1. GRETA GREENHOUSE GAS REGISTRY FOR EMISSIONS TRADING ARRANGEMENTS Introduction of the GRETA software, EU ETS and the ITL Workshop on CDM Trading Systems – UK/EU – China best practice exchange 19 th November 2007 Guohong Hotel, Muxidi, Beijing

2. GRETA Agenda The Greta Software and Collaboration Overview of the EU ETS Overview of the ITL and Kyoto

3. GRETA The Greta Software and Collaboration

4. GRETA Registry Systems Annex to Decisions 19/CP.7 National Registry’s Hold Assigned Amount Enable Parties to issue, acquire and transfer all units and to retire or cancel units or carry an surplus over to further periods Transaction Log Required to check application of rules to all processes and units Issuance, External Transfer, Cancellation, Retirement and Carry Over

5. GRETA Background UK ETS Registry used as template for developing EU / UN compliant GRETA Registry software Used previous developers from the UK Registry Why do Defra license a Software? Policy objective to facilitate emissions trading throughout EU Economies of scale Benefits of knowledge sharing Potentially more influence at EU & UN meetings

6. GRETA Our Licensees Bulgaria Cyprus Estonia Finland Hungary Iceland Ireland Italy Latvia Lithuania Malta Netherlands Norway Romania Slovenia Sweden UK

7. GRETA Key Functionality Compliant with EC Regulation Account Management Retirement and Surrender Internal and External transfers Cancellation, Replacement and Carry over Reports and compliance tables Compliant with UNFCCC requirements UN functionality developed and in the final step of testing ITL testing complete CITL testing not complete due to technical issues between ITL and CILT ITL go live for Greta registries to be decided

8. GRETA Service and Fees Licence fee - One off payment Provision of licensed Software Source code for public software (customisation) Installation services and helpdesk Registry Administrator Training User manuals and other Documentation Service fee - Annual payment Help desk services Central Management Services Collaboration Forum and Wiki

9. GRETA GRETA Collaboration Transparency over development and management Licensees members of Steering Committee Meets quarterly or more frequently as required Provides forum for interpretation, sharing technical expertise Supportive network with online Forum and Wiki Working groups for Legal/Requirement Technical Management Decisions taken in conjunction with Licensees to ensure transparency and control

10. GRETA Software Enhancements Designed and agreed process by GRETA licensees Incident Review Board Future enhancements voted on by licensees and approved by Steering Committee Driven by demand Goal to have no more than 2 releases per year Fair system – all licensees have a voice

11. GRETA GRETA International Ltd The intention is that GRETA International Ltd. will take over responsibility for the Registry software in 2008 Company Limited by Guarantee Jointly owned by the Members (all Licensees invited) Retention of a strong GRETA group for future collaboration Opportunity for members to have a say over the choice of IT supplier Opportunity for members to have further influence over future arrangements Currently ongoing discussion with licensees on structure and operational rules Initially no substantive change to licence and service

12. GRETA Future structure IT supplier Defra IPR Licensees CEO and staff GRETA Int. Ltd. Members

13. GRETA Vision and objectives To secure a well working Emissions Trading Registry and meeting changing external and internal demands and needs by maintaining and improving the collaboration around a Greta registry software Being in compliance with all current EC and UN regulations To work actively to adapt to future needs Using the Greta collective as a “one voice” power in policy and commercial situations Using the Greta budget effectively and sensibly to provide shared services to all licensees Provide a good IT service at a reasonable price though contracted supplier/s

14. GRETA Advantages of GRETA COLLABORATION Sharing Legal / Policy Expertise Representation in important forum (EU and UNFCCC) Support from other GRETA Member States Joint Development Central Software testing Shared costs for communal development Centralised system knowledge Centralised project management Relative Ease of Upgrade

15. GRETA Overview of EU ETS

16. GRETA EU ETS The EU ETS is one of the policies to tackle climate change Why Emissions Trading? Way of reducing emissions at least cost to industry – offers industry more flexibility than ‘traditional’ regulation Offers incentives for industry to go beyond what is expected of them Overall environmental impact the same

17. GRETA EU and the Kyoto Protocol EU as whole is a Party to the Kyoto Protocol and agreed to 8% reductions In 1998 the then EU 15 agreed a burden sharing agreement All 25 MS have ratified Kyoto, 23 have emission targets as Cyprus and Malta are non-Annex 1 Parties Ranging from a 21% reduction for Germany, 12.5% reduction in the UK and a 15% increase for Spain Most new Member States have set a target of 8% below base level, with the exception of Hungary and Poland – 6% below

18. GRETA Relevant EU Decisions EU Emission Trading Directive Registry Regulation Linking Amendment (CDM and JI) Monitoring Mechanism (Kyoto Reporting and Registries) Monitoring Guidelines

19. GRETA How does the EU ETS work? “Cap and trade” system with Carbon dioxide as the only Green House Gas First phase runs until December 31st 2007 2nd phase in line with 1st Kyoto Protocol commitment period Mandatory for certain activities as energy activities, ferrous metals, mineral industry and pulp and paper Allowances freely tradable throughout EU One allowance = one tonne of CO2e

20. GRETA Monitoring and reporting Calendar year reporting of emissions 28th February each year - each participant receives allocation of allowances (year X) End of March final report of Emissions (X-1) By end of April following year- each participant must surrender number of allowances equal to annual reportable emissions (X-1) these allowances then cancelled Operator needs sufficient allowances in account to cover emissions

21. GRETA Options for Participants Annual emissions exactly equal to the number of allowances given each year Decrease emissions and sell surplus Let emissions remain high and buy extra allowances needed to cover the gap Penalty per tonne of excess emissions €40 (2005-2007) €100 (2008-2012) Still have to bring account into compliance

22. GRETA Current EU ETS

23. GRETA EU ETS Market Price volatility Prior to 2005 driven by political dimension First Phase Market to understand and come into line with fundamentals Uncertainty regarding CDM credits, EU connection to ITL and EU Phase II

24. GRETA Review of EU ETS Directive Commission Review to improve function and design post 2012 Priority areas include expansion to other sectors and gases the most appropriate process for setting the cap; harmonised allocation methodology (including CHP); linking to other schemes at national and regional level; robust compliance; streamlining – small emitters and harmonised definitions Report from the EU Commission, surveys and papers

25. GRETA GREENHOUSE GAS REGISTRY FOR EMISSIONS TRADING ARRANGEMENTS EU under Kyoto and ITL

26. GRETA EU Trading Directive EU-25 Trading sector Non trading sector UK Trading sector Non trading sector Sweden EUA

27. GRETA EUAERU EU-25 Annex I countries ratified the Kyoto protocol Non-annex I countries ratified Kyoto protocol Countries that haven’t ratified the Kyoto protocol CER CDM JI Linking Directive

28. GRETA Future Kyoto communications

29. GRETA Connection to the ITL In order to be able to connect to the ITL, each Party must pass Initialisation process All of the Greta registries have passed the test - handful other countries remains Japan the first party to connect to ITL on the 14 of November Other countries will follow, with Switzerland and New Zealand scheduled to start real-time operations in November or December CDM registry is connected as well

30. GRETA EU ETS Go-Live Go Live is a point in time when the all the EU ETS registries switch from the CITL to the ITL Data migration - CITL to the ITL - as well as work at each of the 25 national registries This is a major activity involving many stakeholders (EU MS, UNFCCC and EU COM) Planned go-live not yet decided Planning is essential and Greta is currently working close with UNFCCC and EU COM