NOx emission trading in the Netherlands Marjan van Giezen Climate Change & Industry Directorate Dutch Ministry of Environment

Why emission trading for NOx? NEC 2010 ceiling of 260 kton NOx “allocated” nationally: Consumers and Services: 19 Mobile Sources: 158 Industry (large sources): 55 Others and reserve 28 Emission trading for NOx is main instrument to realize the industrie’s sector allocation of 55 kton in 2010. Emission trading is set up and used to redistribute the decreasing available emission “volume” over the existing industrial installations with widely different abatement costs 1. ET and IPPC permitting are two different regimes 2. In the Netherlands we choose Emissions Tarding as our prime instrument to achieve policy goals for national NOx emissions. There are other options! PSR system could guarantee a national emission ceiling if you can fix the PSR each year. The problem is that at in 2000, the PSR for 2010 was fixed. Remaining problems with regard to reaching the target were up to the goverment to solve outside the trading. It is a dilemma: companies want long term certainties for investment, government would like to be able to adjust the PSR at short notice depending on the actual development of NOx-emissions. Various allocation principles can be applied. The PSR system is only one way. Grandfathering or cap & trade based on benchmarks are also possible. 3.

NOx emission trading scheme Industrial sites > 20 MWth are involved: 260 sites All power plants (gas, coal, CHP’s) Refineries (5) Chemical industry (20 major – 100 SME’s) Steel (1 major and 4 medium-sized players) Glass (15), Cement (1), Paper (10), Food Processing and others Installations between 20-30 MWth can apply for opt-out: 120 sites did so Industrial facalities between 20-30 MWth can request for opt-out during the start-up period. (Opt-out list contains 120 sites) PSR stands for performance Standard Rate, the next slides wil show the differences and resemblances with the EU-ETS Definition applies to sites where a total thermal load or potential of 20 MWth is available. This can be a result of several installations or units. CHP stands for combined heat–and-power SME is short for small and mediumsized enterprises

Different approach NOx – CO2 CO2 emission trading International trading system based on EU directive Cap & Trade; assignment based on historical emissions International trade, exchange, brokers, futures NOx emission trading National system based on national legislation Allowances are generated during operation according to Performance Standard Rates (PSRs) National market with operators and exchange 80-90% of NOx emissions are directly related to the use of fossil fuels ETS : Cap & Trade and based on historic emissions in 2001-2005

Different approach NOx – CO2 Targets NOx: target 2010 = 55 kton for industrial sources CO2: in 2008-2012 a cap is set in our allocation plan Allocation NOx: allowances are automatically generated based on PSR (g/GJ) x fuel use output CO2: Allowances are grandfathered based on historic emissions CO2: allowances are valid through the whole trading period NOx: allowances are ‘earmarked’, they can be carried over to or borrowed from the future to a certain extent. Operators can trade in NOx allowances for future years Operators have the opportunity to save credits or to sell credits in advance of future acquirements (they can be ‘in the red’) There is a maximum that is set in the permit for each site.

Performance Standard Rate (PSR) PSR (g/GJ) derived from national NOx target and projected fossil fuels use (PJ) by the sector PSR for combustion processes: g/GJ Set of coherent PSR’s for 19 production processes: g/ ton product Reason: the link between energy and emission was too indirect and/or unbalanced for these processes PSR for production processes: A set of 19 PSR’s for production processes i.e. iron and steel, nitric acid, carbon black, glass, cement, etc.

Performance Standard Rate 94 PSR for combustion processes (g/GJ) 68 63 58 52 46 40 1995 is the base line PSR in 2010 is derived from National Nox target and projected fossil use by the sector in 2010, PSR’s for intervening jears are derived from the PSR 2010 plus negotiations, the result is that the PSR is gradually scaled down from 2005 (start of the emissions trading) onwards, giving the industry the opportunity to eventually meet their obligations in 2010. PSR for every year was developed and determined in 2000 and subsequently laid down in legislation (Dutch Environmental Act and the Decree on Emissions Allowance Trading). In the existing set of PSR there is no relation to the BREFs, at that time (2000) there were few BREF’s. 1995 2005 2006 2007 2008 2009 2010

Allocation of NOx allowances Emission rights are generated automatically Example: ton NOx 1160 PSR 58 (2007) Energy input site 20 PJ = This is an example; any installation handing over its annual emissions report will be credited in this manner. Emissions allowances are automaticaly allocated/generated.

surplus of allowances can be Basic principle Operators must hand in enough rights to cover the emissions they’ve caused Emissions higher than allowances deficiency requires buying Emissions lower than allowances surplus of allowances can be sold 1160 3 possible situations are illustrated Emissions equal allowances

NOx target of 55 ktons in 2010

Emission trading vs. IPPC 1. NOx emission trading has to function within EU legislation (LCP-, IPPC-directive)  Difference in “conceptual approach”, e.g. BAT decided by IPPC Competent Authority or Cost Effective Approach decided by the operator, causes permitting problems 2. Emissions Trading is prime instrument to realize the industrial emission ceiling of 55 kton NOx 3. IPPC permitting does not offer enough possibilities to control NOx-emissions within the available sector ceiling of 55 kton, requiring a redistribution of emissions between all existing and new industrial installations 1. ET and IPPC permitting are two different regimes 2. In the Netherlands we choose Emissions Tarding as our prime instrument to achieve policy goals for national NOx emissions. There are other options! PSR system could guarantee a national emission ceiling if you can fix the PSR each year. The problem is that at in 2000, the PSR for 2010 was fixed. Remaining problems with regard to reaching the target were up to the goverment to solve outside the trading. It is a dilemma: companies want long term certainties for investment, government would like to be able to adjust the PSR at short notice depending on the actual development of NOx-emissions. Various allocation principles can be applied. The PSR system is only one way. Grandfathering or cap & trade based on benchmarks are also possible. 3.

Conclusions & considerations Each allocation method has pro’s and con’s Cap & Trade based on historic emissions favours laggard operators and disfavours pro-active behaviour PSR approach is based on benchmarking and aims at increasing NOx efficiency of combustion and production by defining NOx emission per unit of energy used or tons product In a PSR system a balance has to be found between the need for long term certainty of participants and short term possibilities for the government to adjust and fine-tune PSR in order to reach the target. Each allocation method has pro’s and con’s: CAP:, fixed emission level, problem with newcomers PSR: flexible for newcomers, technology push, no total fixed emission level