1. EU ETS Review – Working Group on Scope Members involved Andy Kelly – Centrica Alex Morrell – EdF Nick Sturgeon – Chemical Industries Association Richard Leese – British Cement Association Matthew Croucher – Society of Motor Manufacturers & Trading Bill Thompson – BP Daniel Waller – Alcan Initial discussions aimed at finding areas of consensus where they exist, and exploration of those areas where views differ Intention to stimulate discussion within wider WG8 group prior to first ECCP II meeting on 8/9 March – Still work in progress Subsequent formal document circulated for review and comment

2. ECCP II review of EUETS Scope – current agenda items Expansion: CO2 from Petrochemical and Fertilizer sectors N 2 O from Nitric Acid plants CO 2 and PFCs from production of Aluminium CH 4 from coalmines Review of Article 24 opt-in Unilateral opt in of N 2 O Is this needed for Phase III? Small installations – inclusion/exclusion thresholds CCS Emissions reduction projects Anything missing?

3. Deeper vs more Extensive EU ETS Consensus that review should aim to make EU ETS a deeper scheme, tightly focussed on large sources of emissions Question phase III inclusion of other gases as previous studies for ECCP II & LETS concluded that for most emissions other mechanisms more effective - even suitable PFC, N 2 O emissions are controlled under IPPC Acknowledgement this brings a risk of some emitters not being subject to constraints; must be tackled through equivalence of effort/cost Equivalence could be through CCAs, IPPC, F-gas regs, even direct carbon taxes? eg, PPC covers some PFC & N2O emissions. Does this constitute equivalence? Does inconsistent application of PPC across EU cause intra-EU competitiveness issues?

4. ECCP II review meetings (in 2006): Conclusions on non-CO 2 gases N2O emissions from Industry nitric and adipic acid producers (89 Mt CO2e EU-15) Conclusion: BREF under IPPC (EUETS would require a benchmark) N2O in combustion (40 Mt CO2e EU-15) Preference for regulation under IPPC. Inclusion in EU ETS for significant sources needs availability of precise, reliable and affordable measurement equipment and processes – further analysis needed. CH4 from waste (115 Mt pa to 74 Mt CO2e). Reduction due to Landfill Directive, and more paper recycling Conclusion: Composting CH4 potentially included in future revisions of EUETS CH4 from coalmining and handling Conclusion: Offset mechanism credits for CH4 capture and incineration. Including all CH4 from coal mines gives redundant mine ownership issues CH4 from oil & gas production, distribution and use 32Mt (90% approx from transmission) Voluntary agreements for phasing out largest emissions sources and grey iron pipes. Other CH4 sources Approx 27 Mt Wastewater, biomass combustion, fossil fuel combustion and open burning of agricultural waste Indirect effect of EU Water Framework Directive, nation regulations on burning of agri waste and biomass Fluorinated gases Regulation for containment, recovery, use bans and prohibitions + directive for motor vehicle air con systems with high GWP gases. Expect 21 Mt CO2 by 2012 vs BAU 40- 50Mt by 2020 Source: http://forum.europa.eu.int/Public/irc/env/eccp_2/library?l=/eccp_fluorinated&vm=detailed&sb=Title http://forum.europa.eu.int/Public/irc/env/eccp_2/library?l=/eccp_fluorinated&vm=detailed&sb=Title

5. Small Emitters General agreement that an annual CO 2 emissions threshold (25kt/yr?) could work better than of current capacity based level Would remove substantial number of installations without diluting environmental coverage significantly In UK 59% installations <25kt/yr account for less than 2.5% emissions Where emissions below threshold installations could elect for inclusion Implementation of a de-minimis source threshold to be considered At present need agreement with competent authority EC considering a 3MW threshold for exclusion from aggregation Should other gases be included, would require a different CO 2 e threshold due to reporting & monitoring issues for high GWP gases

6. Domestic Projects Development of a project basis under EU ETS Direct emissions only? Demonstration of additionality – processes not subject to other regulations requiring reductions. No double benefit (e.g. CO 2 process reductions leading to CO 2 reductions elsewhere (Power Generation) GHG reductions demonstrable National Inventory Rigorous Reporting Monitoring and Verification regime linked to current MRV (e.g. Tiering) Subject to a comitology procedure? Overly bureaucratic? Is this the future of JI post-2012? Why shouldn’t domestic projects be available?

7. Criteria for assessing sector inclusion/exclusion Agreed relevant criteria Level of emissions both installation and sector total  Ability to define consistent definition of activity  Feasibility of robust, accurate and cost-effective MRV  not necessary to target Tier 1 across the board, eg Flaring Avoidance of double regulationif other policies more effective  Need to ensure equivalence of effort (Gas) Need for independent definition of baseline  Fra,Ned inclusion of N 2 O will set benchmark Divergence of views Feasibility of agreed allocation methodology? Potential for abatement? difficulty in defining abatement potential bringing sectors into scheme can lead to finding abatement Competitiveness issues? Could be intra-sector, intra-EU or external to EU Evidence required to inform decisions

8. Specific comments on other sectors/gases Large Emission sources of CO 2 should be included into the scheme unless can demonstrate good reasons against Surface transport Majority felt issues as laid out in previous ETG sessions demonstrates that other measures would be more effective for this sector Domestic Individually would be excluded due to de-minimis. On an aggregated basis would face same problems with inclusion as highlighted for surface transport Cement: CH 4 & N 2 O Excluded on de-minimis. Other measures more effective for low levels of emissions? Aluminium PFC & CO 2 PFCs already covered and substantially reduced under IPPC. Chemical: CO 2 & N 2 O Crackers already included. Potential for inclusion of flaring if MRV issues resolved Reductions in N 2 O from nitric acid will occur under IPPC by 2012 Concern that blanket exclusions should be reviewed if length of phases increased – risk losing benefit of technological improvement or ability to address increasing sources of emissions