Stakeholder meeting Friday 3rd April 2009 Assessment of the possible development of an EU-wide NOx and SO2 emission trading scheme for IPPC installations Stakeholder meeting Friday 3rd April 2009

Agenda Aims and objectives Approach Deliverables and timescales

Aims & Objectives To assess environmental, economic & social impacts of various possible designs of an ETS for SO2 and/or NOx under certain EU rules for land-based industrial sources in order to potentially replace individual BAT-based permitting of IPPCD / IED for those pollutants Environmental constraints impacts on ecosystems & human health should not exceed those under current policies, incl IED Proposal Air Quality limit values constraints on scheme's potential due to the NECs to be assessed  incl. option to have more flexible ceilings Outcome: provide insight on whether a trading mechanism for SO2 & NOx in the EU would be an appropriate MBI If so: under which rules, safeguarding environmental objectives & ensuring practicability & enforceability

Approach Overview Evaluation criteria Scope of sectors for modelling IPPC installation database Beyond BAU measures Environmental constraints Options for trading scenarios Simulation and modelling impacts Impact Assessment

Overview Impacts to cover: 2016 2020 2025 2030

Evaluation criteria for impact assessment Impacts relative to reference (IE Directive) scenario: Economic Impacts Competitiveness, trade and investment Competition on the internal market Operating costs and conduct of business Administrative costs on business Innovation and research Consumers and households Specific regions or sectors Third countries and international relations Public authorities Macroeconomic impacts Environmental Impacts Air emissions Air quality Ecosystems Climate Social Impacts Employment and labour markets Public health

Scope of sectors for modelling (1) Purpose To identify sectors / activities to be included in emissions trading simulation model  not necessarily proposed scope of scheme Criteria for inclusion in modelling average emissions per installation within sector > 50% of the average emissions per installation across all installations / sectors in EPER 2004 total emissions of sector > 1% of total emissions of all installations / sectors in EPER 2004

Scope of sectors for modelling (2) Assessment IED sectors Inclusion in simulation model NOx SO2 1.1 Combustion >50 MW (> 20 MW in Proposed IED) Yes >50MW 1.2 Refining of mineral oil & gas Yes 1.3 Coke 2.1-2.6 Metal industry Yes for integrated steel, no for others 3.1-3.5 Cement, lime, glass, mineral substances or ceramics Yes for cement and glass, no for others Yes for cement, no for others 6.1 Pulp and paper Yes for recovery boilers No 1.4 Gasification or liquefaction of fuels; 3.2 Asbestos; 4. Chemicals; 5 Waste; 6.2-6.10 Textiles etc

IPPC installation database (1) Why is installation specific data required? to assess potential responses to emissions trading scenarios in more detail than achieved in previous studies to assess air quality, health and environmental impacts of these responses in detail to assess cost impacts in detail

IPPC installation database (2) How is installation specific data used? EMEP Source- Receptor modelling IPPC installation database Beyond BAU measures Inform geographic / sector aspects Options for emissions trading scenarios Specialist input Revise trading rules if necessary Emissions trading simulation model EMEP + Entec health, env & AQ modelling Costs & emissions health & env impacts Impact Assessment

IPPC installation database (3) Scope of installation data: Source location & stack characteristics Current emissions Current fuel type and quantity BAU abatement installed / planned Beyond BAU abatement options Approach Development of database with installation specific data Data gathering to populate database Installation specific data General information Assumptions

IPPC installation database (4) Data sources: Consultation with MS and sector specialists MS policy / regulatory contacts EU industry associations BREF review lead authors Databases & studies Key: LCPD emission inventories; EPER / E-PRTR; CoalPower Supporting: other Entec / partner studies, in-house data & contacts; GAINS (activity rate trends) Expert knowledge of project team Entec, Okopol, Garrigues, IHE We welcome any outstanding requested information! – by end April 09

Beyond BAU measures Identification and selection of data sources Development of database of abatement measures Description Abatement efficiency Lifetime Applicability / feasible combinations Capital / operating costs For every installation identify relevant measures (& costs & effectiveness) MRV costs

