General description. Attestations for projects and programmes. CO 2 emissions compensation for producers or importers of fossil motor fuels

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1 Title of the measure: CH4 Compensation for CO 2 emissions (Kompensation von CO 2 -Emissionen / Compensation des émissions de CO 2 / Compensazione delle emissioni di CO 2 ) General description The CO 2 law requires importers of fossil fuels (mineral oil companies that are responsible for releasing fossil motor fuels for consumption) as well as operators of fossil thermal power plants to compensate for their CO 2 emissions fully or partially. For the former, the legal obligation is fulfilled by the private-sector Foundation for Climate Protection and Carbon Offset (see KliK) on behalf of the mineral oil companies (FOEN 2015a). The carbon offsetting must be carried out by domestic measures, although there are differences between the two obliged groups. Thus, it is key to fund a sufficient amount of greenhouse-gas reducing projects and programmes in Switzerland. The CO 2 law excludes that those responsible for realising fossil motor fuels for consumption achieve their obligations via foreign carbon offsetting measures. It is however possible that mineral oil companies use emission reduction certificates from foreign projects in case they are unable to reach their offset obligations in Switzerland. When companies hand over foreign certificates to the Swiss Confederation, they must pay a penalty of 160 Swiss francs for every ton of CO 2 that they did not offset domestically. Operators of fossil thermal power plants may compensate half through foreign measures (KliK n.d. b) Attestations for projects and programmes The FOEN issues attestations for emission reductions that are achieved within Switzerland. These attestations may be sold to companies that are obliged to compensate fully or partially for CO 2 emissions such as importers and producers of fossil motor fuels or fossil fuel thermal power plants. It is important to note that the use of these attestations is restricted to those with a legal obligation. The attestations received for domestic reduction measures are not recognized internationally and thus not fungible with Kyoto certificates (FOEN 2017). CO 2 emissions compensation for producers or importers of fossil motor fuels resulting from the energetic use of those motor fuels resulting from the energetic use of those motor fuels According to the CO 2 law, producers and importers of fossil motor fuels are required to compensate for 10% of the CO 2 emissions by 2020 that are caused by the energetic use of these fuels (for details see Table 1). The CO 2 Ordinance defines the offset obligation for importers of petrol, diesel, natural gas and kerosene that exceed tons of CO 2. In case this threshold is not reached for three successive years, importers can be excluded from the compensation obligation (FOEN 2015c). The compensation can be reached through own projects or the acquisition of attestations (see here) (FOEN 2015c; KliK n.d. f). The shares of CO 2 emissions from fossil motor fuels that must be offset by fuel importers have been set by the Swiss Federal Council as follows (Swiss Confederation 2018, p. 101). Table 1: Compensation rates (Art. 89 CO 2 Ordinance) (FOEN 205b). Period Compensation rate 2014 / 2015: 2% 2016 / 2017: 5% 2018 / 2019: 8% 2020: 10% (around 1.5 million tons) For the period 2013 to 2020 this amounts to an average compensation rate of 5% of the CO 2 emissions caused by the energetic use of fossil motor fuels that must be compensated by importers (KliK n.d. a). With the pending complete revision of the CO 2 law that sets the Swiss climate policy for the period between 2020 and 2030, the compensation obligation for producers and importers of fossil motor fuels shall be strengthened (The Federal Council 2017, p. 32). A new bandwidth of 15 to 90% of CO 2 emissions that must

