The implementation status of specific mechanisms under Kyoto Protocol EU-ETS 13 May 2013 Geta Diaconu

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1 Contents 1. Kyoto Protocol (1997) - background 2. EU – ETS mechanism – emission rights 3. EU – ETS status – phase III 4. Distribution of allowances 5. Status in Romania

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. kpmg Kyoto protocol (1997) - Background Purpose: reduction of greenhouse gases emissions by 5.2% worldwide for first commitment period (until 2012). Mechanisms/ flexible instruments: ■Joint implementation (JI) and Clean development mechanism (CDM) ■International emissions trade (ET) Europe – EU-ETS Industries: Romania: ratified Kyoto Protocol in 2001 (Law 3/2001) – 8% GHG reduction (1989 baseline year). Second commitment period ( ): In December 2012 the “Doha Amendment to the KP” was adopted. Annex 1 Parties committed to reduce GHG emissions by at least 18 % below 1990 level ■ Energy■ Ferrous metals ■ Transport■ Cement ■ Waste management■ Pulp and paper ■ Chemicals■ Aluminum smelting ■ Oil refineries■ Aviation 2

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. EU-ETS mechanism – emission rights ■National caps ■Fixed cap ■3&5 years trading period ■Free allocation based on emissions at installation level ■Free allocation based on historical emissions ■National Allocation Plans ■National Registries Phase I&II ( ) ■EU-wide fixed cap - annually decreasing (first proposal 1.74%) ■Free allocation based on specific emissions at product level ■Free allocation calculated through benchmarks ■Community-wide harmonized Implementing Measures (CIMs) ■National Implementation Measures (NIM’s) ■Union-wide Registry Phase III ( ) 3

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 EU- ETS status - phase III Changes in trading rules ■The EU cap for the year 2013 has been set at 2,039,152,882 allowances - which will annually be reduced by 37,435,387. ■Auctioning of allowances as general rule rather than an exception. No free allowances allocated for electricity production (except electricity based on combustion of waste gases). România benefits of temporary derogation from this rule and electricity production partly received free allocation (annually decreasing, as to reach zero free allocation in 2020). ■Certain energy-intensive sectors (identified in Commission Decision 2010/2/UE as to be on risk of carbon leakage and relocation) received 100% of their benchmarked allocation for free. Making the transition to phase III ■In 2012 the AAU surplus had reached 955 million allowances and a continued rapid grow is expected over the next period due to a number of temporary factors directly related to the transition to phase III – resulting in significant decrease of AAU price (< 2 euro/certificate). ■EC proposed various actions for adjusting supply and demand, but not yet approved (e.g. increasing 20% reduction target to 30% in 2020; limiting access to international credits, discretionary price mechanism, back-loading of auctions).

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5 Distribution of allowances ■All allowances which are not allocated free will be auctioned 88% of the allowances for auctioning are distributed to Member States on the basis of EU ETS emissions in the period. 10 % of the allowances are distributed to poorer Member States to take account of the lower gross domestic product (GDP) per head and higher prospects for growth and emissions. 2% of the allowances are distributed to nine Member States (including Romania) which in 2005 had achieved a reduction of at least 20% in greenhouse gas emissions compared with the reference year set by the Kyoto Protocol.

© 2013 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 6 Status in Romania ■Romania submitted to EC its NIM for phase III, but the final version is not yet approved; ■Applications for obtaining the GHG emissions authorization have been submitted to NEPA and the related authorizations are obtained for majority of installations; ■ In 2012 Romania – available 300 millions allowances – which 3-4 years before were estimated at about 3 billions Euro; ■ Ministry of Public Finance - to auction the emissions certificates allocated to Romania (EO 115/2011 – under revision); ■ The amounts obtained by selling the certificates are to be allocated as follows:  29 % of the gross amount to the State Budget (was the same statement)  71 % of the gross amount to the Environmental Fund Administration – EFA - (before allocated to the Ministries implementing env. projects); env. projects will be financed after selection procedure of EFA, and approved through GD (To be proposed by MECC); public announcement of GOR to finance subway infrastructure development (104 millions lei) ■Auctioning non-used certificates from JI reserve (2007 and 2008 – 2012); the resulted amount will be used for financing the program Green House (Casa Verde).

Thank You Geta Diaconu Director Advisory – Sustainability Services