI-wide allocation approach, but the actual percentage is less than 100% because some states have small dedicated “set-aside” accounts.** While entities in the Korea Emissions Trading Scheme are generally required to purchase 3% of their allowances at auction, sub-sectors that are considered vulnerable to international competitiveness and carbon leakage are exempted. This means auctioning system-wide is currently below 3%. *** Mexico is yet to launch its pilot ETS.

Sources: ICAP Status Report (2019) and EHR.

~57b USD in revenue to fund programming

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Notes: ***Eight EU member states held auctions during phase 2 of the EU ETS (2008-2012), but there is no consolidated and comprehensive source of data available. For some member states, the auctioning revenue generated during this period was substantial. Germany for instance raised about €3.2 billion, according to the German Emissions Trading Authority (DEHSt). Sources: Own calculation with figures from the EC, CARB, MELCC, RGGI, EXX, ICE, and EHR

42.55

0.03

9.47

2.24 3.08

1. The global spread of ETSs and key statistics

2. A more detailed, region-by-region perspective

3. Key reforms in established systems

4. Outlook in the near future

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Outline

ETS – overarching trends and challenges

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• ETS is spreading; growing interest also in emerging economies

• Practical experience accumulating with different design options -> solid base for new systems to build on

• Trend toward hybrid instruments (e.g. ETS with price floor/ ceiling)

• Challenges in emerging economies: cap-setting in a dynamicallygrowing economy, electricity sector regulation

• Linking markets remains relevant but challenging (lots of demands e.g. alignment/coordination with less room for market intervention)

• Question of how long-term role of carbon pricing in achievingNDCs and raising amibition under Paris Agreement

Summary: outlook for ETS for 2019 and beyond

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• Key post-2020 ETS reforms nearly completed in major “mature” systems: California/Québec, EU, New Zealand, and RGGI

• Strong interest in the instrument in Latin America: draft regulation in Mexico; Colombia and Chile considering introduction

• China as the largest prospective carbon market: planned 2020 market launch for electricity sector, phasing in of other sectors until 2025

• Continuing push for carbon pricing at subnational level in North America

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Thank you for your attention!

ICAP Status Report 2019: bit.ly/ICAP_SR2019

www.icapcarbonaction.com

christopher.kardish@icapcarbonaction.com

@ICAPSecretariat