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Preparing for EU Carbon       Regulations: A Practical Guide                                  Overview, Current Status &  ...
About Climate Connect – Specialist News & Data                         provider in emerging Post 2012 Environmental       ...
Our expertise in EU ETS Aviation   I. Latest News   Published over 100 news stories on EU ETS Aviation   July 20, 2012    ...
About Evolution Markets – the carbon markets’                                     leading brokerage firm      Evolution M...
Presentation Structure       Introduction to EU ETS                        Trading allowances under EU ETS       Aviati...
Introduction to EU ETS      Launched in 2005 with ‘cap-and-trade’ as its principle      Covers 30 countries (the 27 EU M...
Aviation under EU ETS & its                          significance   Global emissions of carbon dioxide (CO2) rose by 3%  ...
Opposition by other states –                            Why?      A group of 26 countries including China, the United Sta...
Important Timeline                                                                  Identify requirements and resources   ...
Financial implications –                 Compliance/Non-compliance                                                        ...
Special issues faced by the                          Small Airlines      Difficulty to directly access to international c...
Mitigating the Compliance – Data needed   All the airlines will have to    Monitor tonne-kilometers and CO2 emissions beg...
Documentation, Monitoring,                    Reporting & Verification   What is a monitoring plan?   Aircraft operators w...
Continue…  tonne-kilometre monitoring plan   A list of aircraft types in the fleet, the number of aircraft per type and t...
EU ETS Registry   The Union registry or EU ETS Registry is a secure web-based application that   records:    Allowances a...
Step-by-step registration process© Evolution Markets Inc. | Climate Connect Limited   16
Trading allowances under                                  EU ETS  Exchange Traded:   Margining implications   Clearing  ...
Associated Risks with the                        Trading Carbon Credits    Insufficient Risk Management Controls    Coun...
EUA/EUAA/CERs – Historical prices/trend                                                                                 EU...
Compliance efforts -Current                           Scenario    Biofuel             Alaska Airlines launched its maiden...
Current & Future regulatory                         developments   EU ETS inspired other countries and regions to launch ...
Evolution & Climate Connect – Snapshot of our                        Services    Aviation Advisory Services:              ...
Privileged Information Seeker   Thank You      www.climate-connect.co.uk | www.evomarkets.com     To find out more about E...
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Preparing for EU Carbon Regulations - A Practical Guide by Evolution Markets & Climate Connect

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The webinar was hosted by Evolution Markets & Climate Connect on July 25th & July 26th 2012, to assist airlines in preparation for the EU aviation carbon trading scheme, insight on the program’s compliance regulations, the impact on the aviation sector, strategies for compliance, and how to access the trading market. Offers practical advice on how to set up and manage ETS accounts.

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Transcript of "Preparing for EU Carbon Regulations - A Practical Guide by Evolution Markets & Climate Connect"

  1. 1. Preparing for EU Carbon Regulations: A Practical Guide Overview, Current Status & Position of Airlines Presented By Lenny Hochschild, Evolution Markets & Prashant Kulshrestha, Climate Connect For better voice clarity, please dial in the Toll-free numbers below: UK user: 0844 762 0 762 | Non-UK user: +44 844 762 0 762 OR +49 1803 002 063 Participant pass-code: 46238 Please direct your queries to CC Analyst© Evolution Markets Inc. | Climate Connect Limited 1
  2. 2. About Climate Connect – Specialist News & Data provider in emerging Post 2012 Environmental Markets London Kentucky Beijing New Delhi Fast and accurate news helps in making informed decisions impacting your bottom-line© Evolution Markets Inc. | Climate Connect Limited 2
