Emissions Trading in Mexico 0 Mexico City 12 June 2017
Implementation of EU ETS in Germany: Key challenges, key benefits Dr Jürgen Landgrebe German Emissions Trading Authority (DEHSt) at the German Environment Agency (UBA) Head of Dep. E 2, Energy Installations, Aviation, Registry and Economic Aspects 12 June 2017
The DEHSt at the German Environment Agency (UBA) Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) German Environment Agency (UBA) Division E German Emissions Trading Authority (DEHSt) at the German Environment Agency 3
Introducing the German Environment Agency (UBA) TASKS Scientific Work Collecting Data UBA supports the Federal Government, esp. the Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMUB) Information to the Public International Co-operation Implementing environmental legislation: such as EU ETS Since 2014 the UBA has also been supporting the Federal Ministry of Economy and Energy (BMWi) by providing scientific knowledge on energy questions and issues such as renewable energy sources.
Outline Why Emissions Trading? Institutional Set-up and Administrative structure in Germany ETS implementation in Germany and in Europe: What has been achieved? What are the challenges? 5
National GHG Inventory (NIR) of Germany 6 Sources: UBA/DEHSt, AGEB (Status: 05.04.2017)
National GHG Inventory (NIR) of Germany -28% UBA preliminary data 2016 vs. 1990-13% DEHSt VET data 2016 vs. 2005 7 Sources: UBA/DEHSt, AGEB (Status: 05.04.2017)
National GHG Inventory (NIR) of Germany 8 Sources: UBA/DEHSt, AGEB (Status: 05.04.2017)
Carbon pricing: Why Emissions Trading? EU ETS is an European Climate Change Policy Instrument for the sectors energy, industry and aviation setting an overall CAP as a target for CO 2 -reduction. It drives economic incentives for the implementation of cost-efficient abatement measures:» Energy-efficiency» Fuel Switch» Renewable Energy Cap-setting: e.g. -10% Principle: Cap & Trade EU ETS gives flexibility to the industry Trading ETS ensures GHG reductions as set by the cap. Emission reductions will be achieved at lowest costs possible. CO 2 reduction 05.09.2014 9
EU ETS participants in Germany CO 2 eq emissions (2016) 05.09.2014 10
German Emissions Trading Authority (DEHSt): TASKS 1. provide the infrastructure for emissions trading in Germany allocate and issue the EU allowances to installation and aircraft operators free allocation according to EU wide allocation rules coordinate auctioning of allowances and publish the results monthly approve operators monitoring plans and check emissions reports administer the registry: account management of the German part within the EU ETS and the national Kyoto Registry 2. contribute to the development of emissions trading draft national and international reports (ETS data NIR) cooperate with EU and UNFCCC 3. approve JI and CDM projects Designated National Authority (DNA) / Designated Focal Point (DFP) 4. Compensation payments for indirect ETS costs (electricity) 11
German Emissions Trading Authority (DEHSt) Staff: ~ 170 employees 12
German Emissions Trading Authority (DEHSt): TARGETS Our ambition is to set up Emission Trading as environmentally and economically effective as possible. That requires: to ensure the ecological integrity of the instrument to avoid market distortions to minimize transaction costs to facilitate trading by an efficient interaction between traders, trading platforms and the registries 13
Find more about us on the internet https://www.dehst.de/en/home/home_node.html 14
What is new in phase 3 (2013-2020)? phase 1 and 2 phase 3 National Cap Fixed Cap Period of 3 years / 5 years (2005-2007 / 2008-2012) National allocation rules (NAP, Decision COM on NAP) Allocation: free allocation for all operators General allocation rule: Grandfathering European Cap > 2 billion allowances Reduction of the Cap > 37 million/year Period of 8 years (2013-2020) Harmonised European allocation rules Benchmarking Decision Free allocation for operators of emission intensive industry (Carbon leakage), heat production & aviation Free allocation: Benchmarking Auctioning only up to 5% or 10% 100% auctioning for electricity generators 15
Development of free allocations in Germany Industry (green); new activities from 2013 onwards (yellow); Energy (blue) 16
EU ETS: A major source for green investments Auction revenues created new opportunities for public funding of climate protection measures: In 2015 ETS-wide auction revenues amounted to around 5 billion Euro Member States have to spend at least 50% of their revenues for climate protection measures (Germany: =100% minus DEHSt budget) Further ETS-related revenues are created on EU-level for a fund that co-finances break-through technology projects in the field of RE and CCS (NER 300: 2.2 billion euro for 2013-2020). As the main market for international credits (CDM), the EU ETS is a major source of investment in developing countries. 17
German sale / auction results since 2008 Year Type No. of Dates Volumes Average Price Revenue 2008-2012 Sale / Auctioning P2 278 238,087,000 13.39 3,187,984,930 2013 Auctioning P3 46 182,560,500 4.33 790,486,965 2014 Auctioning P3 47 127,127,500 5.90 750,052,250 2015 Auctioning P3 49 146,122,500 7.60 1,110,531,000 2016 Auctioning P3 49 161,628,000 5.26 850,387,520 2017 Auctioning P3 8 35,784,000 5.19 185,629,500 Source: EEX, DEHSt (Stand: 03.03.2017). Total 477 891,309,500 7.71 6,875,072,165 18
EU ETS in Germany: What has been achieved?