2 be compensated compared to the current bandwidth of 5 to 40% shall be introduced. Under the revised CO 2 law, the offset obligation can be reached through domestic and foreign measures (FOEN 2015c). The Foundation for Climate Protection and Carbon Offset (KliK) As outlined above, KliK fulfils the carbon offset obligations according to Art. 27 of the Swiss CO 2 law on behalf of all affiliated mineral oil companies and is operational since 1 January It was established as a non-profit organisation by the Swiss Petroleum Association and counted 44 member companies at the beginning of The companies pay a monthly contribution to KliK that fulfils all their offsetting obligations. Between 2013 and 2020 the foundation expects total revenues from contractual partners from the mineral oil industry to amount to one billion Swiss francs. These funds are used to support, plan and implement domestic carbon offsetting projects and programmes (KliK n.d. c). The Foundation estimates that for the period 2013 to 2020 the total amount of CO 2 that must be compensated sums up to 6.5 million tons. Based on this amount, according to KliK, the costs of carbon offsetting amount to between 0.01 and 0.02 Swiss francs per litre of motor fuel (Klik n.d. a). The costs per litre of motor fuel are capped at 0.05 Swiss francs by legislation (KliK n.d. c). Table 2 summarizes the use of funds between 2013 and 2021 as well as the impact between 2013 and 2020 as of end Table 2: Use of funds 2013 to 2021 and impact 2013 to 2020 (KliK n.d. e) Contractually guaranteed use of funds (mill. CHF) Contractually guaranteed impact (mill. tons of CO 2 ) Verified impact (mill. tons of CO 2 ) Costs (CHF per ton of CO 2 ) transport companies buildings agriculture Projects new Projects climate cent Additional Performance Emissions permits Total KliK Projects and Programmes In order to fulfil the compensation obligation, it is key that there is a sufficient amount of domestic compensation projects and programmes available that are registered with the Federal Office of the Environment (FOEN) (KliK n.d. c). The FOEN may issue tradable attestations for domestic reduction projects and programmes. These attestations can be used to fulfil the compensation obligation. (Swiss Confederation 2018, p. 101). Attestations are only issued after domestic projects and programmes have been checked in a specific procedure. Within this procedure it is key to show that the emission reductions are additional, meaning that they would not have been achieved without the existence of the project or programme (FOEN 2017).

3 KliK includes five different categories of attestations in order to reach the obligation (KliK n.d. a) 1. Attestations from companies that have been exempted from the CO 2 levy in the first commitment period 2008 to 2012 Companies are allowed to convert their unused emission allowances into attestations which are bought by KliK at a price of 50 Swiss francs per piece. 2. Attestations from companies that perform at least five percent better than their individual reduction course (CO 2 levy exemption) Companies are allowed to convert their over-fulfilment into attestations which are bought by KliK at a price of 100 Swiss francs per piece 3. Own projects (by those that are obliged to compensate) Projects that have already been supported by the Climate Cent Foundation (predecessor of KliK) can be used as contribution to the compensation obligation. No attestations are issued for these projects. However, the emission reductions are bought by click at a price of between 60 and 135 Swiss francs per ton of CO 2 à emissions reductions are credited to them (in)directly. 4. New projects New projects that are acquired by KliK or intermediaries and are issued attestations. KliK buys attestations that are issued until 2020 at an individually negotiated price. 5. Programmes With programmes, multiple small projects with a common purpose can be pooled. The conditions for programmes differ across type. Domestic projects cover a variety of areas such as (FOEN 2017): Energy-efficiency (in terms of supply and demand) Renewable energies Mobility management Wood products Biofuels with high quality standards In addition, any projects that reduce the emissions of methane, nitrous oxide or fluorinated gases are eligible. However, projects in the following fields are strictly not permitted: Nuclear energy Forestry CO2 storage in geologic sequestration sites Conversion from petrol- or diesel driven vehicles to natural gas-driven vehicles (except of vehicle fleets) Conversion from oil-fired heating systems to gas-fired heating systems Indirect emissions reduction through R&D and advisory services In order to provide an overview about their activities, KliK summarizes their supported categories (as listed above) along the four platforms Transport, Businesses, Buildings and Agriculture (KliK n.d. f). CO 2 emissions compensation for operators of fossil thermal power plants Until the linking with the EU Emissions Trading Scheme hat entered into force, operators of fossil thermal power plants such as combined cycle gas plants (CCG) are obliged to fully compensate for the CO 2 emissions, at least 50% must be carried out domestically. The other half may be fulfilled through emission reductions abroad (FOEN 2015a). The approval of new installations is tied to a compensation agreement, which operators must negotiate with the FOEN. This agreement outlines, among other points, the fines that will be charged if an operator fails to fulfil the compensation obligation. Depending on the size and type of installation, different climatepolicy instruments apply to fossil fuel based operations that generate heat and electricity (FOEN 2015b).

