Future Outlook for Domestic Offsetting in Europe

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This presentation informs on key elements and drivers for Domestic Offsetting in Europe as well as its potential role in view of current EU policy and global trends. Dr.ir. Bram Borkent, Consultant for Market based Mechanisms at Ecofys, gave this presentation during the International Workshop on Domestic Offset Schemes „Towards scattered ambitions?“ in Zurich, Switzerland, on 26 September 2013.

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Future Outlook for Domestic Offsetting in Europe

  1. 1. Bram Borkent 26/09/2013 Future outlook for Domestic Offsetting in Europe International Workshop on Domestic Offset Schemes „Towards scattered ambitions?“ Zürich, 26 September 2013
  2. 2. © ECOFYS | | Domestic offsetting: what is it? Definition > The generation of emission reduction credits in sectors not covered by an emissions trading scheme, that can be purchased to offset emissions by other entities (within the host country or sometimes abroad). 26/09/2013 Bram Borkent
  3. 3. © ECOFYS | | Why does it matter? > Carbon price incentive for emission reductions in non-ETS sectors > Attracts domestic investments, innovation, safeguarding jobs > Search engine > Flexibility for regulated sectors (e.g. ETS) > Marketing 26/09/2013 Bram Borkent
  4. 4. © ECOFYS | |26/09/2013 Bram Borkent Trend: increased focus on domestic offset projects Source:
  5. 5. © ECOFYS | | Key elements and drivers for Domestic Offsetting in Europe 1. EU policy context 2. Demand 3. Supply 4. Cost efficient design 26/09/2013 Bram Borkent
  6. 6. © ECOFYS | | 1. Domestic offsets in EU are embedded in an overarching regulatory frame GHG reduction target: -20% compared to 1990 Non-ETS -10% compared to 2005 27 national targets Ranging from +20% to -20% EU ETS -21% compared to 2005 -14% compared to 2005  Power sector  Energy-intensive industry and other selected industrial sectors  Aviation (since 2012)  CCS installations (since 2013) Martijn Overgaag, Jan-Martin Rhiemeier 26/09/2013 Bram Borkent
  7. 7. © ECOFYS | | 1. Both ETS and non-ETS are capped and allowances can be traded 26/09/2013 Bram Borkent
  8. 8. © ECOFYS | | 2. The lost decade: current GHG targets limit appetite for additional climate policies > EU-ETS – Oversupplied by >2 billion allowances – Low carbon prices until at least 2023 (Reuters PointCarbon) 26/09/2013 Bram Borkent *) Source: EEA (2012), Greenhouse gas emission trends and projections in Europe > Non-ETS – 21 Member States on track to reach 2020 target* – With existing or currently planned measures > Next decade – Low demand for AEAs / EUAs – Little incentive to reduce emissions beyond targets
  9. 9. © ECOFYS | | 3. Sufficient supply? An example from The Netherlands 26/09/2013 Bram Borkent
  10. 10. © ECOFYS | | 3. Most reduction options are not suitable for Domestic Offsetting leaving limited supply 26/09/2013 Bram Borkent Transaction costs, implementation barriers, specific issues 24 12 7 5 Supply (MtCO2) ~1 MtCO2
  11. 11. © ECOFYS | | 4. How can you design domestic offsetting cost efficiently? > Three options to be discussed: a. Coupling with the EU ETS (“Article 24a”) b. Government buyer option c. Adoption of a voluntary framework 26/09/2013 Bram Borkent
  12. 12. © ECOFYS | |26/09/2013 Bram Borkent Option a: “Article 24a” Emissions National level ETS Non- ETS Emissions Compliance AEA budget Finance for domestic projects by (EU ETS) market
  13. 13. © ECOFYS | |26/09/2013 Bram Borkent Option a: “Article 24a” Emissions National level ETS Non- ETS Emissions Compliance AEA budget DOC Credits are generated which can be used in EU-ETS EUA Government cancels AEAs
  14. 14. © ECOFYS | |26/09/2013 Bram Borkent Option b: Government buyer option Emissions National level ETS Non- ETS Emissions Compliance AEA budget Finance for domestic projects by government
  15. 15. © ECOFYS | |26/09/2013 Bram Borkent Option b: Government buyer option Emissions National level ETS Non- ETS Emissions Compliance AEA budget AEAs Other MS Government sells surplus AEAs
  16. 16. © ECOFYS | |26/09/2013 Bram Borkent Option c: Adoption of the voluntary market Emissions National level ETS Non- ETS Emissions Compliance AEA budget Finance by market (project developers)
  17. 17. © ECOFYS | |26/09/2013 Bram Borkent Option c: Adoption of the voluntary market Emissions Compliance Project developers Private sector € • Market receives voluntary credits which can be further sold on • Government cancels AEAs Emissions National level ETS Non- ETS AEA budget
  18. 18. © ECOFYS | | Evaluation of pros and cons: the voluntary market option preferred 26/09/2013 Bram Borkent “Article 24a” Government buyer Voluntary market Demand Administrative costs Independent Global net mitigation Increases flexibility
  19. 19. © ECOFYS | | Conclusion > Global trend towards domestic project-based crediting > Domestic Offsetting is an opportunity to reduce emissions and attract domestic investments, but… > …current European GHG targets provide little environmental incentive for Domestic Offsetting in the next decade > … if considered, it should be designed with care, e.g. : – Embedding in EU policy context – Supply and demand sources – Cost efficient design – Impact of implementation barriers > The voluntary market is a “no lose” option; it’s benefits need more attention 26/09/2013 Bram Borkent
  20. 20. © ECOFYS | |26/09/2013 Bram Borkent Thank you for your attention! > Contact details Dr. ir. Bram Borkent - Consultant Market Based Mechanisms T: +31 (0)30 662 3822 M: +31 (0)6 5463 5575 E: b.borkent@ecofys.com I: www.ecofys.com

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