EU ETS review first results and next steps by Franzjosef Schafhausen, Federal Ministry for the Environment, Nature Conservation and Nuclear Safety, Berlin Energy & Climate Policy Supply Security in International Comparison September 24 28 2007 Salzburg, Austria 1
The Problem of EU target sharing (2020) GHG target sharing (20 %/30 %) Energy Efficiency (20 % against bau) Renewable target sharing (20 %) Biofuels (10%) EU ETS 2
EU-Targets beyond 2012 3
Perspectives (European Council 15 Feb. 2007 (Energy), 20 Feb. 2007 (Environment) and 8/9 March 2007 (Heads of States) Climate protection targets "beyond Kyoto" Binding in all cases: Reduction of GHG emissions by the European Union by 20 % by 2020 versus 1990/1995 levels Conditional (requirement: involvement of other industrialised countries with comparable reductions and appropriate contributions by newly industrialising countries): Reduction of GHG emissions by the European Union by 30 % by 2020 compared with 1990/1995 levels Improvement in the energy efficiency of the European Union by 20% compared with projected consumption Renewable energies to account for a binding share of 20 % of primary energy consumption by 2020 Binding share of biofuels in 2020: 10% 4
The importance of EU ETS in Germany 5
On the significance of emissions trading Emissions trading is the cornerstone of Germany's climate protection programme, covering around 60 % of Germany's CO 2 emissions Emissons trading is the cornerstone of Europes climate protection programms, covering around 50 % of Europe s CO 2 emissions Massive cut s in the emissions budgets in the second trading period 2008 2012 Ambitious post-2012 climate protection targets necessitate a further drastic cut in the emissions trading budget Post-2012 allocation methods: Benchmarking and/or auctioning 6
Some Problems 7
Emission trends 8
EU- Mitgliedstaat Potential Buyers Potential Sellers Source: EUA, 2007 THG- Emissionen Basisjahr THG- Emissionen 2005 burden sharing Zielgröße 2008-2012 Zielabweichung in Mio. t Zielabweichung in % 1 2 3 4 5 6 7 Belgium 147 144-7,5 % 136-8 Danmark 69 64-21 % 55-9 Germany 1233 1001-21 % 974-27 Finland 71 69 +/- 0 % 71 + 2 France 564 553 +/- 0 % 564 + 9 Greece 111 139 + 25 % 139 +/- 0 Ireland 56 70 + 13 % 63-7 Italy 519 582-6,5 % 486,0-96 Luxembourg 13 13-28 % 9-4 Netherlands 215 212-6 % 202-10 - 5,0 Austria 79 93-13 % 69-24 Portugal 61 86 + 27 % 77-9 Sweden 72 67 + 4 % 75 + 8 Spain 289 441 + 15 % 333-108 United Kingdom 780 657-12,5 % 662 + 5 4.279 4.192-8 3.937-255 -5,9-16,3-2,8 + 2,8 + 1,6 +/- 0-11,1-19,8-44,4-34,7-11,7 + 10,7-32,4 + 0,7 9-6,5
Potential Buyers Potential Sellers Source: EUA, 2007 EU- Mitgliedstaat THG- Emissionen Basisjahr THG- Emissionen 2005 Kyoto Ziel Zielgröße 2008-2012 Zielabweichung in Mio. t Zielabweichung in % Bulgaria 132 70-8,0 122 52 42,6 Estonia 43 21-8,0 40 + 19 Latvia 26 11-8,0 24 + 13 Lithuania 58 23-8,0 44 + 21 Malta 2 3 - - - Poland 587 399-6,0 552 + 153 + 47,5 + 54,2 + 47,7 Romania 282 154-8,0 260 + 106 + 40,8 Slovakia 73 49-8,0 67 + 18 Slovenia 20 20-8,0 18-2 Czeck Republic 196 146-8,0 181 + 35 Hungary 123 81-6,0 116 + 35 Cyprus 6 10 - - - - New EU Countries 1.539 985-1.439 454 EU 27 5.818 5.177-8,0 4.376-641 - + 27,7 + 26,9-11,1 + 19,3 + 30,2 + 31,5-14,6 10
Overallocation 11
Annual CO 2 emissions from the ET sector in million t (2006 provisional) allocation 495 mio. t - 2005-2007 2000 2001 2002 2003 2004 2005 2006 ET total 471.8 473.4 478.3 488.4 487.4 473.7 477.3 Energy 369.3 375.5 384.3 392.5 388.8 378.6 380.5 Industry 102.6 98.0 94.1 95.9 98.6 95.1 96.8 12
Germany is long Rank Installation / Branche Number of installatio ns 1 Zellstoff 4 Difference in absolute terms Difference in % - 1.179.000-81,4 % 2 Ceramics 197-667.500-27,7 % 3 Paper and Pulp 118-785.500-15,7 % 4 Cement 48-3.661.500-15,4 % 5 Combustion installations 20 50 MW insgesamt 1.208-1.532.700-15,4 % 6 Glass 86-685.700-14,9 % 7 Iron and Steel 35-2.039.000-14,0 % 13
