Climate Action EU ETS Outreach and Linking The Future of the International Carbon Market

Climate Action International challenge: The Gap

Climate Action Role of the international carbon market Drive investments and achieve mitigation objectives at least cost; Incentivise more ambitious abatement action; Generate financial flows to developing countries; Need instruments that provide environmentally robust credits/allowances at scale and facilitate transition to comprehensive multi-sectoral cap-and-trade.

Climate Action EU Emission Trading System In place since January 2005 > 30 countries Covers half of EU emissions: power and manufacturing industry One single EU price Market value >100 bn € Linear reduction factor 1,74% of annual reduction

Climate Action EU ETS – the latest developments Phase 3 starting in 2013: Length: 8-year trading period ( ) Central EU benchmarking-based allocation Common auctioning platform Single EU registry Auctioning - Backloading proposal 2012 Carbon Market Report Aviation – „stopping the clock“ for one year Linking discussions with Switzerland

Climate Action EU ETS – Australian Carbon Pricing Mechanism Linking (1) Agreed pathway towards linking Partial link: Interim step (July 2015 until no later than July 2018) AU businesses can use EUAs for compliance purposes (up to 50% of their liabilities under the Carbon Pricing Mechanism) Two-way link: No later than July 2018 Businesses can use carbon units from Australia or Europe for compliance under either system.

Climate Action EU ETS – Australian CPM Linking (2) EU: Commission to seek a negotiating mandate launched early December 2012 for formal linking Benefits of Linking Increases market liquidity and reduced price volatility Reduces costs of cutting emissions Supports global cooperation on climate change.

Climate Action Size of EU ETS and AU CPM Cap in Mio t Year AU cap not yet defined; used default cap from Clean Energy Act, section 17 & 18 YearAU Cap EU Cap

Climate Action EU ETS Co-operation with China (1) Financing agreement for €5 million bilateral cooperation between the Commission and NDRC project length – 3 years Signed in September at the EU-China Summit Focus: Capacity building ETS building blocks Work could start in spring 2013

Climate Action EU ETS Co-operation with China (2) Direct technical assistance to the 7 Chinese ETS Pilots Technical workshops in MRV conducted EU MRV ETS legislation translated into Chinese Workshops on the Power Sector, MRV and Registries in Beijing November Frequent visits by Chinese ETS pilots to Brussels

Climate Action EU ETS Co-operation with Korea Korean ETS to be launched in January 2015 Frequent expert level discussions Monthly visits by Korean delegations Discussions focussed on: ETS architecture Benchmarking excercise and data collection Registry

Climate Action World Bank Partnership for Market Readiness Bringing together developing and developed countries Building readiness for new and innovative market-based instruments Capacity building Piloting 10 contributing participants (eg European Commission, Australia, USA) Over 80 mln $ raised 15 implementing countries (eg China, India, Mexico, Brazil) Preparation phase funding $ for each country

Climate Action A growing number of regions developing emission trading or cap-and-trade systems to deliver their 2020 pledge Need to clarify rules to measure progress to Quantified economy-wide emission reductions targets pledged by Annex I countries Key to develop robust market-based systems and clear accounting rules

Climate Action New Market Mechanism: objectives Scale up mitigation effort in developed and developing countries; Recognise own appropriate mitigation action by DCs; Move away from pure offsetting approach; Operate at broader scale than project-based approach; Host country ownership, flexibility at choosing method of implementation; Reduce transaction costs

Climate Action New Market Mechanism – how would it work? Many separate projects; No recognition of own contribution Broad segment of economy; Own contribution: convenient and cost-effective mitigation opportunities

Climate Action International carbon market: EC vision for post-2012 Link compatible domestic cap-and-trade systems to develop an OECD-wide market; New sectoral carbon market mechanism for (advanced) DCs as a step towards cap-and-trade systems; Reform and better focus CDM (focus on LDCs); EU remains strongly committed to the UNFCCC process; Progress with the New Market Mechanism in Doha?

Climate Action Further information EU ETS: