European Commission: DG Environment Greenhouse Gas Emissions Trading in the EU Jürgen Lefevere International and Institutional Coordinator Climate, Ozone and Energy Unit Environment Directorate General European Commission, Brussels

European Commission: DG Environment Overview l The EU’s response to Climate Change l EU Emissions Trading l The EU’s “post-2012” strategy

European Commission: DG Environment The EU’s response to Climate Change

European Commission: DG Environment Ratification on 31 May 2002 (Decision 2002/358/EC) The Bubble: EU-15 Member StateQELRC commitment (% reduction of base year/period emissions) Austria-13 Belgium-7.5 Denmark-21 Finland0 France0 Germany-21 Greece+25 Ireland+13 Italy-6.5 Luxembourg-28 The Netherlands-6 Portugal+27 Spain+15 Sweden+4 United Kingdom-12.5 Total EU-15 Commitment: -8%

European Commission: DG Environment European Climate Change Programme (ECCP) : main elements l Objectives m Identify and develop cost effective elements of EU strategy to meet our Kyoto target l Major Milestones m Launch March 2000 m May 2003 : second progress report m New phase in 2005 l Major Achievements m Total reduction potential of identified measures: Mt CO 2 eq./year = twice Kyoto ‘-8%’ m EU Measures currently “in implementation”: Mt CO 2 eq./year

European Commission: DG Environment Domestic action: Recently adopted measures Cross-cutting issues Directive on GHG emissions trading within the Community (Oct. 2003) Linking project-based mechanisms to GHG emissions trading (Oct. 2004) Decision for monitoring Community GHG emissions and for implementing the Kyoto Protocol (Feb. 2004) Energy Directive on the promotion of renewable energy sources (Sept. 2001) Directive on taxation of energy products (Oct. 2003) Directive on energy performance of buildings (Jan. 2003) Directive on the promotion of cogeneration (CHP) (Feb. 2004) Transport Promotion of the use of bio-fuels for transport (May 2003)

European Commission: DG Environment Domestic action: Ongoing work…. Energy Proposal for a framework directive on eco-efficiency requirements for energy-using products Proposal for a Directive on energy end-use efficiency and energy services Commission Green Paper on energy efficiency or doing more with less Transport Proposal for improvements in infrastructure use and charging Proposal on special tax arrangements for diesel fuel used for commercial purposes and on the alignment of excise duties on petrol and diesel fuel Proposal for a regulation on the granting of Community financial assistance to improve the environmental performance of the freight transport system (Marco Polo I and II program) Products Proposal for legislative action on fluorinated gases

European Commission: DG Environment Progress towards Kyoto Compliance: EU emissions compared to base year (1990)

European Commission: DG Environment Distance-to-target in 2010 (percentage points) for the EU-25, including Kyoto mechanisms Notes: Data exclude emissions and removals from land-use, land-use change and forestry. All EU-15 Member States provided projections assuming existing domestic policies and measures. Several countries provided projections with additional domestic policies and measures. For following Member States the additional effects of the use of Kyoto mechanisms is included: Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands and Spain),. For EU-15 the effect of use of Kyoto mechanisms is calculated based on information from these nine countries. Projections for Poland cover only CO2 and N2O and include LULUCF. Projections for Spain cover only CO2. Projections for Cyprus and Malta are not available. Source: EEA, 2005

European Commission: DG Environment Use of Kyoto Mechanisms: Planned purchases by Member States (in addition to company use!) Almost 600 Million tonnes of CO2eq ( ) Million tonnes of CO 2 eq. Austria35.00 Belgium7.50 Denmark17.50 Ireland17.50 ItalyUp to Luxembourg15.00 Netherlands Spain100.00

European Commission: DG Environment EU Emissions Trading: Domestic Action - Global Cooperation

European Commission: DG Environment Cap and Trade Irrelevant where GHG are emitted! l Set overall target covering group of sources l Allocate allowances l Sources can choose: m Meet targets by reducing own emissions m Reduce emissions below target and sell or bank m Emit above target and buy

European Commission: DG Environment Simple and transparent: m Subsidiarity – important role for Member States m Based on and linked to other Community legislation ( Integrated Pollution and Prevention Control – IPPC Directive ) m Starts with known large emitters, measurable emissions m Building blocks – easy to expand Lower costs & guaranteed environmental outcome EU Greenhouse Gas Emissions Trading

European Commission: DG Environment Key Instruments l l Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC [Emissions Trading Directive] l l Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms [Linking Directive, amending Emissions Trading Directive] l l Commission Decision of 29 January 2004 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council [Monitoring and Reporting Guidelines] l l Commission Regulation of 21 December 2004 for a standardised and secured system of registries pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision 280/2004/EC of the European Parliament and of the Council [Registries Regulation]

European Commission: DG Environment Key Terms l l Activity (Annex I) l l Installation (IPPC definition) m Installation means a stationary technical unit where one or more activities listed in Annex I are carried out and any other directly associated activities which have a technical connection with the activities carried out on that site and which could have an effect on emissions and pollution l l Operator m Operator means any person who operates or controls and installation or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of the installation has been delegated l l Activities in Annex I leading to GHG emissions cannot be undertaken unless the operator holds a permit l l The operator must hold sufficient allowances to cover GHG emissions from installation

European Commission: DG Environment l l 2005 – 2007 l l 2008 – 2012 & subsequent 5-year periods l l Initially limited to CO 2 only l l Large sources, mostly covered by IPPC (Annex I) (45% of EU CO 2 emitting activities, around 10’500 installations) l l Add in additional sectors/gases through: m Unilateral inclusion (below thresholds, new gases and activities) m amendments Timing & Coverage

European Commission: DG Environment Coverage

Allocation l By Member States, but: m National Allocation Plan (NAP) (total allocation and allocation methodology), draft by 31 March 2004 m 95% of allocation free of charge (90% after 2008) m Guidelines for Allocation in Annex III m Commission Allocation Guidance by 31 December 2003 (7 Jan 2004) – further guidance expected soon m State aid provisions m 3 month assessment of NAPs by Commission m Allocation 3 months before start of trading period m [Issue annually by 28 February]

European Commission: DG Environment l Monitoring, Reporting: m Calculation, basic guidelines in Annex IV (Commission Decision of 29 January 2004) l Verification: m Basic guidelines in Annex V, Member States to decide on role authorities/private verifiers (voluntary coord?) l Compliance: m Member State competence, harmonized penalty (€ compensating for shortfall + “naming and shaming” ) m Existing EU compliance framework (Member State implementation – penalties for failure to do so) Monitoring, Verification, Compliance

European Commission: DG Environment The Registry System l Combined EU-UNFCCC registry system l EU allowances, AAUs, CERs (+ lCERs, tCERs), ERUs, RMUs l UNFCCC Independent Transaction Log l Community Independent Transaction Log l 26 National Registries Registries Regulation! l 14 Registries online thus far (17 October 2005)

European Commission: DG Environment l 25 EU Member States l Future Member States(Bulgaria, Romania, Turkey, Croatia) l EEA (Norway, Iceland, Liechtenstein) l Art 25: bilateral agreements with other regimes: m Norway, Switzerland, Canada, New Zealand, Japan….. Membership of the Trading Scheme

European Commission: DG Environment The Start….. l Preparation: m 31 March 2004: Draft NAP published m 3 months for Commission Scrutiny of NAP m 1 October 2004: Allocation to installations m 1 January 2005: GHG emission permits m 28 February 2005: First issuance l Last NAP approved on 20 June 2005 (Greece)

European Commission: DG Environment The NAP decisions….

European Commission: DG Environment The Result….

