Greenhouse Gas Emissions Trading Simulation (GETS 4) GETS 4 - an assessment of future world GHG emission reduction schemes to 2012 and beyond June, EEA Workshop, Copenhagen John Scowcroft & Bill Kyte, EURELECTRIC

Background to GETS4 (1) GETS4 designed to be a logical extension of GETS1, 2, 3, 3bis GETS1 (1999) and GETS2 (2000) were large, multi-participant trading simulations - up to 36 participants traded GHGs and electricity - limited ability to assess impacts of system design GETS3 and GETS3bis (2001-2) simulated impacts of system design using a model - perfect trading assumed - 20 European countries modelled - 10 Industry sectors (Manufacturing + Electricity) - 6 GHGs

Background to GETS4 (2) There is great uncertainty how GHG Emissions Reduction and Trading Schemes will develop Compliance Costs and Emissions Reductions will depend on participation levels in schemes size of targets agreed to opportunities for and levels of trading linkages (trades) between the groups of traders GETS4 aims to reduce this uncertainty!

Aims & Objectives (1) From the Concept Paper: “To assess the impacts of future world GHG emission reduction schemes to 2012 and beyond” This is rather wide-ranging! Needs further definition

Aims & Objectives (2) Previous visions of a single (Kyoto based) world scheme are disappearing - we will probably see a wide range of schemes GETS4 aims to assess the impacts of the many potential emission reduction and trading schemes, with potential linkages to each other - in a quantitative manner (tonne CO 2 eq and $) - within a single analytical framework, allowing results to be compared with each other - to 2022 (i.e. Kyoto Commitment Period years) - using a wide range of scenarios and sensitivities

Methodology (1) - Demand & Supply The basis of the analysis is to match DEMAND - which countries and companies will agree to reduce emissions/buy certified reductions from elsewhere? - what will the scale of their demand be? » i.e. BAU projections minus targets and SUPPLY - where will emissions reductions be made? - at what cost and over what timeframe?

Methodology (2) - Regions Modelled

Methodology (3) Targets are largely undecided clearly Kyoto to 2012 available can also get some information on proposals for EU ETS and ‘other’ schemes major uncertainties post this study will present 3 stories of the future in the Base Scenarios » justified using referenced materials and views - a wide range of sensitivities will be applied to assess the impacts of altering targets (types and sizes) » absolute, per unit output, per capita, etc.

Scenarios (1) The quantitative results of GETS4 will be generated with reference to a set of Base Scenarios Sensitivities (change to 1 factor at a time) to these Base Scenarios There are clearly a very wide range of potential Base Scenarios and Sensitivities

Scenarios (2) Scenarios & Sensitivities will define the Behaviour of the Participants size and type of targets when will targets come into effect? who will trade with who? from when? etc.

Scenarios (3) Examples of the factors we need to consider If Kyoto collapses, would an alternative be set up amongst those who were willing to ratify? Will the scope of the EU ETS be enlarged? When? What level of reduction below BAU can we expect from ‘Other’ schemes? Who will link with who? From when? What level of permit supply can we expect from countries without targets (CDM, etc.)? - Will there be a demand for these permits? From who? - How would the linking of schemes affect supply and demand of these permits?

Scenarios (4) - Basis for Scenario Design Look ahead to 2022 i.e. 10 years after Kyoto Commitment Period 1 Politically acceptable to all interested parties Cover a wide range of possible outcomes participation target levels and types linkages between schemes Justifiable based on published work Be tested via a wide range of sensitivities

Scenarios (5) - The 3 Base Scenarios Separate Kyoto and non-Kyoto Worlds Kyoto ratifiers forge ahead independently Parts of other Annex B opt for voluntary schemes Linked Kyoto and non-Kyoto Worlds Links between ratifiers and non-ratifiers to 2012 Post 2012 sees targets as tight as politically possible No Kyoto EU ETS and other voluntary only to 2012 Slow progress with no absolute targets thereafter

Sensitivities (1) As concluded in GETS3, absolute results from the 3 scenarios have limited meaning to a large extent, product of the assumptions made - of which many are based on very little firm evidence Of more interest is the impact of changes in individual factors by applying these one-by-one (as Sensitivities) to the Scenarios, we can assess their impact across a range of diverse assumptions - thus if changing a factor by 1% increased compliance costs by 5% in all 3 scenarios the impact is » significant » a robust result

Sensitivities (2) GETS3 had over 50 sensitivities applied to each of the base scenarios used to provide answers within 10 main areas - which GHGs, effects of participation levels, etc. GETS4 will use a similar approach including presenting results in relative rather than absolute form - e.g. result from base scenario indexed at 100 » if result from sensitivity indice = 95, shows a 5% reduction