Results: EU ETS emissions in Germany Consequent reduction of ETS emissions: -13% (2016 vs. 2005) Phasing out nuclear energy in Germany could be compensated without increase of CO 2 emissions! The four main goals of Energiewende Energy transition: Total phase-out of nuclear energy by 2022 29 plants until 2015, further 8 plants by 2017, 2019, 2021, and 2022) 2015: 11 GW remaining nuclear capacity (=14.1% of power generation) Increase renewable energies Increase energy efficiency GHG-neutral society/economy by 2050 20
Emission reductions in the EU ETS 2015 Comparison of largest emitters DEHSt Calculations based on data from the European Environmental Agency 21
What are the challenges?
EUA-price and surplus development in the EU-ETS 30 25 20 2,400 2,000 1,600 Million tonnes 15 1,200 10 800 5 400 0 0 Cumulative surplus ICE EUA Front December Source: Thomson Reuters Eikon, ICE, COM, DEHSt (01/06/2017). 23
Supply and demand in the EU ETS Own calculations DEHSt (Sources: EEA, ICIS Tschach, Sandbag) Structual surplus by the end of 2016: 2.9 bln allowances (= cumulated difference of cap plus credits minus emissions) 24
Main reasons for the current situation The ETS-supply side, the caps, were to generous. In particular the high entitlement for the use of international credits JI/CDM (around 1.7 billion tons) wasn t reflected in the caps of phase 2 & 3. In addition, lower production/emissions due to the economic crises increased the surplus in the EU ETS. The combination of an insufficient ex-ante calculation and the inflexible supply regime was the main structural problem that has to be solved. 25
EU: Climate & Energy Package 2030 Council Decision of 10 Oct 2014 Crucial points: GHG-reduction target for 2030: -40% by internal measures (instead of -20% for 2020) compared to 1990 No admission of offsets after 2020 (EU domestic action only) More stringent linear reduction factor in the EU-ETS: -2.2% (instead of -1.74%) after 2021 Market stability reserve
Functionality of the MSR Market surplus Umlaufmenge (in Mio.t CO2) (mln EUA) 12% 833 MSR 400 100 Mio. + Transfer of backloading amounts into MSR (900 mln) + Transfer of unallocated EUA from 3rd TP (500-800 mln) 27
Functionality of the MSR Market surplus Umlaufmenge (in Mio.t CO2) (mln EUA) 833 EU Parliament: 12% 24%? MSR 400 100 Mio. + Transfer of backloading amounts into MSR (900 mln) + Transfer of unallocated EUA from 3rd TP (500-800 mln) 28
Additional UBA recommendations to strengthen the EU ETS To shift linear reduction factor up to 2.6% until 2050 (instead of 2.2%) To cancel a significant part (>800 mln) of the market surplus (MSR) To achieve more flexibility for future cap reductions (taking into consideration emissions trends, global stock-take, market surplus, external shocks etc.) Price signal for long-term investments in new and efficient technologies! Trialogue has started 4th of April: European Commission (COM), European Parliament (EP) and Environment Council to find a compromise regarding phase 4 (2021-2030) 29
EU-ETS emissions and long-term GHG reduction targets 3,000 2,500 2,000 Gesamte THG-Emissionen (ohne LULUCF) Linear reduction factor (LKF) Emissions reduction in the EU ETS (vs. 2005) Overall emissions reduction in the EU (vs. 1990) 2.2% - 85 %?? 2.4% - 90 % - 80 %*? 2.6% - 96 % - 90 bis - 95 %** 1,500 1,000 EU ETS Emissionen* 500-2005 2010 2015 2020 2025 2030 2035 2040 2045 2050-95% vs. 1990 Emissionen (Scope 3HP) Cap 3HP (1,74%) LKF 2,2% LKF 2,4% LKF 2,6% 30
Conclusions Emissions trading is the most important pillar of climate policy in Europe. As an economic instrument emissions trading allows emission reductions for as low costs as possible. is effective and reliable! But can only be as effective as ambitious the CAP has been set! causes low administrative effort and transaction costs, if allocation rules are simple and evident: Auctioning is the best option here! goes along with other climate change policy instruments (e.g. promotion of renewable energies, greening of the tax system, efficiency standards) 31
Emissions Trading System in Mexico? The German Emissions Trading Authority (DEHSt) congratulates Mexico for having passed the General Law of Climate Change in 2012 to control GHG emissions and having already implemented the Carbon Tax as a Carbon pricing instrument. welcomes very much the intention to set-up an ETS in Mexico as it is an cost-effective instrument to reduce national GHG emissions. offers scientific support for the further development of design elements, legal framework and implementation of an emissions trading system in Mexico.
