The EU Emission Trading System (ETS) Henriëtte Bersee Henriëtte Bersee Environment Counselor Environment Counselor Royal Netherlands Embassy Royal Netherlands Embassy Washington, 10 december 2008 Washington, 10 december 2008

Outline International context International context EU objectives EU objectives EU- emissions trading system EU- emissions trading system Crunch issues Crunch issues

International Context UN-Framework Convention on Climate Change (1992): stabilisation GHG emissions in developed countries by 2000 compared to 1990 levels UN-Framework Convention on Climate Change (1992): stabilisation GHG emissions in developed countries by 2000 compared to 1990 levels Kyoto Protocol (1997): 1st. commitment period : -5.2 % GHG emission reduction in developed countries Kyoto Protocol (1997): 1st. commitment period : -5.2 % GHG emission reduction in developed countries Bali Roadmap (2007): level of ambition under discussion Bali Roadmap (2007): level of ambition under discussion

EU objectives for % GHG reduction compared to independent commitment 20 % GHG reduction compared to independent commitment 30% GHG reduction compared to in case of international agreement 30% GHG reduction compared to in case of international agreement 20% renewables in energy mix 20% renewables in energy mix 10% biofuels in transport 10% biofuels in transport - if production is sustainable - if production is sustainable - if 2nd generation biofuels is commercially available - if 2nd generation biofuels is commercially available

A few facts on the EU- ETS Covers 40 – 50 % of EU CO2 emissions > 10,500 installations Annual monitoring, reporting & verification links with other domestic schemes and emission reduction projects abroad (CDM & Joint Implementation)

Staged introduction of the EU ETS 1st. trading period ( ) 1st. trading period ( ) Designed as a learning by doing phase Designed as a learning by doing phase Set up of necessary infrastructure Set up of necessary infrastructure Growing trade Growing trade 2 st. trading period ( ) 2 st. trading period ( ) Stringent Cap setting Stringent Cap setting Overall Cap 6,5% below 2005 Overall Cap 6,5% below rd trading period aimed at reductions needed by 2020 (20-30%) 3rd trading period aimed at reductions needed by 2020 (20-30%)

Lessons learned 1  Set CO 2 cap first!  Allocation rules  No grandfathering!  Auction as much as possible  Most efficient allocation method  Reduces windfall profits Free allowances: use CO 2 benchmarks Free allowances: use CO 2 benchmarks

Lessons learned 2 80 % of the total emission volume within ETS system originated from 740 Installations 80 % of the total emission volume within ETS system originated from 740 Installations 7370 Installations in EU were responsible for only 5 % of total ETS emission 7370 Installations in EU were responsible for only 5 % of total ETS emission  Minimum level to exclude small installations  administrative costs are too high

Lessons learned 3 Monitoring, reporting and verification!  extremely important for the credibility of the system!  Is complicated. Take enough time to develop it!

Proposal Commission A EU wide cap A EU wide cap CO2 allowances available in 2020: 1720 Mt CO2 allowances available in 2020: 1720 Mt - 21% compared to 2005 emissions - 21% compared to 2005 emissions Can be adjusted to stricter target Can be adjusted to stricter target Increase scope: aviation to be included Increase scope: aviation to be included Harmonised allocations rules Harmonised allocations rules

Proposal: allocation Basic principle for allocation is auctioning Basic principle for allocation is auctioning Full auctioning power sector as of 2013 Full auctioning power sector as of 2013 Partial free allocation to industry- in principle fased out by 2020 Partial free allocation to industry- in principle fased out by 2020 Report on carbon leakage by 2011 and make proposal if apprioate Report on carbon leakage by 2011 and make proposal if apprioate

Proposal: Auctioning Auctioning rights distributed to Member States: more rights to MS with lower GDP/capita Auctioning rights distributed to Member States: more rights to MS with lower GDP/capita Open Auctioning Open Auctioning 20% of revenues earmarked for combating climate change 20% of revenues earmarked for combating climate change

Key issues in negotiations in the EU Solidarity between member states Solidarity between member states Grandfathering versus auctioning Grandfathering versus auctioning Earmarking auctioning revenues Earmarking auctioning revenues

Thank You!