1. EU Emissions Trading

2. Context European Climate Change Programme (ECCP) European Climate Change Programme (ECCP) Directive on Greenhouse Gas Emissions Trading (2003/87/EC) Directive on Greenhouse Gas Emissions Trading (2003/87/EC) Agreement with automobile manufacturers Agreement with automobile manufacturers –CO2 emission objective for the average new passenger car sold in EU –140 gCO2/km by 2008/2009 –Approximately 5.8 l petrol/100 km or 5.25 l diesel/100 km. DIRECTIVE 2001/77/EC on renewable electricity energy DIRECTIVE 2001/77/EC on renewable electricity energy –Renewables 12 % of gross domestic energy consumption by 2010

3. Cap and Trade System Cap: Cap: –total tons of CO2 emissions, equivalent number of allowances Distribution: Distribution: –regulated facilities received allowances Trade in allowances: Trade in allowances: –Those with excess emissions/high marginal cost of abatement buy –Those with less emissions/low marginal cost of abatement sell

4. National Allowance Plans Member states (MS) set national cap: total quantity of allowances for 2005-07 and 2008-12 Member states (MS) set national cap: total quantity of allowances for 2005-07 and 2008-12 Allocate allowances to individual installations Allocate allowances to individual installations NAPs reviewed by Commission NAPs reviewed by Commission Issues of subsidization and competitiveness Issues of subsidization and competitiveness –MS can buys GHG reduction units to meet its overall commitment – affects national cap, hence burden on industry Grandfathering: Grandfathering: –95% of allowance free of charge for 2005-07 –90% of allowances free of charge for 2007-12

5. Regulated Entities Approximately 12,000-13,000 installations Approximately 12,000-13,000 installations Sectors Sectors –Energy: electric power, oil refineries, coke ovens –Metal: ore, iron, steel –Minerals: cement, lime, glass, ceramics –Pulp and paper 46% of estimated EU CO2 emissions in 2010 46% of estimated EU CO2 emissions in 2010 Source: Krueger & Pizer 2004, Lefevere 2005

6. Permits and Allowances GHG emission permit: GHG emission permit: –Description of installation –Raw and auxiliary material –Sources of GHG emissions –Reporting and monitoring measures Allowance: allowance to emit one ton of CO2 equivalent during specified period Allowance: allowance to emit one ton of CO2 equivalent during specified period

7. Enforcement No permit to sell allowances till emissions verified No permit to sell allowances till emissions verified Penalty for exceeding emission allowances Penalty for exceeding emission allowances –Euro 40/ton for 2005-08 –Euro 100/ton for 2008-12 Estimated allowance price Euro 26/ton (no offsets) to Euro 13/ton (with unlimited offsets) Publish names of violators Publish names of violators Computerized registry of allowance count information Computerized registry of allowance count information Public access to data on emissions and allowances? Public access to data on emissions and allowances?

8. Linking Directive Link JI and CDM to ETS Link JI and CDM to ETS –Use credits generated by projects-based mechanisms to offset obligations under the EU ETS –Excludes sinks –Excludes Kyoto emission trading units –Limit on CDM and JI units used? 6% -> comitology process for setting a cap 6% -> comitology process for setting a cap

9. Challenges Source: http://europa.eu.int/comm/environment/climat/gge_press.htm Source: http://europa.eu.int/comm/environment/climat/gge_press.htm