  3. 3. Our expertise in EU ETS Aviation I. Latest News Published over 100 news stories on EU ETS Aviation July 20, 2012 AirAsia signs deal with GE Aviation to cut carbon emissions, fuel consumption July 19, 2012 Etihad plans to cut emissions using Rolls Royces fuel optimization... July 16, 2012 EU ETS will cost €10 million to Emirates July 10, 2012 EU ETS Aviation may impact production says Airbus; proposes reforms July 9, 2012 VerifAvia expands operations to cover airport emissions July 9, 2012 UN calls for $25 per tonne carbon tax in developed countries July 6, 2012 South African Airways eyeing voluntary carbon offset project July 5, 2012 NATS partners with Royal Jet to achieve environmental goals June 21, 2012 European Commission activates single EU Emission Trading registry II. Dedicated Monthly Aviation Newsletter – Aviation focus To be launched on first week of August 2012 II. Global Newsletter Published Monday to Friday with a section on Aviation III. Post-2012 Carbon Markets Report Published every Tuesday with a section on Aviation Climate Connect interviewed Paul Steele, Executive Director, Air Transport Action Group at COP 17, Durban Click here to see the interview© Evolution Markets Inc. | Climate Connect Limited 3
  4. 4. About Evolution Markets – the carbon markets’ leading brokerage firm  Evolution Markets provides strategic financial and industry-leading transactional services to participants in global environmental markets and the clean energy sector  Unique approach called EvoFinance™, a single source for innovative financial services solutions Market Pioneer  First Trade of Kyoto Allowances (Green-AAUs) (Dec. 2002)  First Brokered EU ETS Trade (Apr. 2003)  First EU ETS Trades Using the ISDA Contract (Jun. 2004)  First Large-Scale EUA Transaction (400K EUAs) (Nov. 2004)  First EUA Trade for Settlement in 2008 (Nov. 2004)  First Brokered EUA Option (Sep. 2005)  First Indexed CER Trade (Mar. 2006)  First “Phase Three” (post-2012) EUA Trade (Mar. 2007)  First RGGI-Compliant Offset Trade (Jun. 2007)  First CER Option (Sep. 2007)  First RGGI Allowance Trade for Physical Settlement (Mar. 2008)  First Brokered EUA Spot Trade (Jun. 2009)  First Quarterly EUA Options Trade (Jul. 2009)  First Brokered ERU Cleared Trade (Jul. 2010)  First Guaranteed California Compliant Offset Trade (Dec. 2010)  First GreenEx-Cleared California Carbon Allowance Trade (Sep. 2011) Evolution Markets Inc. and Climate Connect, JV that provide comprehensive advisory and transaction services to assist aircraft operators and their partners around the globe with services and strategies to comply with the European Unions carbon reduction mandates© Evolution Markets Inc. | Climate Connect Limited 4
  5. 5. Presentation Structure  Introduction to EU ETS  Trading allowances under EU ETS  Aviation under EU ETS & its significance  Associated Risks with the Trading  Opposition by other states – Why?  EUA/EUAA/CERs – Historical prices/trend  Important Timelines  Compliance efforts -Current Scenario  Financial implications – Compliance/Non-  Future forecast compliance  Evolution & Climate Connect – Snapshot of  Special issues faced by airlines our Services  Mitigating the Compliance – Data needed  Thank You  EU ETS Registry  Q&A  Documentation, Monitoring, Reporting & Verification© Evolution Markets Inc. | Climate Connect Limited 5
  6. 6. Introduction to EU ETS  Launched in 2005 with ‘cap-and-trade’ as its principle  Covers 30 countries (the 27 EU Member States plus Iceland, Liechtenstein and Norway), 40% of total GHG emissions  Covers 11,000 power stations and industrial plants in 30 countries  Inclusion of Aviation from Jan 1st,2012, others from 2013 Phase I Phase II Phase III 2005-2007 2008-2012 2013-2020 Emissions rose 1.9% Allowance cap: 2.8 billion tons EU-wide emissions cap Increase of 37.88 million tons Average cut of 7% from 2005 levels Reduce emissions to 1.7 Bn tons Various European Commission documents© Evolution Markets Inc. | Climate Connect Limited 6
  7. 7. Aviation under EU ETS & its significance  Global emissions of carbon dioxide (CO2) rose by 3%  Worldwide, flights produced 676 million tonnes of CO2  CO2 emissions from EU international aviation increased by 110% between 1990 and 2008  On 2 February 2009, EU legislation incorporated aviation into the EU Emissions Trading Scheme (ETS) as from 2012  Airlines operating into and out of the EU are required to immediately begin purchasing emissions allowances, but are only expected to remit the sums in 2013  Non compliance, leads to fines of up to EUR100 (USD122) for each tonne of carbon dioxide emitted© Evolution Markets Inc. | Climate Connect Limited 7
  8. 8. Opposition by other states – Why?  A group of 26 countries including China, the United States and India jointly denounced the ETS as "illegal“  EU ETS breaches the Chicago Convention, which prohibits taxation of international aviation  BASIC (Brazil, South Africa, China & India) nations showed deep concern about the unilateral action by the EU to include international aviation in the EU-ETS  EC estimates the ETS will cost Chinese airlines less than €2.5m a year and Indian airlines €1m a year, which is an "insignificant amount"© Evolution Markets Inc. | Climate Connect Limited 8
