Lessons learned from EU Emissions Trading Scheme (ETS) Dina Kruger Director, Climate Change Division...
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Transcript of Lessons learned from EU Emissions Trading Scheme (ETS) Dina Kruger Director, Climate Change Division...
Lessons learned from EU Emissions Trading Scheme (ETS)
Dina KrugerDirector, Climate Change DivisionOffice of Atmospheric ProgramsU.S. Environmental Protection Agency
NARUC WINTER MEETINGJoint ERE-Electricity Committee SessionFebruary 19, 2008
2
Overview
• Background on EU Climate Policy• EU Emission Trading Scheme (ETS)• Lessons learned from “Trial period” of ETS• Looking forward
3
European Union (EU)
• Within EU– 27 Member states– 23 countries have Kyoto
targets as “Annex B” parties, Malta and Cyprus do not have targets
• Original 15 EU Member States have– Collective Kyoto target of
(8% below 1990 levels), but – Differentiated
responsibilities under the EU Burden Sharing Agreement
4
Emissions and GDP in 2005
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2005
Mill
ion
met
ric
tons
CO2e
EU-27
United States
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2005
Billion
s of
US
dol
lars
EU-27
United States
EU emissions are 40% below US emissions while GDP is about 10% higher than US GDP
5
EU Burden Sharing Agreement
6
EU Climate Change Policy
• EU is using a portfolio of policies to meet goal across all sectors through the EU Climate Change Program (ECCP)– Cross-cutting cap and trade – Regulation– Incentives – Voluntary approaches
• Updated goals and binding measures for ECCP portfolio announced January 23, 2008:– Energy supply measures: increase share of renewable energy to 20% by 2020– Energy demand measures: 20% reduction in energy consumption through energy efficiency– Transportation, buildings, agriculture: reduce emissions 10% below 2005 levels
• Commitments by car makers to reduce CO2 emissions rate from new passenger cars by 25% below 1995 levels by 2008/2009• Increase share of sustainable biofuels to 10% of overall petrol and diesel consumption
– Improved EU ETS
Source: Point Carbon, European Climate Change Program, http://ec.europa.eu/environment/climat/eccp.htm
Overall EU Goal: Reducing its overall emissions to at least 20% below 1990 levels by 2020
7
EU Emissions Trading Scheme (ETS)
• EU ETS currently addresses nearly 50% of all CO2 emissions (~40% of total annual GHG emissions)
• EU Directive currently outlines provisions for initial trading periods
1. “Trial” period (2005-2007)2. First commitment period (2008-2012)
• Proposed amendment for third period (2013-2020) with commitment for subsequent phases
8
EU Emissions Trading Scheme (ETS)
• 2005-2007: Trial Period– Cap: set by member states, 2.2 billion allowances issued annually– Covers only CO2 emissions– Coverage: combustion and process emissions from electricity generation and
selected industries• Energy activities, mineral oil refineries, coke ovens (installations with “rated
thermal input” ≥ 20 MW)• Production and processing of ferrous metals • Minerals industry (includes cement, glass, ceramics, lime)• Pulp and paper production
– Point of regulation• Downstream
– Allocation Approaches• 95% of allowances must be allocated freely, 5% can be auctioned
– Compliance and penalties • Penalties 1st period = €40/excess ton CO2
• 2008-2012: Kyoto Commitment Period – Cap: set by member states, 2.083 billion allowances annually– Also covers only CO2. but other gases are opt-ins– Allocation Approaches
• 90% of allowances must be allocated freely, 10% can be auctioned– Compliance and penalties
• Penalties 2nd period = €100/excess ton CO2
• Use of Kyoto mechanisms (% of CDM credits allowed to be set by member states)– qualitative limitations – no nuclear and sinks credits– quantitative limitations – in phase 2 credit import is limited to 10% of the Member
state’s total allowances
9
Prices and Volumes
General factors contributing to price volatility:• Fuel prices• Weather• Policy developments
10
Evaluating Emissions Trading
• Does it meet the environmental goal?– Are caps achieved?– Is monitoring accurate?
• Does the market work efficiently?– Sufficient sources for a liquid market?– Long-term certainty for investment planning?
• Is it a workable program administratively?
11
“Trial” Period Design and Implementation Lessons
• Lesson 1: Need high quality emissions data to set environmental goals– Phase 1 caps based on limited data– Phase 2 caps take advantage of better data– Complementary policies needed for non-capped sectors
• Lesson 2: Consistency and predictability are important– Large variability in allocation method among member states– Failure to credit plant shutdowns creates perverse incentives
• Lesson 3: Keep scope manageable and consider contribution to emissions– Inclusive of largest emitters and sufficient sources for trading, but– Large number of small installations included
• ~36% of total installations, responsible for ~ 0.7% of emissions• 7.5% of total installations, responsible for ~60% of emissions
– Third phase of ETS will allow small installations < 25MW and emitting <10,000 tons to opt out
12
• Lesson 4: Need to have flexibility and provide long term-certainty– Sources did not have temporal flexibility due to lack of banking
between phases– Phase 3: Trading extended to (2013-2020) for long-term investment
certainty– Banking will be allowed between Phase 2 and 3
• Lesson 5: Program implementation should be efficient – Infrastructure for transfer of CDM credits not in place– Monitoring protocols clear, but not all reporting is electronic– Initial release of monitoring data not coordinated– Role of third-party verifiers affects timing of data submissions
• Lesson 6: Transparency is important for credibility– Functioning registry system to track allowances and ownership, but
allowance transfers are not public data– Annual reporting (quarterly reporting in U.S.)
EU ETS is looking to harmonize program design across all participating countries…
“Trial” Period Design and Implementation Lessons
13
EU Climate Policy Looking Forward
• Further improvements to EU ETS– Single EU-wide cap instead of 27 national caps
• Average 1.846 billion metric tons CO2/year– Increasing share of auctioning (full auctioning of power sector allowances in
2013)– Community-wide new entrant reserve (5% of cap)– Expanding to include other sectors and gases
• Aviation • Aluminum (PFCs) and Chemicals (N2O)• Recognize carbon capture and storage (CCS)
– Domestic Offsets?
– Linking• Phase 2: Norway, Iceland, and Liechtenstein • International Carbon Action Partnership (ICAP)
– Discussions with the Northeast Regional Greenhouse Gas Initiative (RGGI), California, Australia, New Zealand and Canadian Provinces
• With global agreement, EU will commit to 30% below 1990 levels by 2020
14
For more information
• Point Carbon: www.pointcarbon.com• Caisse desDepots: http://www.caissedesdepots.fr/• EU ETS: http://ec.europa.eu/environment/climat/emission.htm
Thank you!
Dina KrugerDirector, Climate Change DivisionOffice of Atmospheric Programs
[email protected]/climatechange