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Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 2 1 1 Introduction 2 2 EU–15 Annual Carbon Emissions by Sector.

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Presentation on theme: "Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 2 1 1 Introduction 2 2 EU–15 Annual Carbon Emissions by Sector."— Presentation transcript:

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2 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali Introduction 2 2 EU–15 Annual Carbon Emissions by Sector 3 3 Kyoto Protocol and the EU Emissions Target 4 4 EU–ETS : Mechanism and Operations Methodology : The Input – Output Model 7 7 Results and Interpretation 8 8 EU-15 Energy & CO 2 Intensity 9 9 Environmental Impacts 10 Conclusion Comments & Questions

3 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 3 Global warming is defined as an increaseGlobal warming is defined as an increase in the Earth’s temperature and is triggered in the Earth’s temperature and is triggered by a rise in greenhouse gas emissions. by a rise in greenhouse gas emissions. Most of the world’s emissions are attributed to mankind’s large scale use of fossil fuels Burning fuels such as Coal, Natural Gas, & Oil Produces GHGs to the atmosphere in excess amount. Leading to Climate Change manifestation – Increase harsh weather conditions, damaging storms, drought & other Global Warming Effects that cause increase economic & health problems for both man & animals

4 Fig. 1: EU – 15 GHGs Emissions by Sector (2008) Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 4 Fig. 2: EU – 15 GHGs Emissions by Gas Type (2008) Data Source: European Environment Agency (EEA) The greenhouse gas most commonly produced by our activities is carbon dioxide (CO2) & is responsible for 63% of man-made global warming. In 2008, CO2 emissions was responsible for 83% of GHGs Emissions in the EU–15 while Methane, Nitrous Oxide & Others recorded the balance 8%, 7% & 2% respectively In 2008, Energy Sector is the highest emitter of GHGs with 28%. Followed by Transport 21% while Manufacturing, Agriculture and Industries have 13%, 10% and 7% respectively. Waste had 3% & Others 17%.

5  Kyoto Target: - The EU 15 member states has a Kyoto target to reduce their GHGs emissions by 8% in the period compared to its base year (1990) level. Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 5 Fig. 3: Trends in EU GHG s Emissions Compared to 1990/Base Yr Data Source: European Environmental Agency (EEA) EU-15 Total GHGs Emissions Emission Reduction ( ) Agriculture Energy Industries Manufact & Const Transport Waste Others Total Emissions The emission level in the 'base year' is the starting point for tracking progress of domestic emissions for EU-15. The base year is a calculated emission level from which emission reductions will take place (4,247,409). In practice, EU-15 base-year emissions can be considered close to 1990 emissions. The EU-27 does not have a Kyoto target.

6 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 6  Emissions trading: - market based scheme for environmental improvement that allows parties to buy and sell permits for emissions or credits for reductions.  EU Emissions Trading Scheme: - The EU ETS was launched in 2005 and is the EU's climate change policy tool which helps industries to cut their CO 2 emissions. The EU ETS is considered a central instrument for reaching the EU-15 target under the Kyoto Protocol.  Under the scheme, large emitters of CO 2 are under an obligation to report their annual CO 2 emission and to return an amount of emission allowance that is equivalent to their CO 2 emission in that year. On the other hand, if an emitter is able to reduce its CO 2 emissions then it is allowed to sell its emission credit and make a profit.  The EU ETS currently covers more than 10,000 installations with a net heat excess of 20 MW in the energy and industrial sectors which are collectively responsible for close to half of the EU's emissions of CO 2 and 40% of its total greenhouse gas emissions. The EU ETS aims to promote reductions of GHGs emissions in a cost-effective and economically efficient manner. The system operates through the allocation and trading of greenhouse gas emission allowances throughout the EU. One allowance represents one tonne of carbon dioxide equivalent.