  9. 9. Important Timeline Identify requirements and resources July 2012 for Carbon Registry Account  Allowance allocation in 2012 application Submit Carbon Registry  Free allowances: 180.95 Mn tons Aug 2012 Account application  Allowance auction: 31.93 Mn tons Submit new Monitoring Plan for Sept 2012 next trading period (if required)  Activate Carbon Registry Oct 2012 account  Obtain approved plan and approval letter from Competent Authority Nov 2012 QA assessment validating internal process Jan 2013 Submit report and supporting documentation to a third-party verifier Mar 2013 Submit verified report to Competent Authority Various resources available at European Commission© Evolution Markets Inc. | Climate Connect Limited 9
  10. 10. Financial implications – Compliance/Non-compliance $719 million by 2020 $0.5 - $1 billion by 2020 €3.1 billion by 2020 Cost Estimates  Reuters estimates: $2.8 billion by 2020 To comply: Airlines that do not have  Bloomberg estimates: 844 million offset deficit enough allowances will have to buy by 2020 them in the carbon market or face a €100 / ton fine.  IATA estimates: $17.7 billion by 2020  EC estimates: $20 billion profits by 2020© Evolution Markets Inc. | Climate Connect Limited 10
  11. 11. Special issues faced by the Small Airlines  Difficulty to directly access to international carbon market in Europe  Inability to qualify or meet stringent Know your customer (KYC) requirements of big carbon traders or exchanges  Inadequate access to regulatory and market information  Inability to find qualified staff in country of origin with adequate carbon market knowledge  Administrative expenses could be higher relative to compliance obligation  No avenues for carbon market education in country of origin© Evolution Markets Inc. | Climate Connect Limited 11
  12. 12. Mitigating the Compliance – Data needed All the airlines will have to  Monitor tonne-kilometers and CO2 emissions begins 1 January each calendar year for EU- ETS  Report tonne-kilometer data to your Member States regulatory authority no later than 31 March of each calendar year  Report CO2 emissions data to your Member States regulatory authority no later than 31 March of each calendar year  Surrender allowances for 2012 emissions by 30 April 2013 Emission factors for aviation fuels DETERMINATION OF CO2 EMISSIONS Emission factor CO2 emissions = Fuel consumption x emission factor Fuel (tCO2 /tfuel) Aviation gasoline (AvGas) 3,10 Jet gasoline (Jet B) 3,10 Jet kerosene (Jet A1 or Jet A) 3,15© Evolution Markets Inc. | Climate Connect Limited 12
  13. 13. Documentation, Monitoring, Reporting & Verification What is a monitoring plan? Aircraft operators will be required to submit two monitoring plans to their administering Member State:  How the aircraft operator intends to monitor and report fuel consumption (the emissions monitoring plan) and  Tonne-kilometre data (the tonne-kilometre monitoring plan) Data required in emissions monitoring plan  Data identifying the aircraft operator, contact details of the aircraft operator  A list of aircraft types in the fleet, the number of aircraft per type and the fuel calculation method per aircraft type.  An indicative list of the additional types and numbers expected to join the fleet.  A description of the procedures used to monitor the list of flights operated.  A description of the methods used for monitoring (and transmitting, storing and retrieving) fuel consumption data, including:  The chosen methodology for the calculation of fuel consumption.  The procedures for measurement of fuel uplifts and fuel in tanks.  The procedure to ensure the total uncertainty of fuel measurement will comply with the monitoring and reporting requirements.  The procedure for measurement of fuel density, and the emission factors used for each fuel type used© Evolution Markets Inc. | Climate Connect Limited 13
  14. 14. Continue… tonne-kilometre monitoring plan  A list of aircraft types in the fleet, the number of aircraft per type and the fuel calculation method per aircraft type.  An indicative list of the additional types and numbers expected to join the fleet.  A description of the procedures, systems and responsibilities used to update the list over the monitoring year.  A description of the procedures used to monitor the list of flights operated.  A description of data acquisition and handling activities, and quality control and assurance activities, including maintenance and calibration of measurement equipment.  A description of the methods used for determining tonne-kilometre data per flight, including:  The procedures, responsibilities, data sources and calculation formula for determination and recording of distance per aerodrome pair (=GCD + 95km).  Description of the procedures or method used to determine the mass of freight and mail and the mass of passengers and checked baggage.  Description of the measurement devices used for measuring mass of passengers, freight and mail as applicable.© Evolution Markets Inc. | Climate Connect Limited 14
