Yvon Slingenberg, Head of Unit B1- Implementation of ETS, DG CLIMA, European Commission


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Yvon Slingenberg, Head of Unit B1- Implementation of ETS, DG CLIMA, European Commission

  1. 1. The EU Emissions Trading Scheme- EU ETS<br />Presentation by Yvon Slingenberg<br />Head of Unit<br />Implementation of the EU Emission Trading System<br />
  2. 2. This Presentation<br />The EU ETS:<br />Part 1: an essential part of a wider package of climate and energy policies<br />Part 2: emissions reductions and improvements to the system<br />Part 3: building block of the international carbon market<br />
  3. 3. 1. The EU ETS: an essential part of a wider package of climate and energy policies<br />
  4. 4. EU ETS basics<br />Mandatory system in place since January 2005<br />Environmental outcome guaranteed: cap on emissions from ~11,500 energy-intensive installations across EU<br />Covering around 50% of EU CO2 emissions<br />Direct: regulated at source of pollution<br />Simple market system- no price intervention<br />
  5. 5. 5<br />EU ETS : cap and trade<br />Operators must report verified emissions each year & hand in 1 emission allowance for each tonne of CO2 emitted<br />A mandatory cap on the number of allowances for all installations covered by the system (sum of 27 MS caps)<br />Emission allowances can be traded (so no cap per installation)<br />Carbon price: long term incentive to reduce emissions<br /><ul><li>Cost-effective: reductions take place where cheapest</li></li></ul><li>EU ETS part of a larger Climate & Energy Policy Package<br />From 2013<br />cross-sectoral <br />targets & instruments<br />technology specific & <br />product policies<br />large industrial installations & aviation <br />EU ETS<br />Carbon capture and storage Directive<br />Renewable Energy Directive <br />-20% / -30% wrt 1990 levels by 2020<br />Effort SharingDecision<br />Fuel Quality Directive<br />“small emitters” <br />CO2&cars<br />
  6. 6. GHG Target by 2020:<br />-20% compared to 1990<br />-14% compared to 2005<br />EU ETS<br />-21% compared <br />to 2005<br />Non ETS sectors <br />-10% compared to 2005<br />27 Member State targets, stretching from -20% to +20%<br />
  7. 7. Scope and timing<br />Three-year learning-by-doing phase from 2005-7, including power, heat and steam generation, oil refineries, iron and steel, pulp and paper, buildings materials (cement etc.)<br />Five-year “Kyoto” phase from 2008-12, with tighter caps and established infrastructure<br />Coverage of aviation from January 2012 (all departing flights, and incoming except where measures by departure country recognised as equivalent)<br />EU ETS revision applicable from 2013 onwards, inclusion of more sectors (Aluminium, basic chemicals) and gases (eg PFC, N20)<br />
  8. 8. 2. The EU ETS is working and improving: lessons for better systems<br />
  9. 9. EU ETS putting a price on carbon and reducing emissions<br />ETS emissions down 13.7% 2007 - 2009 2<br />ETS cut emissions by 2 % to 5% in Phase1 1<br />1 assessment by Ellerman et al, ‘Pricing Carbon 2010<br />2 verified emissions data, European Commission<br />Source Point Carbon<br />
  10. 10. EU ETS emissions reductions<br />2005-2007 -2% to -5% emissions reductions due to ETS (Ellerman et al)<br />-13.74% 2007-2009<br />Point Carbon Surveys<br />In 2006 5% of participants took future cost of carbon into account for investment<br />By 2007 this had risen to 65%<br />By 2010, long term carbon price a decisive factor for new investments for 47% (61% for large polluters). 54% say ‘EU ETS has already caused emissions reductions in my company’<br />
  11. 11. Revised EU ETS: 2013-2020 phase & beyond<br />EU-wide cap fixed in law up to 2020 and beyond (linear trajectory)<br />Auctioning becoming default over time<br />More than 50% of allowances auctioned<br />Political commitment to use 50% revenues to tackle climate change<br />Level playing field within EU, auctioning rights linked to costs/GDP<br />EU-harmonised ex-ante benchmarks for all free allocation, based on 10% top performers<br />
  12. 12. EU-wide cap from 2013, more certainty into the future<br />Starting point: 1974 Mt in 2013<br />Gradient: -1.74%<br />2083 Mt/yr<br />1720 Mt<br />-20%<br />2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024<br /><ul><li>Linear factor to be reviewed by 2025