European Commission: DG Environment Source: Point Carbon's Carbon Market Daily Price & Traded Volumes in the EU ETS

European Commission: DG Environment EU ETS: Facts and figures l l Close to 6.6 billion allowances will be allocated in l l Total asset value over € 140 billion l l 1-3 million allowances traded weekly l l 14 national registries online, all expected to be operational by the end of 2005

European Commission: DG Environment The Next Steps….. l l Commission to issue additional allocation guidance around December 2005 l l Compliance: m Submission of verified emissions report by 31 March annually m Surrender of allowances by 30 April annually l l New NAPs by 30 June 2006 l l Commission Communication of 27 September 2005 “Reducing the Climate Change Impact of Aviation” (COM(2005) 459) l l Review of ETS by 30 June 2006

European Commission: DG Environment Linking the EU ETS with the Kyoto Protocol’s flexible mechanisms More compliance options for companies - reduction in allowance price and compliance costs Increase liquidity of the EU emissions trading market Stimulate demand for JI and CDM credits Contribution to host countries’ Sustainable Development Promotion of the transfer of environmentally sound technologies to third countries But……preserve the environmental integrity of the trading regime

European Commission: DG Environment Key elements of the Linking Directive (1) How to link? Direct use of JI and CDM credits by operators in the EU ETS to achieve compliance with their targets (1 CER or ERU = 1 EU Allowance)

European Commission: DG Environment Key elements of the Linking Directive (2) When to link? Under KP: JI - reductions as of 2008 CDM - reductions as of 2000 Link with EU ETS: CDM from 2005 (start of EU ETS) JI from 2008 (start of KP 1 st commitment period)

European Commission: DG Environment Key elements of the Linking Directive (3) What to link? Member States may allow use of all project credits issued under UNFCCC/KP rules, except from: Nuclear energy projects (up to 2012) LULUCF projects (review in mid-2006)

European Commission: DG Environment Key elements of the Linking Directive (4) How much to link? Community and Member States have to respect KP supplementarity requirements From 2008 Member States must set a cap (% of allocation) Cap is determined in the National Allocation Plan

European Commission: DG Environment Action on Climate Change “post-2012”

European Commission: DG Environment The EU’s post-2012 strategy l The Climate Challenge l Benefits & costs l The Participation Challenge l The Innovation Challenge l The Adaptation Challenge “Winning the Battle against Global Climate Change” 9 February 2005 Environment & European Council Conclusions March & October 2005

European Commission: DG Environment Five key elements of the EU’s strategy 1. Build on Kyoto – using its successful elements, including flexible mechanisms 2. Broaden participation 3. Include more sectors and all gases 4. Deploy and develop technologies 5. Adapt to the effects of residual climate change

European Commission: DG Environment No time to loose…. Concrete steps: l Immediate and effective implementation of agreed policies (e.g. EU Energy Efficiency Initiative) l Increased public awareness l More and better focussed research l Stronger co-operation with 3 rd countries l New phase of the European Climate Change Programme in 2005 (review, synergy with Lisbon Strategy, aviation, carbon capture and storage, adaptation)

European Commission: DG Environment COP-11 & COP/MOP-1 Montreal, Canada 28 November - 9 December 2005 The EU: “looks forward to initiating a process among all Parties to the UNFCCC to explore how further to implement this Convention to achieve its ultimate objective by developing a post-2012 arrangement, building on the experiences to date in tackling climate change, including inter alia market- based instruments, focusing in particular on environmental effectiveness, improving cost-efficiency, broadening participation in line with common but differentiated responsibilities and respective capabilities, advancing development goals in a sustainable manner, building a global carbon market, exploiting the full potential of existing technologies and exploring new ones as well as tackling adaptation; and stresses the need for a clear timetable for such a process as well as a mechanism for taking it forward, taking account of the urgency of the issue and the need to provide certainty for private and public investment.

European Commission: DG Environment comm/environment/ climat/home_en.htm