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A Domestic Offset System for Ireland - Ecofys Consultants - EPA Domestic Offsetting Workshop May 2011
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A Domestic Offset System for Ireland - Ecofys Consultants - EPA Domestic Offsetting Workshop May 2011






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A Domestic Offset System for Ireland - Ecofys Consultants - EPA Domestic Offsetting Workshop May 2011 A Domestic Offset System for Ireland - Ecofys Consultants - EPA Domestic Offsetting Workshop May 2011 Presentation Transcript

  • A domestic offset system for Ireland Alyssa Gilbert Siobhan OKeeffe0
  • Ireland has a challenge aheadCurrent situation: Effort Sharing Directive: reduce non-ETS emissions by 20% by 2020 Ireland’s emissions are projected to be approximately 7.6m tonnes of CO2e higher in 2020 than the ESD target for that year Agriculture is the largest source of emissions, representing 29.1% of total national emissions in 2009, and approximately 40% of non-ETS emissions1
  • A domestic offset system for IrelandOverall objectives: Assess the transformative potential of Domestic Offsetting projects in the Irish economy: Could domestic offsetting encourage best practice? Could domestic offsetting assist in the long term transformation to a low carbon society? Could domestic offsetting promote the development of enterprises involved in generation and trading offsets?2
  • The potential for DO in Ireland Potential would depend on scheme design Market-based approach provides flexibility Cost-effective Can drive innovation External factors (EU schemes) must be considered Will it drive deep, infrastructural change? Conflict with other domestic policies?3
  • What is Domestic Offsetting? Offset projects where project host and credit buyer (investor) are in the same country Scheme to develop offset projects in sectors that are not included in the EU ETS cap-and-trade scheme in order to promote the achievement of emission reductions in these sectors.4
  • Country B (with Kyoto reduction target Country A (with Kyoto reduction target) (JI) or without (CDM)) National UNCCC Emissions Mechanisms CDM. Projects Sector A hosted in (project developing investor) countries. JI. Projects hosted in other countries Sector B that also have a (project Kyoto target host).5
  • ConclusionsEncouraging best practice Provides value to previously unrecognised savings No limit on uptake Increase GHG literacy Must balance against other objectives Food Harvest 20206
  • ConclusionsMoving to a low GHG society Incentivises activity in untapped sectors Capacity building: R&D and ‘green collar’ jobs Can complement existing initiatives SEAI grants Risk of low-GHG ‘bubbles’ Recommend a phased approach to community schemes7
  • ConclusionsDevelopment of offsetting enterprises Encourage developers/traders to Ireland Create a need for validators/verifiers R&D creates exportable IP Ireland as innovation test-bed8
  • Barriers & Benefits Barriers Benefits Other schemes more Creation of a price signal suitable – building sector Additional/more efficient Not suitable for very small incentive for abatement players Benefit to early movers ‘Difficult’ sectors Innovation Non-additionality may worsen emissions balance Interaction of other policy measures – needs to be further explored9
  • Abatement potentials and costs €/t Name Description Mt CO2 CO2 Built Abatement relative to FTRL in 820 <0 Environment 2020 Abatement relative to FTRL in Industry 700 <0 2020 Abatement relative to FTRL in Transport 270 < 100 2020 Abatement relative to baseline in Agriculture 160 190 202010
  • Identifying potential schemes Existing schemes have different styles, e.g. NSW GGAS New Zealand France All about balancing priorities: Where does demand come from? What’s the abatement potential? What are the costs? Scope of the scheme?11
  • Designing a DO schemeDrivers: Targeted emissions reductions Creation of export opportunities Whole economy GHG reductions at least costDesign elements: Scope Sectoral or project-based? Administration Funding Fungibility12
  • 3 DO structures for Ireland 1.Government buyer 2.Domestic ETS 3.JI Framework13
  • Sector focus: Transport Waste Agriculture Buildings (Commercial and residential) Non-ETS industries Scheme costs are more a structural issue. Admin costs should not be overly high - Potentially higher administration costs in terms Scheme costs more a structural issue participants more straightforward to identify than of establishing project boundaries and Scheme costs are more a structural issue (see Table 1). (see Table 1) for some other sectors; MRV and project monitoring reductions (need to addressScale of costs in setting up boundaries should be reasonably permanence).scheme straightforward Emissions reductions achieved will count towards Irelands target under the Effort Sharing Directive (and consequently Kyoto target). Biofuels No sector-specific issues: emissions reductions achieved will count towards Irelands target under the Effort Sharing Directive (and consequently Kyoto target). Renewable energy projects can alsoPotential to contribute to projects can count towards EU Fuel count towards EU Renewable Energy DirectiveEU and Intl legally binding Quality Directive and Renewabletargets (and threat of Energy Directivedouble counting) Vehicle Registration tax exemption for Participants under the REP scheme would likely electric vehicles, Biofuels Obligation be excluded from hosting offsetting activities, as DO can act as a complement to the Energy (2010), Mineral Oils Tax Relief Scheme it would not be in line with their agri- DO can act as a complement to the Energy Map MAP for SMEs. Interaction with the Energy for non-fossil fuels and carbon tax of 15 Carbon tax of 15 Euros/tCO2. Effect of the environmental plan. BioEnergy Scheme and for SMEs