  15. 15. EU ETS Registry The Union registry or EU ETS Registry is a secure web-based application that records:  Allowances allocated and held in registry accounts  Annual verified emissions  The transfer of allowances between accounts  Annual compliance status  Each Aircraft operator have to open an Aircraft operator holding account (AOHA) for the transaction of allowances in the Union registry Documents Required (Any one) • A certified copy of Certificate of Incorporation or registration of the Applicant evidencing the full name of the Applicant • The company registration number and VAT registration number Important • The names of all Directors • A statement signed by the individual or Authorised Representative confirming the full name, permanent residential address, place & date of birth, email address etc.© Evolution Markets Inc. | Climate Connect Limited 15
  16. 16. Step-by-step registration process© Evolution Markets Inc. | Climate Connect Limited 16
  17. 17. Trading allowances under EU ETS Exchange Traded:  Margining implications  Clearing  Access to real time pricing  Access to live quotes on screen Bilateral/Non-Exchange Traded  Credit Approval  Pre-Trade Bilateral Documentation  Counterparty Risk  Access to wholesale pricing© Evolution Markets Inc. | Climate Connect Limited 17
  18. 18. Associated Risks with the Trading Carbon Credits  Insufficient Risk Management Controls  Counterparty Performance Risk / Credit Risk  Price Volatility  Political/Regulatory Uncertainty  Reputational Risk© Evolution Markets Inc. | Climate Connect Limited 18
  19. 19. EUA/EUAA/CERs – Historical prices/trend EUA & CER: Price Action 31.00 Pre -2012 Strip EUA 27.00 Pre-2012 Strip CER 11-14 EUA Strip 23.00 11-13 CER Strip 19.00 € 15.00 11.00 7.00 3.00 Mar08 Jun08 Sep08 Dec08 Mar09 Jun09 Sep09 Dec09 Mar10 Jun10 Sep10 Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 EUAA Dec 12: Price Action 10 9 8 7 6 5 2/28/2012 3/28/2012 4/28/2012 5/28/2012 6/28/2012© Evolution Markets Inc. | Climate Connect Limited 19
  20. 20. Compliance efforts -Current Scenario Biofuel  Alaska Airlines launched its maiden biofuel-powered flight, from Seattle to Washington D.C.  Australias Qantas airline makes first commercial biofuel flight  Azul Airlines announces plans to test Amyris sugarcane-based jet fuel  United Airlines, Boeing, Honeywell’s UOP, the Chicago Department of Aviation and the Clean Energy Trust announced the formation of the Midwest Aviation Sustainable Biofuels Initiative (MASBI)  KLM Royal Dutch Airlines became the first airline in the world to operate flight on aviation biofuels  Boeing, Airbus team up on EU carbon charge, biofuels Emission  Air Berlin concluded first trade of EU aviation allowances Trading  SAA to Raise Surcharge to comply with EU Emissions Trading Scheme  major airlines Deutsche Lufthansa AG, AirFrance-KLM and others buying or plan to buy carbon permits  Virgin will receive nearly 3.6 million EU aviation allowances for the year 2012, and a total of 27 million for the period 2013-2020 Efficiency  United Airlines orders 150 Boeing 737s, 15% more fuel-efficient per seat  Etihad Airways chooses Rolls-Royce to help cut emissions and save fuel  Boeing, American Airlines 737-800 ecoDemonstrator Airplane Prepares for Flight Test Program ANS  EU prepares for common air traffic management  LATAM Airlines eyes wider use of RNP navigation tools  Royal Jet colloborate NATS, air navigation service provider to improve the environmental performance of its flights in UK airspace Regulatory  IATA Welcomes ICAO Progress on a CO2 Standard for Aircraft  Canada launches its own GHG reduction plan for aviation© Evolution Markets Inc. | Climate Connect Limited 20
  21. 21. Current & Future regulatory developments EU ETS inspired other countries and regions to launch cap and trade schemes ICAO establishing a worldwide CO2 Standard for aircrafts, a system, which characterizes the CO2 emissions for aircraft types with varying technologies Aviation industry looks for other ways of reduction of CO2 emissions e.g. South African Airways exploring the implementation of voluntary carbon offset project Carbon Leakage New sectoral market mechanisms in the EU ETS© Evolution Markets Inc. | Climate Connect Limited 21
