1. Harmonisation and Increased Predictability
WG8 - subgroup
Harmonisation and Increased Predictability

2. WG8 EUETS post 2012 - Harmonisation and Increased Predictabilty
Terms of Reference
To explore the EU ETS harmonisation issues that are under consideration in the EC ETS post 2012 review
WG8 EUETS post Harmonisation and Increased Predictabilty

3. Subgroup Participants
Mark Johnson (BE)
Richard Leese (British Cement Association)
Angus MacRae (SSE)
Freya Phillips (EDF Energy)
Jim Rushworth (LafargeCement)
Neil Smith (EON-uk)
Penny Tomlinson (RWE Npower)
Sue Young (ConocoPhillips)

4. Recommendation 1 - Overall a single EU Cap appears preferable to the approach of setting individual Member State caps.
Simpler
More predictable
better functioning market

5. Recommendation 2 - A simple Cap set against historic levels appears preferable to Cap set with reference to Effort (based either on BAU or abatement potential).
More predictable
Simpler
better functioning market
more chance of consensus

6. Recommendation 3 – There is little to choose from between setting Caps via the Directive or in MS NAPs.
The relative merits of the two options present a trade-off between predictability and flexibility.

7. Recommendation 4 A preference for any of the options for setting Cap would be very dependent on how the criteria are ranked. Further consideration needs to be given to which factors are the most important.
Fixed cap - simple, predictable, market function
fixed cap with criteria for modification - good for environmental outcome
procedure with flexible criteria - fair and good for environmental outcome
procedure linked to post Kyoto target - middle ranking on most criteria

8. Recommendation 5 On balance a stipulated level of auctioning with some free allocation seems to give the best overall outcome.
Simple,
Engaging,
Better functioning market

9. Draft Recommendation 6 - It would appear most appropriate to allow different levels of auctioning for different sectors, or distinct sub-sectors.
Fair
reasonable potential for consensus

10. Recommendation 7 - When the environmental objective of the system is taken as the most important criteria then the best option for auctioning revenue is to use it for emissions reduction.

11. Recommendation 8 - EU wide auctioning scores best across most criteria with equal weighting being given to all the criteria.
EU wide auctions could be run at MS level by national governments with proceeds being distributed within MSs, but with co-ordination across MSs in terms of auction type, rules, access, timing, etc.

12. Recommendation 9 If environmental objectives and fairness are given the highest priority for this issue then MS level NER is most appropriate.
Simplicity, predictability, market function and engagement concerns would favour centralised NER

13. Recommendation 10 – A transition from the current New Entrants receive free allowances/allowances lost on closure to New Entrants receive free allowances/allowances retained on closure is recommended for any sector whilst there remains some free allocation to incumbents in that sector.

14. Feedback on latest draft
Limited Feedback - mostly supportive, slight formatting changes
One response not in favour of recommendations - or proposing caveating recommendations with statement outlining process used to arrive at recommendations
Propose to go ahead with recommendations and incorporate caveat