Environmental constraints NECD 2010 ceilings potential 2020 ceilings option to make ceilings more flexible, applying to groups of MSs BAT equivalence Same environmental ambition level compared to IED proposal Should not lead to increased overall emissions compared to IED proposal Targets should be equivalent to applying BAT-based permit conditions Air quality limit values NO2 SO2

Options for trading scenarios (1) General approach Generate long-list of options Assess performance against evaluation criteria to develop short-list Obtain feedback from stakeholders Main aspects to cover Type of scheme Allocation method Emission rate Trading zones Coverage Opt-in and opt-out MRV

Options for trading scenarios (2) Type of Scheme Cap & Trade: Design Risks Higher cost/ unit of product than projected Cap and Trade Allocation = Emission rate * Production (historical / projected) Baseline and Credit Allocation =Emission rate * Production (actual) Hybrid Allocation = Emission rate * Production * Adjustment Factor (to achieve emissions target) Windfall profit (under free allocation) Baseline & Credit: Design Risks Lower emission reductions than anticipated

Options for trading scenarios (3) Allocation Method All allocation methods apply to all types of trading schemes

Options for trading scenarios (4) Emission Rate Upper BREF BAT AEL Intermediate BREF BAT AEL Lower BREF BAT AEL Notes: No distinction between Cap & Trade and Baseline & Credit Expect to apply to allocation to individual installations and overall cap

Options for trading scenarios (5) Trading zones Geographic scope of trading zones for IPPC installations MS level Different groups of MSs EU 27

Options for trading scenarios (6) Coverage All IPPC installations covered by the EU ETS (revised) All IPPC installations covered by the EU ETS >=50 MW capacity Installations that meet specific coverage criteria

Options for trading scenarios (7) Opt-in and opt-out Depends on coverage: full mandatory coverage is not compatible with individual installation opt-ins and opt-outs Depends on type of scheme: under Cap & Trade opting in entails gaming risks Depends on MRV provisions and treatment of small emitters May entail opt-out provisions for MS, depending on MRV provisions

Options for trading scenarios (8) Monitoring, reporting and verification (MRV) Collate and review MRV requirements for SO2 and NOx for IPPC installations Review practices in SO2 and NOx trading schemes Assess EU ETS MRG for CO2 Determine desirable features of MRV of SO2 and NOx in an emissions trading scheme Identify preferred options

Simulation & modelling impacts (1) Trading simulation model For each installation a list of beyond BAU measures will be assigned together with % abatement and costs For various scenarios and constraints (caps, NECs, etc), model will minimise costs for each zone covered by trading system, selecting least cost methods first Outputs: emissions allowance deficit / excess levels compliance responses abatement costs / cash flow impact allowance price

Simulation & modelling impacts (2) General structure of trading simulation model

Simulation and modelling impacts (3) Environmental modelling EMEP model (Met.no) Applications Source–receptor analysis to inform initial geographic / sector aspects of trading scenarios Detailed AQ, health and env impact modelling of trading scenarios to inform potential refinement of scenarios and Impact Assessment Outputs: 50x50km2 for source–receptor analysis 10x10km2 for impact modelling Ecosystem damage: exceedences of critical loads Health damage: YOLL from PM; O3; AQ impacts of SO2, NO2, PM2.5, PM10 Identification of areas with exceedences of AQ LVs & contributors Emissions data IPPC installations – from database mentioned earlier Non-IPPC sources – EMEP / TNO estimates Finer resolution AQ modelling where exceedences ADMS 4 dispersion model Monetary valuation Health, crops, materials

Impact Assessment Impact Assessment drawn up following Commission Guidelines Identify the problem Define the objectives Develop main policy options Analyse their impacts Compare the options Outline policy monitoring and evaluation Significant data from emissions trading simulation model and previous tasks Supplemented by additional analysis to meet full requirements of specification

Request for stakeholder inputs Any outstanding requested IPPC installation data Cost data for beyond BAU measures – or signposting to such data Comments on options for emissions trading scenarios, especially: Coverage Opt-in / opt-out MRV Trading zones By 30 April 2009 To: Alistair Ritchie at alistair.ritchie@entecuk.co.uk Thank you for your co-operation!