  13. 13. Aviation to be included; will change figures correspondingly, but cap not reduced
  14. 14. Disclaimer: all figures are provisional and do not account for new sectors in third period</li></li></ul><li>Environmental effectiveness and competiveness<br /><ul><li>The best solution for environment and competitiveness is countries taking action under a global agreement
  15. 15. However transitional solutions exist via domestic policy:</li></ul>Emissions trading is itself a least cost way to meet emissions reduction targets<br />Use of international offsets for cost containment<br />Free allocation of allowances instead of auctioning<br />
  16. 16. Allocation and carbon leakage<br />Free allocation given in 2005-7 and largely in 2008-12 periods, rules decided by MS<br />Independent ex post analysis1 for 2005-2007 detects no statistical evidence of delocation due to ETS<br />In revision to EU ETS, move to harmonised EU-wide allocation with revised approach (benchmarks)<br />1 Ellerman et al ‘Pricing Carbon’<br />
  17. 17. EU-wide rules for free allocation<br />In terms of allocation rules, three categories of operators:<br />No free allocation: power sector (except for heat) <br />Partial free allocation: industry<br />100% free allocation of benchmark: industry exposed to risk of carbon leakage<br />Phasing out free allocation for sectors not exposed to risk of carbon leakage: <br />80% of benchmark in 2013<br />30% of benchmark by 2020<br />With a view to reaching full auctioning in 2027<br />
  18. 18. Benchmark: average performance of 10% most efficient installations in a (sub-)sector <br />Benchmark<br />
  19. 19. Addressing differences in development<br />From 2013, no free allocation for power production, following windfall profits => large auctioning revenues. Possibly € 30 billion per year (depending on C price)<br />Auctioning allows redistribution based on level of development:<br />88% of auction rights distributed according to Member States’ emission shares<br />12% distributed to new member states for purpose of solidarity and growth<br />
  20. 20. Option of transitional free allowances in power sector<br />10 new Member States qualify: maximum 14% of EU power generation<br />Existing installations only<br />Conditional on national plan to modernise energy infrastructure, clean technologies, diversification of energy mix<br />Total amount in 2013: maximum 70% of 2005-2007 verified emissions, decrease to zero in 2020<br />Individual allocation based on 2005-2007 verified emissions or benchmark <br />Applications by Member States by September 2011, Commission can reject within 6 months<br />
  21. 21. Auction Revenue Benefits<br />Several billion dollars for carbon capture and storage and renewables projects (using 300 million allowances set aside from the EU ETS new entrants reserve)<br />50% of EU ETS auction revenues should be invested to tackle climate change and shift to low-emission technologies <br />
  22. 22. 3. The EU ETS: building block of the international carbon market<br />
  23. 23. A robust international carbon market<br />In parallel to and supporting the UN process<br />To get as close as possible to an international price for carbon<br />A robust market:<br />provides incentives for more ambitious action in developing countries <br />is an important source of climate finance for developing countries<br />
  24. 24. 23<br />Building a robust international carbon market<br />Through bottom up linking of cap and trade systems in developed countries<br />Inclusion of advanced developing countries and competitive sectors by 2020<br />Reform of Clean Development Mechanism (CDM), focus CDM on Least Developed Countries (LDCs), replacement over time by a more ambitious sectoral mechanism for advanced developing economies and sectors<br />Sectoral crediting as a stepping stone to ETS<br />Addressing surplus AAUs<br />
  25. 25. Need to address surplus AAUs <br />A virtual international market for 2008 to 2012 suffers from a serious imbalance:<br />supply (of AAUs) by far exceeds demand<br />Large scale AAU sales (government to government) can affect European carbon price<br />A solution to surplus AAUs is needed<br />