service. Carbon tax and domestic and Agreements Programme should be minimal Euros/tCO2 for non-EU ETS sectors landfill levy must be included in assessment of national carbon tax should be taken into account commercial grants (Greener Homes Scheme etc) due to the size of the different entities. The can affect offset additionality. In Option IRR of relevant entities. during additionality tests. DO scheme can also need to be factored in to tests for additionality. national carbon tax must be taken into accountInteraction with other A a purchase price fixed higher than contribute to national target of 17% forest land when assessing additionalitypotential climate policy other instruments could negate their cover by 2030.instruments (risk of value.perverse incentives) Some non-ETS industries could see No specific sectoral issues. Project There are no plans for commercial or residential themselves brought into the EU ETS in later Widely acceptable offsetting methodologies for additionality may be threatened by the buildings or projects to be included in EU ETS. A phases, as the scheme expands. They would forestry and land use could be introduced, development and increased uptake of No specific sectoral issues. small number of buildings may be included due to then no longer be eligible for inclusion in a leading to greater certainty and confidence in new cleaner vehicle technologies (e.g. combustion. Permanence could be an issue if domestic scheme. Permanence could be an LULUCF offsets. electric cars/hydrogen vehicles). behavioural change is included in the measures issue if behavioural change is included in theFuture scenarios measures Potential overlap of abatement opportunities Abatement opportunities could be Sector holds a large number of potential Limited as small number of potential participants International flexibility limited as LULUCF credits with the buildings sector, however this could be reduced as clean fuel alternatives abatement opportunities (due to large number of with financially feasible abatement opportunities not eligible in EU ETS overcome through careful sector definitions in become more commercial properties).Market Flexibility the final scheme 14
  • The pros and cons of differentstructures Additionality Interaction with other policies Carbon Leakage Who pays? Double counting Market Flexibility Future scenarios Dependent on structure AND on sector15
  • ConclusionsWhich design option best fits the objectives? 2.Domestic ETS Mandatory cap drives demand Allows for large scope Flexibility for sectoral or project-based approach Avoids transfer of credit outside Ireland16
  • Option A Option B Option C Government Buyer Classic DETS JI/EU ETS linkage Largest overall cost to the government as commits to Largest administrative costs although costs canFinancing? Self financing and how? Raises funding all offsetting activity. However could hand day be passed on to participants via auctioning and Administration costs to Ireland are low as largely aregovt revenues? Scale of costs in setting up to day oversight (and costs) to external 3rd party, or covered by UNFCCC. surrendering of DETS allowances.scheme could charge a registration fee for participation. Threat of double counting exists if equivalent AAUs are not cancelled when credits are sold or submitted for compliance externally. No real risk of double counting.Potential to contribute to EU and Intl legally Also, if majority of credits are kept for internalbinding targets (and threat of double reductions then becomes very similar to Option A ascounting) government would be key purchaser See sector table. More limited in relation to other Options as not all non-ETS sectors can host See sector table. No structural issues See sector table. No structural issues offsetting activity. Internal abatement in cappedPotential costs and abatement sectors still possible however. Ease of participation similar across all 3 options. Ease of participation similar across all 3 options. Incentive for project developers in that there is an Incentive provided in Option A via guaranteed point of Ease of participation similar across all 3 options. established platform for sales, and large potential sale for project developers. If purchase price is fixed Strong incentive as allows for obligated sectors to demand via EU ETS (if Irish government doesnt then there is no incentive for opportunities with an mitigate costs of DETS participation. arrange for credits to count towards IE Kyoto abatement cost higher than this priceIncentive for/ease of participation compliance). DETS participation could serve as opt-out Possible overlap in some sectors with other measure to national carbon tax, although host Possible overlap in some sectors with otherInteraction with other potential climate policy measures/incentives, but this can be addressed by sectors would remain obligated. Other policy measures/incentives, but this can be addressed byinstruments (e.g. risk of perverse incorporating into final scheme design conflicts may exist at a specific sector level but incorporating into final scheme designincentives) can be addressed in planning Scheme could continue indefinitely until Scheme sustainability strongly linked to future of JI, Sustainability of scheme linked to purchase- abatement opportunities exhausted/no longer although potential under Linking Directive for inclusion commitment threshold. At this point could segue into economically feasible. Possible later direct or of domestic offsets could create a driver separate from Option C. indirect linkage to EU ETS or other international UNFCCC mechanismsFuture scenarios ETS. Strong flexibility as level of abatement determined Established platform for sales, abatement incentives No market flexibility as only one buyer and fixed by stringency of DETS cap.Fewer eligible host fluctuate with ERU price. Activities can take