4 There are different options available to operators to fulfil their compensation obligation such as issuance of attestation for domestic compensation projects, attestations for over-fulfilment by companies with a reduction commitment and taking into account self-initiated projects (see also here) (FOEN 2015a). At present, there are no gas-fired combined-cycle power plants operation in Switzerland and it is not clear whether there will be a need for them to cover electricity demand in the future. After linking the Swiss emissions trading scheme with the European Union scheme such installations will be part of the emissions trading scheme with no free allocation for the share of produced electricity. This would require gas-fired combined-cycle power plants in Switzerland surrender allowances according to their emissions, which means they need to buy emissions allowances at the auction or on the secondary market (Swiss Confederation 2018, p. 96). Impact evaluation (methods and results) According to a process evaluation from the Swiss Federal Audit Office (SFAO 2016), the instrument is too complex. There are gaps in project approval and monitoring, and the statutory requirements have been heavily influenced by lobbying. There is a lot of scope for interpretation, and audits involve considerable transaction costs. The fact that the provisions are not binding leads to different methods being applied, a greater amount of audit work and ultimately also to a risk of the projects being treated unequally. As a consequence, audit offices are not producing the required quality and are creating more work for the compensation office, which itself is obliged to re-audit many of the applications. The prices offered by the compensation pool to the projects are agreed contractually between them. The FOEN does not know the details. The SFAO recommends preventive measures in this area to prevent fraud. Regarding impact evaluations research, the domestic offsets and exemptions of transportation fuels from the CO 2 levy has been twofold. First, based on a static computable general equilibrium model, Imhof (2012) examines the efficiency losses and distribution impacts of the exemptions of the transport sector from the CO 2 levy. Secondly, an early empirical analysis of the Climate Cent Foundation (predecessor organization of KliK) undertaken by Kunz and Müller (2010) points out that, given the short contract time, projects that may have lower life-time costs may not have received funding, whereas those with higher life-time costs but lower costs within the commitment period were supported. This may reduce efficiency. Summary of climate policies and measures Name of policy or measure Estimate of mitigation impact, by gas (for a particular year, not cumulative, in million tons CO 2 equivalent) Year Climate Cent Foundation n.a. n.a. n.a. 0.4 n.a. n.a. Partial compensation of CO 2 emissions from transport fuel use (KliK) n.a. n.a. n.a. n.a n.a.: not applicable (Swiss Confederation 2016). The mitigation impact after 2020 is expected to increase substantially, however, it depends on the revision of the CO 2 law (Swiss Confederation 2018, p. 102). Interaction of measures Swiss emissions trading scheme CH ETS, Emission Reduction Target Agreements References Federal Office for the Environment [FOEN] (2015a). Compensation for CO2 emissions. Available at:

5 FOEN (2015b). CO2 emissions compensation: fossil thermal power plants: Available at: (Accessed at: FOEN (2015c). CO2 emissions compensation: motor fuels: Available at: (Accessed: FOEN (2017). Compensation projects in Switzerland. Available at: (Accessed: Foundation for Climate Protection and Carbon Offset [KliK] (n.d. a). Portfolio an Kompensationsaktivitäten. Available at: Imhof, J. (2012). Fuel Exemptions, Revenue Recycling, Equity and Efficiency: Evaluating Post-Kyoto Policies for Switzerland. Swiss Society of Economics and Statistics, 148(2), p KliK (n.d. b). Legal framework. Available at: KliK (n.d. c). Finances and supervision. Available at: KliK (n.d. d). The KliK Foundation Mandate. Available at: (Accessed: KliK (n.d. e). Überblich und Ausblick. Available at: KliK (n.d. f). Übersicht. Available at: Plattformen.186.html Kunz, L., & Müller, A. (2010). A case study on project-level CO 2 mitigation costs in industrialized countries. The Climate Cent Foundation in Switzerland. Journal of Environmental Planning and Management, 53(5), p The Federal Council (2017). Botschaft zur Totalrevision des CO 2 -Gesetzes nach Bern: Swiss Confederation. Swiss Confederation (2016). Switzerland s Second Biennial Report under the UNFCCC. Bern: Federal Office for the Environment. Swiss Confederation (2018). Switzerland s seventh national communication and third biennial report under the UNFCCC. Bern: Swiss Federal Office for the Environment. Swiss Federal Audit Office [SFAO] (2016). Prüfung der CO2-Kompensation in der Schweiz. Bundesamt für Umwelt. Bern: SFAO.