Transcript Implementing the Emissions Trading Directive

Joint Implementation and
the EU Emissions Trading
Scheme
JISC, 16 October 2007
Jürgen Salay
Climate Strategy and International Negotiation
DG Environment
European Commission
Recent EU climate initiatives
• On 10 January 2007 the Commission proposed to
– encourage developed countries to reduce emissions by 30% by 2020
– set a unilateral reduction target for the EU emissions at 20% by 2020
• Commission is tabling a wide range of proposals on reducing
emissions in the energy and transport sectors
– 20% increase by 2020 on energy efficiency
– 20% share by 2020 of renewable energy
– Limit average car emissions to 130 g/km
– Include aviation into EU-ETS
– Increase research efforts in energy
• Review process of EU-ETS Directive is beginning
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EU-ETS
Central EU climate policy tool
• The cornerstone of the EU’s market-based strategy to reduce GHG
emissions cost-effectively (reduces compliance costs by 1/3)
• An essential structural element for long-term global strategies to
avoid dangerous climate change
– EU Heads of State have confirmed need to limit global temperature
increase to 2º Celsius above pre-industrial levels (3.6° Fahrenheit)
– This requires industrialised countries to reduce GHG emissions by
30% below 1990 levels by 2020, domestically or through emissions
trading mechanisms, increasing to 60-80% reductions by 2050
• Important to get it right!!
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Stages of development of EU ETS
• 2005-7: Start-up period
– Allowances mostly allocated for free (auctioning limited to 5%)
– Robust emissions monitoring and verification and well performing
electronic registry system
– Growing trade of allowances across Europe
– Thanks to experience gathered in 1st trading period, companies and
authorities are much better prepared
– However, insufficiently ambitious levels for emission reductions
– Windfall profits in some sectors
• 2008-12: First commitment period of Kyoto Protocol
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Auctioning possible up to 10%
Commission approval to 24 NAPs so far (PT, BU, RO remaining)
Fair and equal treatment being given to all MSs
On the basis of 24 NAPs, the approved cap is 6.5% below the 2005
verified emissions for the ETS sector (10% below requested
amount)
• Subsequent five-year periods: Legislative review underway
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Growing trading volumes in 1st period and
emission reduction in 2nd period
MtCO2
180
2500
160
21
42
,5
120
19
27
,9
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Volume traded (million EUAs)
140
2000
100
80
60
40
1500
NAP II process
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0
JanFebMarAprMayJun Jul AugSepOctNovDecJanFebMarAprMayJun Jul AugSepOctNovDecJanFebMarAprMayJun Jul
-05 -05 -05 -05 -05 -05 -05 -05 -05 -05 -05 -05 -06 -06 -06 -06 -06 -06 -06 -06 -06 -06 -06 -06 -07 -07 -07 -07 -07 -07 -07
1st period cap
Cap allowed
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EU ETS Price Development
Phase I allowances
Phase II allowances
Source: Point Carbon
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EU ETS & JI
Impact EU ETS on JI
•
Generates demand for JI that is large (with tight NAP decisions), quantifiable (with
set JI/CDM usage limits) and long term (with the 20% target for 2020):
•
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EU countries investing at least €2.7 billion in JI/CDM for national GHG reduction commitments
–
EU ETS potential demand of more than 1.2 billion ERU/CER (excl. government purchase)
The EU double counting guidelines give a clear boundary to the areas where JI
projects can be done in the EU
–
JI can now focus on areas not covered by EU-ETS covering more than 50% of all emissions
Impact JI on EU ETS
•
Increases liquidity of EU ETS market and reduces compliance costs
•
Implies recognition of JI/CDM credits as equivalent to EU allowances
 Need to safeguard environmental integrity of EU ETS:
–
Qualitative criteria: no nuclear or temporary credits from sink projects
–
Quantitative criteria: ensure supplementarity to domestic action and avoid double counting
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JI/CDM limits in NAP-2 Assessment
• Harmonised approach resulting in JI/CDM limits for
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individual Member States at 10-15% of approved
trading sector caps in most cases
Maximum total amount of usable ERUs/CERs for
the 24 NAPs assessed so far is close to 1200 Mt
Uncertain whether total limit will be fully used due
to possible internal market barriers and supply
constraints in 2008-2012
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Double counting
What’s the problem?
• JI and CDM projects can be carried out in any installation, reducing
emissions and giving ERUs/CERs in return
• If the JI/CDM reduction happens in an installation under EU ETS and
no account is given for these reductions, the operator can sell the
EUAs that were avoided through the JI/CDM project
• As a result, the government hands out 2 credits (1 ERU/CER and 1
EUA) in return for a reduction of 1 ton of CO2
 Bad deal for the government and the environment
 Could conflict with EU state aid rules
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Double counting
Provisions for avoiding double counting
(1) Baselines for project activities should comply with acquis
communautaire
(2) No ERUs are allowed to be issued for reductions or
limitations of GHG that take place in installations under
EU ETS or impact emissions in these installations
indirectly unless a set-asides is created in the NAP for all
approved or planned JI/CDM projects taking place in ETS
installations
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EU-ETS legislative review
• Nov 2006: Review report “Building a global carbon market”
– Improve functioning of the scheme based on practical implementation
experience
• Streamline current design
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More harmonised approach to cap-setting and allocation to installations
More predictability and certainty
More harmonised approach to new entrants and closures
Consider benefits and costs of smallest installations
• Expand coverage
– Further sectors (aviation) and gases (CH4, N2O) and options (CCS)
– Consider developing links to other mandatory emissions trading systems
Next steps
• Stakeholder consultation completed
• Proposal amending EU ETS Directive – end of 2007
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EU ETS and JI/CDM post-2012
• Stakeholder concerns: over-supply, additionality problems, lack of
harmonised quantitative and qualitative restrictions, sufficient
supplementarity and predictability post-2012
• Key issues to consider:
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Should we have quantitative provisions? How should they be designed?
Qualitative criteria?
Banking issues?
How to make JI/CDM compatible with long-term EU ETS objectives?
• Possible solutions:
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Quantitative limits
Negative or positive list of qualitative project criteria
Harmonised criteria for approval and use of JI/CDM
Firm commitment for post-2012
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More info on EU climate policy: http://europa.eu.int/comm/environment/climat/home_en.htm
Background literature on EU ETS: http://www.claeys-casteels.com
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