1. DG II Slide: 1 European Commission - DG II Emission Trading as an Instrument in European Climate Policy Peter Zapfel, European Commission “Flexible Mechanisms for an Efficient Climate Policy” Stuttgart, July 1999

2. DG II Slide: 2 European Commission - DG II Overview of presentation l The political context - international climate negotiations l The international dimension of ET l The Community dimension of ET l Conclusions

3. DG II Slide: 3 European Commission - DG II The political context Where do we come from? l Kyoto Protocol of December 1997 - enabling provisions for international emission trading (IET) and two other flexible mechanisms (JI and CDM) l Buenos Aires Plan of Action of November 1998 - work plan for mechanisms and deadline for decisions set for CoP-6

4. DG II Slide: 4 European Commission - DG II The political context Where do we go? l CoP-5 in October 1999 - attempt to work towards a negotiation text for rules on IET, JI and CDM l CoP-6 in late 2000 / early 2001 - decisions on the rules, modalities and guidelines for the mechanisms

5. DG II Slide: 5 European Commission - DG II The international dimension The basics of IET IET market as laid out in Art. 17 could … l … potentially include up to 39 Protocol Parties (countries) l … cover a set of six greenhouse gases l … even include carbon sequestration, in addition to ‘positive’ emissions, all of which appears quite ambitious.

6. DG II Slide: 6 European Commission - DG II The international dimension Unresolved issues l Who should participate? l How to secure environmental effectiveness (emissions monitoring, permit accounting, liability and non- compliance)? l How to resolve potential conflicts between economic efficiency and environmental effectiveness (hot air, supplementarity, and transparency)?

7. DG II Slide: 7 European Commission - DG II The international dimension A classical trade-off l Cost-effectiveness considerations call for an IET market as broad and comprehensive as possible … l … while institutional and feasibility considerations limit the scope substantially and render such an approach quite challenging.

8. DG II Slide: 8 European Commission - DG II The Community dimension Why look at it? l Emission trading is one of the potential elements of a policy mix for implementing the Community target. l First-hand experience gathered at home - e.g. with a pilot program - could be valuable in preparation of the international debate and decisions.

9. DG II Slide: 9 European Commission - DG II The Community dimension The context The topic is evolving rapidly in and around the Community: l Danish electricity sector program l UK’s intention to run a pilot l upcoming Irish decision whether to pursue domestic trading l private-sector initiatives (BP and others)

10. DG II Slide: 10 European Commission - DG II The Community dimension The response - Commission activities l COM (99) 230 - Preparing for Implementation of the Kyoto Protocol l Green Paper and wide stakeholder consultation on the Community dimension of emission trading in 2000 l supported in the run-up by a study on design options for ET

11. DG II Slide: 11 European Commission - DG II The Community dimension Identifying relevant issues l At which level should the instrument be implemented (Community or Member State)? l At which stage in the (energy) economy (carbon-content or emissions-based)?

12. DG II Slide: 12 European Commission - DG II The Community dimension Identifying relevant issues l Which gases and / or sectors to include? l How to set targets / allocate permits in the outset? l How to monitor (covered) emissions? l How to organise permit accounting?

13. DG II Slide: 13 European Commission - DG II The Community dimension Identifying relevant issues l How to link the instrument with other policies and measures? l How to link the instrument with international flexible mechanisms? l What kind of enforcement measures / sanctions are necessary?

14. DG II Slide: 14 European Commission - DG II Conclusions l The integration of emission trading as an element of the European climate policy mix constitutes a considerable challenge … l … which is worthwhile facing up to because of some of the inherent merits of emission trading (e.g. quantity certainty).

15. DG II Slide: 15 European Commission - DG II For COM (99) 230 look at http://europa.eu.int/comm/dg11/docum/index.htm