Emission Trading in Europe Dr. Ivana Mikešić, Boris Strauch. 12 October 2009

Transcription

1 Emission Trading in Europe Dr. Ivana Mikešić, Boris Strauch 12 October 2009

2 Figures Global greenhouse gas emissions (2006): Gt of CO2 equivalent (share of: US: 36.1%, Russia 17.4% 55% criterion for effectiveness of Kyoto Protocol could not be reached without one of them signing) Global carbon emissions (2006): Gt Top ten emitting countries in 2007: Sources: UNFCCC (FCCC/SBI/2008/12); International Energy Agency 2

3 Ozone vs. Carbon Ozone Ground-level ozone = air pollutant with harmful effects on respiratory systems of humans and animals Ozone layer = located in the upper atmosphere, filters potentially damaging ultraviolet light from reaching Earth's surface Destruction of ozone layer enhances greenhouse effect; international treaties mitigating this process by implementing prohibition of chemical substances hazardous to ozone layer not covered by this presentation Carbon CO 2 = trace gas being only % of the atmosphere greenhouse gas: transmits visible light but absorbs strongly in the infrared and near-infrared. 3

4 Main trends in global climate policy Jagdish Bhagwati (IND/US), Bjørn Lomberg (DK): Limitation of emissions not efficient States should rather invest in research on nuclear power and increase of green energy s efficiency Less expensive and more efficient than carbon trade system: emission trading schemes and taxes on emissions result in decrease of GDP by 12.9% until 2100 Maritime cloud-whitening Nicholas Stern (GB), EU: Emissions need to be converted into a tradable merchandise and subject to a price Market mechanisms will then lead to reduction of emissions 4

5 Where do we stand? What s next? EU to attribute funds of 1.5 million to research project on implementation of carbon trade system in developing countries Economy: carbon-free products as CSR strategy / PR Carbon footprint Success of certificates: LEED and other Green Buildings initiatives; environmental activists expect certificate for carbon-equalized balance of products and processes Kyoto Protocol ends in 2012; especially future of CDM and JI not settled yet Bali plan: post-kyoto agreement is to be reached in Copenhagen in December 2009 Preparation: working groups each for Kyoto Protocol member states and non-member states; pre-negotiations of their contributions to emission reduction Carbon will continue to evolve, expand and provide investment opportunities while reducing global carbon emissions over time 5

6 International level: the Protocol Origin Kyoto Protocol adopted at the third conference of the parties to the United Nations Framework Convention on Climate Change (UNFCCC) in Kyoto, Japan, on 11 December 1997 Effective since February 2005 To present 183 parties (incl. EU, Japan, all BRIC states); non-member states: especially US; Australia only ratified the Protocol by the end of

7 Global setting European realization Regulatory purpose Covering of six main greenhouse gases (CO 2, CH 4, HFCs, PFCs, N 2 O, SF 6 ) Reduction of the greenhouse emissions down to an average of 5,2% under the level of 1990 until 2012 European Implementation Reduction of 8% of the emissions in Europe According to the burden sharing concept Reduction of 21% of the emissions for Germany 7

8 Global operation mode Baseline-and-credit system: reductions achieved in third-world countries are available for sale under the EU cap-and-trade system (ex. Clean Development Mechanism, CDM/Joint Implementation, JI) Cap-and-trade system: emissions are capped and emission rights are freely traded (ex. European Union Emissions Trading Scheme, EU-ETS) 8

9 EU-ETS the facts Leading and most sophisticated cap-and-trade compliance market 2/3 of the volume of global emissions trading and 3/4 of the financial value turned over Implementation in 3 allocation phases: (Phase I), (Phase II), (Phase III). Facilities covered by EU-ETS include power generation plants using fossil fuels, oil refineries, coke ovens, iron/steel plants, cement, glass, lime, brick, ceramics, pulp and paper fabrics 9

10 EU-ETS the scheme Allocation Phase I and II: Each Member State establishes a National Allocation Plan (NAP) to determine the total quantity of carbon dioxide allowances for each phase European Commission evaluates the NAPs based on criteria laid out in Annex III to the Emission Trading Directive 2003/87/EC dated 13. October 2003 (Compliance with Member States Kyoto targets; assessment of all sectors; etc.) => 27 national allocation decisions with national caps Transition to Allocation Phase III: EU-wide linear cap 10

11 EU-ETS the trade Carbon dioxide emissions EU allowances (EUAs) Certified Emission Reductions (CERs) from CDM projects (NOT: nuclear, forestry and hydropower projects with output of > 15 MW) and Emission Reduction Units (ERUs) from JI projects - Phase II: limited to 14% of aggregate allocations - Phase III: stabilisation of the European industry if it is able to buy 50% of needed credits from developing world projects (CDM / JI) => up to 1/2 of the emissions reductions required in Phase III 11

12 Implementation in Germany Significant Implementation Laws: Greenhouse Gas Emissions Trade Act (Treibhausgasemissionshandelsgesetz, TEHG) dated 15 July regulating basics of trade Allocation Act 2012 (Zuteilungsgesetz, ZuG) dated 7 August 2007, predecessor: Allocation Act 2007 phase-wise specific allocation Project Mechanism Act (Projekt-Mechanismen-Gesetz, ProMechG) dated 22 September 2005 establishing the link between national and international certificates 12