7 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 7 EU – ETS Mechanism & Operations EU – ETS Mechanism & Operations

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9 9 EU ETS PHASE Level of the capCoverageAllocation rulesAuctioningKyoto credits Phase1 ( ) Sum of caps in each country’s NAP based on negotiating processes between Member State governments and the European Commission playing the role of “enforcer of scarcity”. CO2 only Power stations, ferrous metals production, cement, refineries, pulp and paper, glass and ceramics, and all combustion facilities >20MW and some opt-outs 42% of the European emission At discretion of Members States but there is common characteristics: Auctioning is little used Strong reliance on recent historical emissions Expected shortage is allocated to the power sector New entrant/closure provisions is made Maximum 5%, (only 4 Member States used auctioning, mostly to cover Administration costs) CDM and JI allowed excluding land use. Member States set caps on how many allowances can be imported Phase 2 ( ) Sum of caps in each country’s NAP aimed at respecting Kyoto targets and governed by European Commission “anti- subsidy” rulings that prevent allocation exceeding. CO2 with some N2O emitting facilities opt-in Sectors: As of phase 1 without opt-outs. Some combustion facilities below 20 MW opt-in Air travelling is proposed for inclusion in 2011 or Possibly the maritime emissions related At discretion of Members States but there is common characteristics: Auctioning is little used Strong reliance on recent historical emissions Expected shortage is allocated to the power sector New entrant/closure provisions benchmarked Maximum 13.4% (UK: 7%, Germany: 8.8%) As of phase 1 Phase 3 ( ) Cap calculated for Europe as a whole decreasing by 1.74%/yr from phase 2 average annual allowances starting in 2010 and aimed to deliver 21% emission reduction in 2020 compared to 2005 level and continue thereafter at the same rate with a review in 2025 CO2, nitrous oxide for acid production and PFCs for aluminium Additional sectors: non-ferrous metals, rock wool, gypsum, various chemicals, CCS related emissions Combustion facilities above 20MW with harmonized rules and derogations below 25MW Fully harmonised across Member States No free allocation for power generators 80% free allocation for other sectors in 2013 declining to zero in 2020 unless identified as exposed to carbon leakage 5% of the allocations set aside for new entrants 90% of the total allowances Auctioned revenue is given to countries in proportion to their verified 2005 emissions. The final 10% is redistributed according to GDP per capita. No international agreement: CER/ERU banking from phase 2 under phase 2 qualifying rules International agreement: New CER/ERU authorized limited to gap half of the effort between the 20% European objective of reduction and the 30% objective.

10 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 10 The input-output analysis was first devised by Wassily Leontief in 1936 to describe how industries are interrelated through producing and consuming intermediate industry outputs in an economy.

11 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 11  Data Preparation  Following the information provided by Eurostat’s ESA 95 input-output tables, the study analyse 22 producing sectors and six types of fossil fuels (Lignite, Peat, Lignite Coke, Natural Gas, Liquid Fuels and Diesel Oil) in the EU-15 member countries. Figures refer to the year 2005 input-output table and corresponding emission data available for all 15 countries. Figures refer to the year 2005 input-output table and corresponding emission data available for all 15 countries. Primary energy-use by input-output sector referring to 2005, used in the data base is derived from ESDS/IEA beyond 20/20 web data set (2010 Edition). Primary energy-use by input-output sector referring to 2005, used in the data base is derived from ESDS/IEA beyond 20/20 web data set (2010 Edition). The ratio of CO 2 emissions to fuel use by sector are easily obtained by dividing the amount of fossil fuel use by the carbon emission from each sector. The ratio of CO 2 emissions to fuel use by sector are easily obtained by dividing the amount of fossil fuel use by the carbon emission from each sector.

12 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 12 CO2 Emissions Intensities by IO sectors and fuel sources.

13 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 13 Price Effect & Environmental Impact of Emissions Trading on the EU 15 Economic Sectors

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15 Examining the Environmental Impact of EU ETS: an Input Output Approach - Lawan Usman Ali 15 The study suggests a number of policy adjustments for future EU climate change policy. Future policy actions should avoid focusing on the actual CO 2 emitters but instead adopt strategies that help modify the behaviour of those responsible for CO 2 emissions. Governments must therefore reach their Kyoto targets through emission reductions from policies and measures addressing the sectors not covered by the EU ETS and/or through flexible mechanisms. The results also signify the need to improve the overall efficiency of the EU energy system, and not only focus on the actual CO 2 emitters.

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