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Lessons learned from EU Emissions Trading Scheme (ETS)

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Lessons learned from EU Emissions Trading Scheme (ETS) Dina Kruger Director, Climate Change Division Office of Atmospheric Programs U.S. Environmental Protection Agency – PowerPoint PPT presentation

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Title: Lessons learned from EU Emissions Trading Scheme (ETS)


1
Lessons learned from EU Emissions Trading Scheme
(ETS)
Dina Kruger Director, Climate Change
Division Office of Atmospheric Programs U.S.
Environmental Protection Agency NARUC WINTER
MEETING Joint ERE-Electricity Committee
Session February 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
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
Overall EU Goal Reducing its overall emissions
to at least 20 below 1990 levels by 2020
  • 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/e
ccp.htm
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
  • Trial period (2005-2007)
  • 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

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
    lt 25MW and emitting lt10,000 tons to opt out

12
Trial Period Design and Implementation Lessons
  • 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
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/emi
    ssion.htm
  • Thank you!
  • Dina Kruger
  • Director, Climate Change Division
  • Office of Atmospheric Programs
  • kruger.dina_at_epa.gov
  • www.epa.gov/climatechange
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