1. September 29, 2009 Sagacarbon seminar, sofia.
The European Union Emissions Trading Scheme: What can we expect to ?
Emilie Alberola, Mission Climat of Caisse des Dépôts
September 29, 2009
Sagacarbon seminar, sofia.

2. Agenda Entering into Phase 2 of the EU ETS: what is new ?
Main compliance results from 2008
The European Commission’s proposal for Phase 3: changing the rules

3. Agenda Entering into Phase 2 of the EU ETS: what is new ?
Main compliance results from 2008
The European Commission’s proposal for Phase 3: changing the rules

4. The EU ETS: A tool to cap EU CO2 emissions
EU ETS Directive in 2003 when no KP ratification
2 compliance periods (now 3)
25 then 27 MS with different economic and social backgrounds
Referee: the European Commission
1 Jan: Beginning of EU ETS phase I
1 Jan: Beginning of EU ETS phase II
Dec: End of EU ETS phase II
European 3x20 Objectives
2005
2007
2008
2012
2013
2020
Feb: Kyoto Protocol comes into force
1 Jan: Beginning of first Kyoto Protocol period
Dec: End of first Kyoto Protocol period

5. EU ETS phase 2 : allocations
Distribution of the 1,958 Mt of annual Phase II allowances
A cap on CO2 emissions converted in allowances (1 allowance = 1 ton of CO2)
National caps distributed among +10,000 covered installations
Major importance of utilities
Source: Mission Climat from CITL.

6. EU ETS installations’ timeline
Beginning of Year N of the EU ETS
End of Year N of the EU ETS
Publication of Year N-1 emissions by the EC
Double-allocation period
1st Jan.
28 Feb.
30 Mar.
30 Apr.
15 May
31 Dec.
Year N allocation on installations’ accounts in their national registry
Installations submit their verified emissions for Year N-1 to the national authority
Installations surrender the allowances covering their Year N-1 emissions in the national registry

7. A successful start for the market in Phase 1…
Installations may be « short » or « long »
Can buy or sell allowances on a financial market
Trades through exchanges or Over-The-Counter agreements
Compliance and financial markets
Phase I Allocations minus Emissions (Mt CO2)
« Long »  Installations
« Short » Installations
Minimum exchanges on the market: 650 Mt
Source: Mission Climat from CITL.

8. … with the emergence of a reliable carbon price
Sharp growth in traded volumes: 262 Mt (2005)  1,454 Mt (2009 Q1 + Q2)  3,505 Mt
EUA December 2009: €13.10 / EUA December 2012: €14.66
The price triggered some emissions abatement
Emissions abatement during 2005 and 2006:
Between 50 and 100 Mt/y – compared to a Phase I surplus of 156 Mt
Operation choices will not change unless the long-term price drops
Mainly in the power sector:
Fuel switching: from brown coal (lignite) to lower-emitting hard coal
Enhanced CO2 efficiency of coal plants: biomass use, improved energy efficiency
Source: ECX, BlueNext, Reuters

9. EU ETS Phase II: extension of the coverage and reduction in allocations
The emissions covered by the EU ETS represent:
Phase 2 will see:
The inclusion of new sectors and gases:
opt-in for N2O in France and the Netherlands
inclusion of the aviation sector in 2011
The inclusion of new countries: Norway (+ Iceland and Liechtenstein)
The reduction in allocations (-10%)
 Additional demand for EUAs
41% of European greenhouse gas emissions…
11% of emissions from developed nations …
4% of the world’s total GHG emissions.

10. EU ETS Phase II: the use of Kyoto projects for EU ETS compliance
Emissions reductions outside the EU ETS
Possible import of Kyoto credits limited to 1,400 Mt over (or ?)
Supply of CER credits before April 2013
Source: Mission Climat de la Caisse des Dépôts, August 2009

11. JI : Potential growth of Joint Implementation in Europe
Russia and Ukraine have hosted the majority of JI projects to date:
Russia: 211 million JI credits expected until 2012
Ukraine: 25,9 million JI credits expected until 2012
Bulgaria : 5,5 million JI credits
JI projects are also hosted by European countries
Eastern Europe: 287 million JI credits expected until 2012
EU15: France, Germany, Spain, and Denmark have also developed procedures for hosting JI projects (+New Zealand)
Annual ERU from JI projects
Source: UNEP/RISOE JI Pipeline, september, 2009

12. Agenda Entering into Phase 2 of the EU ETS: what is new ?
Main compliance results from 2008
The European Commission’s proposal for Phase 3: changing the rules

13. Compliance 2008 by countries
A global deficit of 110 Mt, with a gross deficit of 386 Mt and a gross surplus of 223 Mt.
14 countries are short: Germany about 43,8 Mt; UK about 43,1 Mt
14 countries are long : Slovakia with 6,7 Mt
Source: CITL, Mission Climat of Caisse des Dépôts

14. Compliance 2008 by sector
Two sectors are short: combustion sector about 204 MtC02 and refineries about 1,8 MtC02
Source: CITL, Mission Climat of Caisse des Dépôts

15. CER – ERU use for 2008 compliance
EUA and CER surrendered for 2008 compliance
Share of countries in which CER surrendered for 2008 compliance
Source: CITL, Mission Climat of Caisse des Dépôts

16. EU ETS Phase II: compliance results
Phase II 2008 – 2012: a short period with – 439 Mt
Source: CITL, Mission Climat of Caisse des Dépôts

17. Agenda Entering into Phase 2 of the EU ETS: what is new ?
Main compliance results from 2008
The European Commission’s proposal for Phase 3: changing the rules

18. Phase III: Reducing the allocation: an incentive for emission reduction
Energy climate package defines phase III rules: - 20% versus -30%?
Phase III features:
Extension of the market until 2020
Decreasing the allocation cap
Towards a full auctioning?
Source: Mission Climat of Caisse des Dépôts

19. Which impact on the industry competitiveness?
No observed impact on market shares during Phase I…
But potential impact on the long term for energy intensive industries
All industries but power production at different levels
Indirect impact for electricity-intensive industries
Impacts of new features of the EU ETS to be assessed by the EC before December 2010
Solutions? Free allocation, border tax adjustments, sectoral agreements…
MHM

20. Phase III: the use of carbon credits
A limited amount of CER/ERU usable for compliance
Without an international agreement : no additional Kyoto credits if -20% target. Kyoto credits no used in allowed or maximum of 11% of allocation (115 Mt);
With an international agreement: additional cap = 50% of the additional effort if -30% target.
New project mechanisms
In least developed countries
On the European territory through a harmonized framework for Domestic Offset Projects

21. The EU ETS in the world
Possible links with other cap-and-trade programs:
Complete fungibility between ETS seems difficult, but the common use of projects mechanisms could be a first step.
First linking opportunities: RGGI, Australia, New Zealand
Looking toward the future: a US federal trading program?
How to get ready:
Voluntary agreements
Sectoral agreements
The next steps:
Copenhagen COP/MOPs
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MHM

22. Contact Emilie Alberola, Mission Climat of Caisse des Dépôts
Publications of Mission Climat of Caisse des Dépôts
Club Tendances Carbone
Association for the Promotion of Research in Carbon Economics (APREC)