yvon slingenberg, head of unit b1- implementation of ets, dg clima, european commission
TRANSCRIPT
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The EU Emissions
Trading Scheme- EU
ETS
Presentation by Yvon Slingenberg
Head of Unit
Implementation of the EU Emission Trading
System
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This Presentation
The EU ETS:
Part 1: an essential part of a wider package of climate and energy policies
Part 2: emissions reductions and improvements to the system
Part 3: building block of the international carbon market
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1. The EU ETS: an essential part of a wider package of climate and energy policies
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EU ETS basics
Mandatory system in place since January 2005
Environmental outcome guaranteed: cap on emissions from ~11,500 energy-intensive installations across EU
Covering around 50% of EU CO2 emissions
Direct: regulated at source of pollution
Simple market system- no price intervention
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EU ETS : cap and trade
Operators must report verified emissions each year & hand in 1 emission allowance for each tonne of CO2 emitted
A mandatory cap on the number of allowances for all installations covered by the system (sum of 27 MS caps)
Emission allowances can be traded (so no cap per installation)
Carbon price: long term incentive to reduce emissions
Cost-effective: reductions take place where cheapest
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EU ETS part of a larger Climate & Energy Policy
Package
Carbon capture and storage Directive
CO2&cars
Renewable Energy Directive
Fuel Quality Directive
-20% / -30% wrt 1990 levels by 2020
technology specific &
product policies
cross-sectoral
targets & instrumentslarge industrial installations & aviation
“small emitters”
EU ETS
Effort SharingDecision
From 2013
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GHG Target by 2020:
-20% compared to 1990
-14% compared to 2005
EU ETS-21% compared
to 2005
Non ETS sectors -10% compared to 2005
27 Member State targets, stretching from -20% to +20%
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Scope and timing
Three-year learning-by-doing phase from 2005-7, including power, heat and steam generation, oil refineries, iron and steel, pulp and paper, buildings materials (cement etc.)
Five-year “Kyoto” phase from 2008-12, with tighter caps and established infrastructure
Coverage of aviation from January 2012 (all departing flights, and incoming except where measures by departure country recognised as equivalent)
EU ETS revision applicable from 2013 onwards, inclusion of more sectors (Aluminium, basic chemicals) and gases (eg PFC, N20)
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2. The EU ETS is working and improving: lessons for better systems
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EU ETS putting a price on carbon and reducing
emissions
Source Point Carbon
ETS cut emissions by 2 % to 5% in Phase1 1
ETS emissions down 13.7% 2007 - 2009 2
1 assessment by Ellerman et al, ‘Pricing Carbon 20102 verified emissions data, European Commission
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EU ETS emissions reductions
2005-2007 -2% to -5% emissions reductions due to ETS (Ellerman et al)
-13.74% 2007-2009Point Carbon Surveys
In 2006 5% of participants took future cost of carbon into account for investment
By 2007 this had risen to 65%By 2010, long term carbon price a decisive factor for
new investments for 47% (61% for large polluters). 54% say ‘EU ETS has already caused emissions reductions in my company’
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Revised EU ETS: 2013-2020 phase & beyond
EU-wide cap fixed in law up to 2020 and beyond (linear trajectory)
Auctioning becoming default over time More than 50% of allowances auctioned
Political commitment to use 50% revenues to tackle climate change
Level playing field within EU, auctioning rights linked to costs/GDP
EU-harmonised ex-ante benchmarks for all free allocation, based on 10% top performers
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-20%
2083 Mt/yr
Gradient: -1.74%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
EU-wide cap from 2013, more certainty into the future
Starting point: 1974 Mt in 2013
1720 Mt
Linear factor to be reviewed by 2025 Aviation to be included; will change figures correspondingly, but cap not reduced Disclaimer: all figures are provisional and do not account for new sectors in third period
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Environmental effectiveness and competiveness
• The best solution for environment and competitiveness is countries taking action under a global agreement
• However transitional solutions exist via domestic policy:• Emissions trading is itself a least cost way to meet
emissions reduction targets• Use of international offsets for cost containment• Free allocation of allowances instead of auctioning
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Allocation and carbon leakage
Free allocation given in 2005-7 and largely in 2008-12 periods, rules decided by MS
Independent ex post analysis1 for 2005-2007 detects no statistical evidence of delocation due to ETS
In revision to EU ETS, move to harmonised EU-wide allocation with revised approach (benchmarks)
1 Ellerman et al ‘Pricing Carbon’
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EU-wide rules for free allocation
In terms of allocation rules, three categories of operators: No free allocation: power sector (except for heat) Partial free allocation: industry 100% free allocation of benchmark: industry exposed to risk
of carbon leakage
Phasing out free allocation for sectors not exposed to risk of carbon leakage: 80% of benchmark in 2013
30% of benchmark by 2020
With a view to reaching full auctioning in 2027
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Benchmark: average performance of 10% most efficient installations in a
(sub-)sector
G3 aluminium
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Benchmark
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Addressing differences in development
From 2013, no free allocation for power production, following windfall profits => large auctioning revenues. Possibly € 30 billion per year (depending on C price)
Auctioning allows redistribution based on level of development:88% of auction rights distributed according to
Member States’ emission shares12% distributed to new member states for purpose
of solidarity and growth
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Option of transitional free allowances in power sector
10 new Member States qualify: maximum 14% of EU power generation
Existing installations onlyConditional on national plan to modernise energy
infrastructure, clean technologies, diversification of energy mix
Total amount in 2013: maximum 70% of 2005-2007 verified emissions, decrease to zero in 2020
Individual allocation based on 2005-2007 verified emissions or benchmark
Applications by Member States by September 2011, Commission can reject within 6 months
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Auction Revenue Benefits
Several billion dollars for carbon capture and storage and renewables projects (using 300 million allowances set aside from the EU ETS new entrants reserve)
50% of EU ETS auction revenues should be invested to tackle climate change and shift to low-emission technologies
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3. The EU ETS: building block of the international carbon market
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A robust international carbon market
In parallel to and supporting the UN process
To get as close as possible to an international price for carbon
A robust market:provides incentives for more ambitious
action in developing countries is an important source of climate finance for
developing countries
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Building a robust international carbon market
Through bottom up linking of cap and trade systems in developed countries
Inclusion of advanced developing countries and competitive sectors by 2020
Reform of Clean Development Mechanism (CDM), focus CDM on Least Developed Countries (LDCs), replacement over time by a more ambitious sectoral mechanism for advanced developing economies and sectors
Sectoral crediting as a stepping stone to ETS Addressing surplus AAUs
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Need to address surplus AAUs
A virtual international market for 2008 to 2012
suffers from a serious imbalance: supply (of AAUs) by far exceeds demand
Large scale AAU sales (government to
government) can affect European carbon price
A solution to surplus AAUs is needed
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