  22. 22. Evolution & Climate Connect – Snapshot of our Services Aviation Advisory Services: Knowledge Services:  Sustainability Consulting: A comprehensive report on the  Carbon Workshops: On-site workshops or Webinars to Aviation ETS program, inclusive of compliance obligations, stay on top of market and regulatory developments. allowance allocation, auction structures and frequency, and  News Broadcasts: News and regulatory updates on carbon offset programs. carbon markets designed specifically for the aviation  Compliance and Reporting: Support in fulfilling EU ETS industry. Carbon Market Research: Research reports on obligations, including analysis of emissions data, reporting, carbon pricing and market liquidity, focused on your and timely submission of data to the respective authorities. specific risk profile and information needs.  Governance and Risk Management: Development of a  Intelligence Reports: Aviation industry business comprehensive and strategic risk management program. intelligence reports and case studies on aircraft operator Sustainability Reports: Reports and analysis of Aviation strategies to meet carbon compliance obligations. Allowances, Carbon Emissions, and market trends.  Allowances and Carbon Credit Reports: Reports  Registry Services and Documentation: Acting as your detailing EUAs and CERs issuance and surrender rates. appointed representative, allowing you to cost-  Carbon Price Data: Access to industry-leading market effectively outsource coordination with the appropriate data services. registry for the delivery of compliance units.  Monitoring and Verification: Assessment and procurement of the services of a third-party verifier to complete the monitoring and verification of emission data.  Carbon Trading: Accessing the carbon market for allowance and offset procurement and sale, as well as execution of various hedging strategies.© Evolution Markets Inc. | Climate Connect Limited 22
  23. 23. Privileged Information Seeker Thank You www.climate-connect.co.uk | www.evomarkets.com To find out more about Evolution Markets’ and Climate Connect’s advisory services for the aviation sector Call: +1 415.963.9138 (US), +44 207.193.8996 (UK/Europe), +91 11.4505.6713 (India) or email: aviation@evomarkets.com Disclaimer: Climate Connect Ltd has taken due care and caution in compilation and reporting of data as has been obtained from various sources including which it considers reliable and first hand. However, Climate Connect Ltd does not guarantee the accuracy, adequacy or completeness of any information and it not responsible for errors or omissions or for the results obtained from the use of such information and especially states that it has no financial liability whatsoever to the users of this report. This research and information does not constitute recommendation or advice for trading or investment purposes and therefore Climate Connect Ltd will not be liable for any loss accrued as a result of a trading/investment activity that is undertaken on the basis of information contained in this report. Climate Connect Ltd does not consider itself to undertake Regulated Activities as defined in Section 22 of the Financial Services and Markets Act 2000 and it is not registered with the Financial Services Authority of the UK. Evolution Markets Inc. and its suppliers believe the information or data contained herein was obtained from reliable sources. Nevertheless, Evolution Markets Inc. does not guarantee the accuracy and/or the completeness of the information or data included herein, to you or to any other person or entity, and Evolution Markets Inc. shall have no liability for any errors or omissions with respect to such information or data. Evolution Markets Inc. makes no express or implied warranties to you, or to any other person or entity, and expressly disclaims all warranties or merchantability or fitness for a particular purpose or use, with respect to the information or data included herein. Without limiting any of the foregoing, in no event shall Evolution Markets Inc. have any liability for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of such damages. Prices and or bids/offers reflect (i) data from completed transactions, (ii) data from pending transactions, (iii) firm bids to buy and/or firm offers to sell, (iv) prices purchasers have expressed a willingness to pay, but for which we have not received, or are not aware of, a firm bid to buy or prices sellers have expressed a willingness to accept, but for which we have not received, or are not aware of, a firm offer to sell and/or (v) our judgment of the price(s) at which transactions could be concluded based on any combination of the above information. © Copyright 1999-2011, Evolution Markets Inc.© Evolution Markets Inc. | Climate Connect Limited 23
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