Transcript Creating Carbon Markets: U.S. Congressional Briefings Fall

Phase 3 of EU ETS: Change of Gear
18 May 2011
Simone Ruiz - EU Policy Director - IETA – [email protected]
WHO ARE IETA?
Only cross–sectoral, private sector international organisation
promoting emissions trading to secure environmental goals
Founded in 1999
Membership: ~165 companies
 50% emitters
 50% project developers, intermediaries, financial
institutions, brokers, verifiers, legal firms
 60% EU, 30% US/Canada, 10% Asia
Swiss non profit
Offices: Geneva, Brussels, Washington, Toronto
Role in Australia, Japan
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IETA membership spans the carbon market
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Industry, finance and trading: providing an effective
business voice to emissions trading
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Oil (BP, Shell, Conoco Phillips, Chevron, Hess, StatoilHydro, Total, Hess...)
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Electricity (American Electric Power, RWE, Vattenfall, EDF, Tokyo Electric...)
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Banking (JP Morgan, Morgan Stanley, Deutsche Bank, Goldman Sachs...)
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Industry (Dow Chemical, Holcim, Lafarge, Mitsubishi, GE, RioTinto, Alstom...)
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Traders and Brokers (Mercuria, Cargill, Natsource, Evolution Markets...)
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Law (Baker&McKenzie, Clifford Chance, Hunton&Williams, Norton Rose...)
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Consulting (ICF International, ERM, Climate Change Capital...)
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Project Developers (Ecosecurities, Camco, Tricorona, MGM, Bluesource...)
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Exchanges (Bluenext, ECX, CME...)
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Emission verifiers (DNV, SGS, Bureau Veritas, Deloittes…)
Carbon market size: 15% growth 2011
€bn
120
15%
Forecast
107
5%
AAUs
5%
100
80%
93
Others
89
85
RGGI
80
pCERs
sCERs
67%
60
EU ETS
47
138%
40
28
20
12
0
2005
2006
2007
2008
2009
2010
2011
Source: Bloomberg New Energy Finance, Jan 2011
EU ETS
 Phase I: 2005-2007 / Phase II: 2008-2012 / Phase III: 2013-2020
 Currently covers 41% of EU CO2 emissions
 Flexible mechanism linkage (CERs and ERUs)
 but offset use limit: 2008-10 only 5.1% of total surrender
 Linear emission reduction factor (-1.74%) from 2013
 Review in 2025
 CONTINUES BEYOND 2020
Fixing difficulties
EU-wide allocation
Overallocation
Auctioning power sector
(transitionary rules for some)
Carbon leakage
EU benchmarks for free allocation
Fraud
Compensation for electricity costs
…
Same rules for auction platform(s)
Offset restrictions
EU-wide MRV standards
Enhanced security in registries
What remains to be agreed?
Among others….
Issue
Legal (realistic) deadline
Auctioning method, early volume
Spring 2011 (June, early auction???)
Registry rules
early 2011 2nd amendment (May/June)
CDM eligibility
Further restrictions to follow? (no date)
State aid guidelines for compensation of
indirect costs
Dec 2011
Oversight of market/financial regultion
Dec 2010 (mid-2011)
Transitional derogation from auctioning for
power sector
March 2012
MR/V rules (2 sets of regulation)
December 2011
Benchmarks for free allocation
Derogation from full auctioning
for power sector
 Member States to submit application by 30 September 2011
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Value of free emission allowances must be used for investments1
Maximum amount declining to zero by 2020
Installation based allocation determined by Commission Decision
Correction factor applied if allocation exceeds maximum amount
Allocation to installations on basis of
 EU-wide benchmark or national benchmark determined
 historical emissions 05-07 (& emissions performance of installations)
 Eligible investment types: see Annex V of guidance document
I – if conditionality criteria not respected, state aid investigations possible
Auctioning rules
Volumes:
- 2013 and 2014 amounts re-balanced if early auctioning
- Rough estimate : 60-70% of allowances through auction
- Revenue: around €25 billion (at CO2 price of €20/t)
Product:
- Spot: delivery within a maximum of 5 days (financial instrument??)
- Future and/or forward pre-2013 for a transitional basis by each MS
- But transitional auctions only under certain conditions
Auction Format:
- single-round, sealed bid, uniform price and weekly
- Platform(s): possibility for opt-out from common EU-wide platform
 Germany, Poland, UK yes (but not sure if they’ll do it)
- but: must be in conformity with Regulation & coordinated
Review of ‘arrangements’ every 5 years
Single EU ETS Registry (2012)
Source: Bluenext
Offset eligibility post-2012
No direct surrender of offsets for compliance!
1. Operators can swap into phase 3 allowances until 31 March 2015 : *
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Credits issued 2008-12
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Credits issued from 2013 onwards if registration pre-2012
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New credits from new projects in LDCs from 2013 (UN LDC list if ratified KP )
2. Non-LDC: bilateral agreements with third Parties in absence of international
agreement by 31 December 2012
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Sectoral baselines?
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Which countries?
3. If international agreement: only credits from countries that ratified that agreement
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IF AGREEMENT IN DURBAN, WHAT THEN?
* no nuclear, forestry and land-use plus HFC23, N2O from adipic acid production
First of its kind:
ban on credits from industrial gases
Commission Regulation as adopted in Climate Change Committee
From 1 January 2013, the use of international credits from projects involving the
destruction of trifluormethane (HFC-23) and nitrous oxide (N2O) from adipic acid
production […] is prohibited, except for the use of credits in respect of emission
reductions before 2013 from existing projects of these types for use in respect of
emissions from EU ETS installations that took place during 2012 which shall be allowed
until 30 April 2013 inclusive.
In short:
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Ban on specified credits from ER in 2012 applies from 1/05/13
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Only for compliance use not for swapping into phase 3 EUAs
Just a hiccough or a major trend?
Market oversight
 Objective: to prevent market abuse in spot market – insider
trading and market manipulation (cornering)
 Stakeholder meeting on 4 May 2011: 2 options
 Option 1: MiFID regulation through classification of EU
emission allowances as financial instruments
 Option II: Tailor made regime (like for power and gas
wholesale markets ‘REMIT’)
 Commission preference for MiFID regulation
 IETA view: unintended consequences and not appropriate
EU ETS & CCS
 EU ETS Directive on CCS:
 No surrender of allowances for emissions verified as captured and
transported for permanent storage §12.3(a)
Every ton of CO2 captured and stored frees up an emission allowance
 NER 300 - support of 12 CCS demonstration projects §10.a(8)
 Around €4.5 billion, only for verified avoidance of emissions
 At least 50% of auction revenue to be earmarked to carbon-reducing
projects, a.o. CCS §10.3(e)
 Caution: MS to determine the use of revenues from auctioning
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