Gracias por su atencion! Thank you for your attention! Dr Jürgen Landgrebe E-Mail: emissionstrading@dehst.de This presentation is based on a speech held by the German Emissions Trading Authority Internet: (DEHSt) www.dehst.de and is not clear for publication. Check against delivery. References and quotations from the presentation must at all times be approved in written form by the DEHSt.
National GHG Inventory (NIR) of Germany 34 Sources: UBA/DEHSt, AGEB (Status: 05.04.2017)
EU ETS Reform (I) 2021-2030 Trialogue started 4th of April: European Commission (COM), European Parliamant (EP) and Environment Council to find a compromise regarding the EU ETS in Phase IV (2021-2030) Main elements to strengthen the scheme Cap: Linear Reduction Factor (LRF) at 2.2 % (1.74% currently) Market Stability Reserve (MSR) To double the MSR intake rate from 12 % to 24 % in 2019-2022/23 (EP & Council) Cancelation of 800 Mio allowances in MSR in 2021 (EP) From 2024: allowances held in MSR above total number of allowances auctioned during the previous year should be cancelled (Council) After Review in 2024: limitation of allowance amount in MSR (EP) EU ETS Experiences and Trends 35
German Environment Agency: Organisational structure Executive Area I Executive Area II President Maria Krautzberger Vice President Dr Thomas Holzmann Secretariat of the Council of Environmental Advisors (SRU) Central Steering General Services Division Karsten Klenner Division I Dr Harry Lehmann Division II Dr Lilian Busse Division III Dr Bettina Rechenberg Division IV Dr Jutta Klasen Division E Dr Michael Angrick Administrative tasks at the Federal Environment Agency Environmental Planning and Sustainability Strategies Environmental Health and Protection of Ecosystems Environmentally Compatible Engineering Processes and Products Chemical and Biological Safety Emissions Trading - German Emissions Trading Authority (DEHSt) 36
Legal Framework for ETS in Germany EU ETS Directive 2003/87/EC (13. October 2003; 25. June 2009) EU Directive 2008/101/EC Aviation (19. November 2008) EU Directive 2009/29/EC ETS Extension (23. April 2009) Germany: GHG Emissions Trading Act TEHG (15. July 2013) EU Allocation ( Benchmarking ) Decision (27. April 2011) Germany: Zuteilungsverordnung ZuV 2020 (26. September 2011) EU Auctioning Regulation 1210/2011 (23. November 2011) [Germany: Emissionshandels-VersteigerungsVO (EHVV) in phase 2] EU Monitoring and Reporting Regulation 601/2012 (21. June 2012) EU Accreditation and Verification Regulation 600/2012 (21. June 2012) Registry Regulation 389/2013 (3 May 2013) 37
Allocation status 2016 Sector Allocation coverage: Relation of free allocation and emissions; adjusted allocation coverage (in italics) including redistribution of emission allowances for transferred waste gases from iron, steel and coke production and heat imports 38 Emissions [Mt CO2-eq] Allocation [M EUA] Allocation Coverage* Energy installations 329.6 26.3 13.8% Industry installations 123.3 127.4 87.7% Refineries 25.3 19.4 76.7% Iron and steel 36.3 48.5 89.9% Non-ferrous metals 2.6 2.4 92.7% Mineral processing industry 34.9 30.9 88.6% Paper and pulp 5.4 6.5 85.4% Chemical industry 18.2 19.2 96.9% Other combustion plants 0.6 0.5 88.5% Total 452.9 153.7 33.9%