Meeting with Stakeholders on proposed Article 7a of COM 2007(18) Interaction with ETS 18 July 2007 European Commission

EU ETS Oil refineries and large biofuel installations are covered by EU ETS. The Article 7a scheme will stimulate higher cost reduction options within these than the ETS will. What would be the implications of this? Are there problems that need to be addressed or avoided?

Potential Problems 1. Double Incentive Emission reduction obligation of 10% by 2020 under Art 7a Emission reduction opportunities under ETS

Potential Problems 2. Higher incentive for refinery GHG reductions than non-refinery GHG reductions. Emission reduction Art 7a and ETS Emission reduction only Art 7a

3. Leakage from ETS to Article 7a Potential Problems 3. Leakage from ETS to Article 7a CDM Purchase of allowances ETS JI Used for compliance with Art 7a

Potential Problems 4. No overall effect due to leakage from Article 7a to remainder of ETS emissions Sale of surplus allowances emissions

Analysis Double incentives exist in other areas e.g. renewable electricity. Undesirable to have different incentive levels. This risk should not exist since the idea is for greenhouse gas savings under Article 7a to actually be demonstrated. This potential leakage can be addressed through requiring ETS installations to cancel the allowances for any savings that they wish to claim under Article 7a

Conclusions FQD 7a need not affect ETS operation The scheme will stimulate higher cost reduction options within refineries than only the ETS If allowances relating to emission reductions that are eligible under FQD and are carried out in ETS installations are required to be surrendered and cancelled when the reduction is claimed then any potential risk of leakage would be avoided.

Thank you for your attention