13 Greenhouse Gas Emissions Trade Act Scope of application carbon dioxide emissions of energy-intensive facilities (18 types of projects listed in Annex 1) Controlling Bodies competent authorities: Länder authorities according to German Federal Immission Control Act (Bundesimmissionsschutzgesetz, BImSchG) in cooperation with German Emission Trade Clearing Desk (Deutsche Emissionshandelsstelle, DEHSt) 13

14 Greenhouse Gas Emissions Trade Act Duty to obtain allowance and trade authorisation Release of emissions only with an emissions permit, para. 4 of Greenhouse Gas Emissions Trade Act reference to German Federal Immission Control Act (Bundesimmissionsschutzgesetz, BImSchG) Released emissions covered by allowance certificates until the end of the subsequent year, para. 6 of Greenhouse Gas Emissions Trade Act 14

15 Greenhouse Gas Emissions Trade Act Allowance Certificate Trade Para. 16 of Greenhouse Gas Emissions Trade Act: transfer of allowance certificates and its registration on instruction of transferring party to the accountmanaging institution If transfer is subject to registration, good faith of acquiring party in contents of the register is protected; execption: acquiring party has knowledge of incorrect registration 15

16 Allocation Act 2012 the framework German national decision based on the respective NAP approved by the European Commission Competent authority: German Federal Environmental Agency (Umweltbundesamt - the German Emission Trade Clearing Desk [Deutsche Emissionshandelsstelle, DEHSt] is a substructure of this Agency) Decision of the competent authority: only for the term of one Allocation Phase and focused on a specified practice area (no individual allocation to companies or facilities) 16

17 Allocation Act 2012 the allocation rules The Allocation Act 2012 contains technical material rules for calculation of certificates to be attributed to facilities subject to emission certificates trade: Existing facilities, para. 7, 8 of Allocation Act 2012 New facilities, para. 12 of Allocation Act 2012 Particular allocation rules 17

18 Project Mechanism Act Regulatory purpose: Congruency and coherence between the national and European law by means of Compensational Certificates Beneficiary = emitter who invests in foreign countries and hereby reduces global emissions 18

19 Contracting basics Trading of certificates can be accomplished in various ways: exchange trade national or international, spot market, public trade; bilateral contractual trade beyond exchange Contractual trade: choice of contractual model depends on type of certificates to be traded, e. g. JI: certificates are allocated to projects in addition to the certificates allocated to the member state; receipt of certificates depends on forecast about success of project specific provisions needed which vary from trade of EUAs 19

20 Contracting market standards Basic contract forms suggested by three international associations: IETA = International Emissions Trading Association EFET = European Federation of Energy Traders ISDA = International Swaps and Derivatives Association Scope of provisions: Definitions Non-performance (buyer seller; by default force majeure) Payments Settlement of delivery Changes to allowance trading scheme 20

21 Challenges in European Markets Further emission reductions more difficult Reduction of emissions in Phase I/II was basically due to deindustrialisation in the countries of the former Soviet Union Faint position of / low impact by governmental bodies Need of hiring of private firms to quantify the necessity and verify the requirements to the emission credits Complicated transaction reporting system Reports at multiple levels 21

22 Biography Frankfurt / Berlin Dr. Ivana Mikešić, LL.M., is a partner in Salans' Frankfurt and Berlin offices. Her team is advising private investors as well as public entities on all aspects of public administrative law and real estate transactions. She focuses on planning, environmental, energy and infrastructure. This includes specialized litigation work before the administrative courts. Drafting and negotiating construction agreements for all kinds of power plants is part of her working commitment. In addition, with her specialization in the areas of legal strategy and public policy, she advises national and international companies as well as the German Federal Government in connection with legislative procedures on a national and European level. Recent Experience: Advising the German Federal Government on legislative procedure in the energy sector. Project development work for private investors. Advising municipalities in planning and public tender procedures. Advising a German energy provider on the purchase of project rights for an Offshore Wind Park. Advising a German energy provider on construction agreements for power plants. Advising a global logistics developer on all legal aspects of logistics acquisitions in Germany. Strategic legal advice for international energy provider on acceleration of permission procedures for the construction of power supply lines. Public tenders for ground-handling services. Dr. Ivana Mikešić Partner Berlin Frankfurt salans.com T : Berlin ; Frankfurt ; F : Berlin ; Frankfurt

23 Biography Frankfurt Boris Strauch is an associate in Salans' Frankfurt office. His main focus is on real estate, and he has specialized experience in advising investors, banks, insurance companies and developers on real estate matters, particularly with regard to public law cases and plant engineering contracts. He specializes in advising clients concerning environmental, strategic and infrastructure issues. He studied law at the Universities of Potsdam and Paris X between 1998 and 2004 and started his professional career as a lawyer in 2007 with Linklaters. Early in 2009, he joined Salans together with Dr. Mikešić. Boris Strauch Associate Frankfurt bstrauch@salans.com Telephone ; Fax ; German, English, French 23

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