place in all purchase price sectors although capped sectors can still choose non-ETS sectorsMarket Flexibility to abate internally. Additionality more a sectoral concern. No inherent structural features in any Option that would cause significant concerns over additionalityAdditionality/Env Integrity JI MRV standards already in existence and would be Sectoral approaches still relatively untested in Project-based approach could allow to later easily applicable, although for some sectors comparison to project-based mechanisms, causing linkage of DETS to EU ETS. Well-established programmatic approaches would be advisable. MRV greater risk and uncertainty. Greater scientific MRV standards that could be adapted to Irish activities will need to be carried out by approved JI uncertainty could allow for free riders. context verifying entities (AIEs).Applicability of international MRV standards Voluntary participation should mitigate risk of Voluntary participation should mitigate risk of Risk of international leakage as production could 17 international carbon leakage but accidental intra- international carbon leakage but accidental intra- move to non-capped sectors in other EU countriesCarbon Leakage issues sectoral leakage could be a risk in some cases sectoral leakage could be a risk in some cases
  • Transport Waste Agriculture Buildings (Commercial and residential) Non-ETS industries Environmental integrity could be threatened Standard additionality tests are advised. around issues to do with permanence and Additionality can still be achieved in presence of Environmental integrity: As a sectoral leakage. The sequestration potential of some other incentives/policies if clear rules of approach is strongly recommended for Standard additionality tests are advised. land use projects remain unclear and will need exemption from other benefits are established. Standard additionality tests are advised. domestic offsets in the transport sector, Additionality can still be achieved in presence of to be assessed in the long term before they can One concern over environmental integrity can be Additionality can still be achieved in presence concerns over the greater inaccuracies other incentives/policies if clear rules of be incorporated into a DO scheme. drawn from lesson learned in the UK energy of other incentives/policies if clear rules of inherent in sectoral monitoring and exemption from other benefits are established. Existing reforestation and sustainable land use efficiency CERT scheme. Credits for measures exemption from other benefits are established. baseline-setting must be policies such as the afforestation grant and such as insulation and CFLs could be discounted acknowledged. premium scheme must be taken into account to account for units that are not taken up by when establishing additionality requirements. residents.Additionality/Env Integrity Existing international LULUCF methodologies Several widely accepted methodologies detailing not universally accepted, due to worries over Relatively simple CO2 baselines can be Since non-ETS industries are diverse, not MRV procedures for waste offsetting projects permanence, monitoring and baseline established for buildings projects. However, always energy-intensive and can be a hard to Monitoring of transport activities within a are in existence. These include IPCC National determination. A sectoral approach may be projects often have a small-scale, so a reach sector for policymakers, however offset non-ETS offset project can be GHG Inventory Guidelines for waste, as well as advisable, although greater scientific uncertainty programmatic approach may be necessary activities are likely to relate to the built burdensome and often only sample CDM/JI and VER offset methodologies. Larger must be accepted. Project-based Again, WRI GHG Protocol, IPCC GHG guidelines environment and energy efficiency, for which based monitoring is feasible waste facilities may also be captured in EU ETS methodologies for other types of agricultural and existing offset methodologies provide useful existing robust MRV guidelines can be and their reporting practices could also serve as project (mainly anaerobic digestion of livestockApplicability of robust templates for MRV. implemented. a template. waste) are well established.international MRVstandards Large agricultural projects may shift activities in Carbon leakage could be an issue for ways that were not intended, e.g. a land use some subsectors of transport, Carbon leakage would be expected to be less of change project in one location may displace particularly those that compete an issue for this sector. Commercial inhabitants another project in another area,or lead to internationally (eg some freight of buildings would not be expected to move clearing of land to replace lost land used for For larger, multi-national non-energy intensive companies); however for those Low threat of leakage since sector tends to be countries on account of climate policies, food cultivation. Market-based leakage can organisations (e.g. in pharmaceutical or IT subsectors which may be more nationally not internationally focussed particularly since energy would not be expected to occur where a project may alter the supply and sectors) a threat of international leakage exists nationally focussed (bus and train be a significant cost for these companies demand forces of agricultural product markets, transport, car hire companies, vehicle (compared to other sectors). The same would be e.g. where large forestry projects might reduce retailers), carbon leakage would be expected for residents the supply of timber. Interaction with food expected to be less of an issue. imports should also be considered.Carbon Leakage issues 18
  • Thank you Siobhan OKeeffe Ecofys UK +44 (0)207 423 0993 (direct dial) +44 (0)7766 227 139 (mobile) Email: S.OKeeffe@ecofys.com19