1. Introduction of Emissions Trading to Ireland Dr. Ken Macken Programme Manager Emissions Trading Unit Joint Committee CMNR 29 June 2005

2. Kyoto Protocol nThe Kyoto Protocol is an international agreement reached under the auspices of the UN (The UNFCCC – United Nations Framework Convention on Climate Change). The Protocol entered into force in February 2005. nThere are currently six Greenhouse Gases recognised by the UNFCCC: nCarbon dioxide (CO 2 ) - 66% as CO 2 equivalents in 2003 nMethane (CH 4 ) - 19% as CO 2 equivalents in 2003 nNitrous oxide (N 2 O) - 14% as CO 2 equivalents in 2003 nHydrofluorocarbons (HFCs) nPerfluorocarbons (PFCs) nSulphur hexafluoride (SF 6 ) n Under this Protocol, the EU has committed itself to reducing its greenhouse gases emissions by 8% from 1990 levels during the first Kyoto commitment period from 2008 to 2012. n Under a “Burden Sharing Agreement” in the EU, Ireland was permitted an increase of 13% on 1990 levels of emission.

3. Current position nCurrent position:Total emissions of GHG are around 67.5 Mt/a (2003) nTarget (1990 +13%): Our target for total emissions is 61 Mt/a (average for 2008-12) nReduction required:Around 6.5 Mt/a reduction on our current position

4. Mechanisms for Cost Effective Reductions nProject Mechanisms nJoint Implementation (JI) – from 2008 nClean Developoment Mechanism (CDM) – from 2005 nEmissions Trading n Emissions trading started on 1 st. January 2005 and covers the 25 Member States of the enlarged European Union. n The EU scheme is the first multi-national emissions trading scheme in the world n Phase one is the pilot period running from 1 January 2005 to 1 January 2008. nPhase two is the first Kyoto period (2008-2012) when the EU scheme becomes part of the world wide UNFCCC scheme and extends to all Annex 1 countries. n Applies to CO 2 only!!! (and not to any of the other five greenhouse gases). n Standard “Cap and Trade” scheme (though it will be the largest one in the world!). n Allowances are to be based on a National Allocation Plan. n At least 95% of allowances must be issued free of charge in Phase 1 (at least 90% in Phase 2). n Penalties have been set at €40/t for the Pilot Phase (€100/t for Phase 2) plus a roll-over penalty in the following year.

5. Ireland nStructure nNational Allocation Advisory Group to advise EPA nIt comprises the Chief Executives (or senior nominees) from Forfas, CER, SEI and NTMA under an independent chairman. nThe Director General of EPA is also a member. nGovernment decides total amount for Emissions Trading nEPA allocates this amount to sectors and installations nMethod nFollowing extensive consultation, and on the advice of NAAG, EPA draws up a National Allocation Plan describing the basis for, and the actual allocations of, Greenhouse Gas Allowances (equivalent to an emission of 1 tonne of carbon dioxide) to each site coming within the scheme nThe National Allocation Plan must receive approval from the EU Commission nEach site must obtain a GHG Permit from EPA in order to continue to operate nThe Permit requires operators to record emissions and to submit allowances to cover each year’s operation

6. Process for First National Allocation Plan nJuly 2003 nGovernment assigned responsibilities to EPA – retained overall amount nEstablished National Allocation Advisory Group nAutumn 2003 nConsultants appointed by DEHLG and also by EPA nTwo consultation workshops held nFebruary 2004 nFirst public consultation on draft NAP n31 March 2004 nSubmit NAP to Commission n7 July 2004 nCommission approval for Ireland’s NAP nSummer 2004 nBaseline verification underway nSeptember 2004 nSecond public consultation on NAP

7. Route to Final Allocations (Oct ‘04 – Mar ‘05) nSubmissions reviewed by EPA and NAAG nChanges proposed to annual division of New Entrant set-aside nNon-EPA issues forwarded to Government nFinalised National Allocation Methodology forwarded to Commission – approval received dated 20/01/05. nEmployed external consultant to advise on capacity issues in Cement&Lime sector nSent National Allocation Methodology and Provisional Allocation Decision to all participants on 22/02/05 – one week to respond nEPA Board gives final consideration to remaining matters – Final Allocation Decision agreed 8 March 2005 and notified to participants and Commission.

8. Summary of Allocation Methodology nPilot Phase allocation 66.96 Mt/3years (22.32 Mt/a) nThis represents an estimated 97% of expected emissions (BAU). nAt least 97% to be initially allocated free to installations permitted by 31/03/04. n Allocations at sector level first n Based on average historic emissions in 2002 and 2003 adjusted for National Energy Policy n Subsequently allocations to installations within each sector. n Based on average historic emissions in 2002 and 2003 or, where this is < 90% of the average of the emissions in the highest three years of 2000-2003, the average of the highest three years of 2000-2003 will be used. n Different basis for recently commenced installations. nAllocations for Known Planned Developments (KPDs) come from the relevant sector allocation nNew Entrants to get 1 Mt free allocation for the three year period. n Also a CHP set aside (taken from the powergen sector) of nearly 0.5 Mt. n Auction of ~0.5 Mt to cover costs of operating the scheme. n No further allocations to installations deemed to have closed.

9. Final Allocation Decision – 8 March 2005

10. National Emissions & Target

11. Second National Allocation Plan (2008-12) nDeadline for Submission to EU 30 th June 2006 nFinal allocation decision to be taken by 31 December 2006 nLegal differences between NAP1 and NAP2 nAuction can be up to 10% of total allowances nNo opt-outs nMS can (subject to Commission approval) opt-in any sectors and any of the other five GHGs nLimit to be set on use of JI/CDM under transposition of Linking Directive nGovernment to decide “Total” assigned to Emissions Trading nEPA to decide allocations to individual installations (and sectors) nGovernment may or may not give direction on set asides, closures etc. as before.

12. National Registry nCreate allowances and Kyoto units nTrack ownership nTrack compliance with obligation to surrender nTrack Member State’s obligations under the Protocol nThe Registry is not a trading platform

13. National Registry (cont’d) nSoftware: nBuilt by DEFRA n10 other countries using this system nState of art hosting environment nCITL is live: Denmark, Sweden, Finland, Netherlands, UK, Germany, France nIreland passed all testing with CITL nTesting internal procedures and conducting audit n“Go-Live” in the coming weeks nAll queries on registry to: etradmin@epa.ie