Transcript Implementing the Emissions Trading Directive

JI in the EU-ETS
Building blocks for a
global carbon market
JISC, 14 February 2007
Thomas Bernheim
Market-based instruments + EU ETS Unit
European Commission
Overview
• Long term EU climate objectives
• Recent EU climate initiatives
• EU ETS
• EU ETS & JI
• Double counting guidelines
• Outlook
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Long term EU climate objectives
• Limiting global temperature change to 2°C above preindustrial levels (EU Council, March 2005)
• Implies need for global GHG emissions to peak within 2
decades, followed by substantial reductions by 2050
• Order of magnitude of reductions by industrialised world
– 15-30% by 2020
– 60-80% by 2050
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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
• A main driver for the global carbon market currently
involving 168 countries and transactions valued at €14.6
billion in 2006
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EU-ETS
Design elements
• Applicable since 1 January 2005, covers 27 EU Member States
• Mandatory caps on absolute emissions from around 10,000 large
energy-intensive installations
• Covering roughly 50% EU emissions or 2 billion tonnes CO2
• Driver for development of other market based instruments
– Linked to JI/CDM
– Art 25: Linking expected with Norway, Iceland and Liechtenstein in 2008
though EEA (European Economic Area) Agreement
• First phase ongoing – 2005 to 2007
– Establishment of registries
– Robust emissions monitoring and verification
– But signs of important over-allocation
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Second phase EU-ETS 2008-12
soon to begin
• 26 NAPs submitted
• Equal treatment for all Member
States based on
– 2005 emissions
– Growth projections
– Carbon improvements
• 13 decisions were taken with
stricter caps than previous
assessment period (but scope
is now wider)
• Extension possible through
opt-in
2005 VE
Annual alloc 08-12
NL
80,3
85,8
BE
55,3
58,5
DE
474
453,1
GR
71
69,1
IE
22,3
21,15
LV
2,8
3,3
LT
6,6
8,8
LU
2,6
2,7
MT
1,9
2,1
SK
25,2
30,9
SL
8,7
8,29
SE
19,3
22,8
UK
242
246,2
1012
1012,74
Total
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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
–
–
–
–
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 in a dedicated group under ECCP
• Proposal amending EU ETS Directive – second half 2007
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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)
–
EU countries investing upwards of €2.7 billion in JI/CDM for national GHG reduction commitments
–
EU ETS generates potential demand of more than 1 billion ERU/CER (excl. government purchase)
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 safeguards: no nuclear or temporary credits from sink projects
–
Quantitative safeguards: ensure supplementarity to domestic action
–
Quantitative safeguards: avoid double counting
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Key issue: 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 could conflict with EU state aid
rules
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Linking Directive
Art.11b of EU ETS
(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
(3) Until 31/12/2012 for projects which reduce emissions directly
ERUs/CERs can be issued but only if equal number of allowances
are cancelled by the operator
(4) Until 31/12/2012 for projects which reduce emissions indirectly ERUs
and CERs may be issued only if an equal number of EUA are
cancelled from national registry of the MS of origin
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Decision on double counting guidelines
Provisions for implementing art.11b of EU ETS
• Art 3(1): MS shall create set-aside in NAP for all ERUs to
be issued for approved projects (with LoA) taking place in
ETS installations
• Quantification: JI project’s reductions * % of these reductions
under ETS * % of reductions to be issued as ERUs
• Allowances in set-aside not converted to ERUs may be sold, or for
direct emission reductions may be issued to the installation
• Art 3(2): MS may create second set-aside in NAP for all
ERUs intended to be issued for planned projects (no LoA)
• Allowances in second set-aside not issued as ERUs are cancelled
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Outlook
New opportunities
•
Before EU ETS limited demand for JI/CDM
•
Now, with a clear long-term price and clear policies on behalf of EU
and Member States, more projects can be done
•
Until recently large-scale energy sector projects “crowded out”
other possible JI projects
•
The EU double counting guidelines give a clear boundary to the
areas where JI projects can be done
–
•
JI can now focus on areas not covered by EU-ETS covering more than
50% of all emissions
Alternative financing: Green Investment Schemes
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Outlook (cont.)
JI/CDM in EU ETS legislative review
•
Most likely continue to play role in post 2012
•
Community-level arrangements for authorisation of projects
•
–
accept or not to register projects with countries not signing Kyoto?
–
Harmonised rules & procedures, additionality guidelines…
Possibility of further harmonising KP project credits accepted by MS
–
•
A/R, HFC…
Harmonising the supplementarity percentages of JI/CDM
The global carbon market is slowly but steadily
becoming a reality and both the EU-ETS and JI
are going to play a central role in it
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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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