Germany is long Rank Installation / Branche 8 Compressors Number of installation s Difference in absolute terms Difference in % - 248.000-13,2 % 9 Combustion Installations insgesamt 1.208-68.200-13,0 % 10 Lime 68-790.000-8,5% 11 Iron and Steel - 500.000-3,2 % 12 Combustion installation > 50 MW insgesamt 1.208-7.503.000-2,0 % 14 Refineries 37-87.000-0,4% 14
EU is long Mitgliedstaat Absolut ( - = Überschuss / + = Defizit) in % (- = Überschuss / + = Defizit) Austria + 697.936 + 2,09 % Belgium - 4.499.479-8,13 % Czech. Republic - 14.454.105-17,53 % Denmark - 4.948.708-18,97 % Estonia - 6.141.647-48,66 5 Finland - 11.514.394-34,2 % France - 19.352,780-14,76 5 15
EU is long Mitgliedstaat Absolut (- = Überschuss / + Defizit) in % (- = Überschuss / + Defizit) Germany - 21.357.702-4,51 % Greece - 101.740-0,14 % Hungary - 4.521.592-17,58 % Ireland 3.159.488 + 14,11 % Italy 7.896.781 + 3,67 % Latvia - 1.200.007-42,04 % Lithuania - 4.864.312-73,66 % 16
EU is long Mitgliedstaat Absolut (- = Überschuss / + Defizit) in % (- = Überschuss / + Defizit) Netherlands - 6.087.739-7,58 % Portugal - 485.512-1,33 % Slovak Republic - 5.127.109-20,32 % Slovenia + 28.560 + 0,33 % Spain + 18.951.750 + 10,47 Sweden - 3.224.070-16,70 % United Kingdom + 33.008.185 + 13,62 % total - 44.138.196-2,47 % 17
Prices 18
Development of the EU ETS: Prices 35 30 25 EUA 2007 EUA 2008 20 15 10 5 0 Nov. 03 Mrz. 04 Jul. 04 Nov. 04 Mrz. 05 Jul. 05 Nov. 05 Mrz. 06 Jul. 06 Nov. 06 Mrz. 07 Jul. 07 19
Experience on the EU-level 1 Directive but 27 different National Allocation Plans! No level-playing-field! Different scopes! Different allocation rules! Different allocation methods! 20
Experiences with NAP I in Germany The various allocation regulations are extremely complex, and the effort involved in submitting an application and in monitoring is comparatively large. The allocation result was impossible to predict ex ante, either for individual plant operators or for the German Government. A number of allocation rules are rather counter-productive in terms of incentification (ex post amendments, process-differentiated benchmarks for new plant). A number of allocation regulations (ex post amendments) were contested by the Commission. A ruling has yet to be reached in the European Court hearing. Several allocation regulations were contested for distorting competition (e.g. transfer ruling) ahead of the first trading period The allocation guarantees given for long periods (transfer regulation, new installation ruling, early action without evidence) are rejected by Brussels. 21
But the good news The market is working! 22
Development of the EU ETS market: Volume Source: Point Carbon 23
Reactions related to the second period 24
NAP II Macroplan "cap" Cap 2005-2007 Cap 2008-2012 Total cap 495 million t/a 453.07509 million t/a Reserve 3 million t/a 23 million t/a Budget for incumbents 495 million t/a 453,07509 million t/a -23 million t/a reserve -11 million t/a additional installations = 419,07509 million t/a. - 40 million t/a auctioning = 379.07509 million t/a 25
New structures in NAP II Benchmarks for power plants (incumbents and new installations) Consistent benchmarking system for CHP plants Concessions for small emitters Use of CDM and JI emissions credits (external opening of the system) Greater transparency Significantly reduced complexity No time guarantees 26
Dispense with special provisions in NAP II Transfer rule Nuclear power plant substitution Malus rule Option rule "Early action rule" with evidence - will expire as planned Ex post corrections Explicit rule on process-related emissions NAP II and ZUG 2012 are now substantially more transparent and calculable Allocation rules are based on objective yardsticks 27
Auctioning in Germany 40 certificates per annum will be sold or auctioned (8.8 % of the allocation volume) No price setting The market determines the price Without exception, the volume for the auction originates from all electricity-generating plants (new comers as well as incumbents) Auction leads to an (additional) reduction in the free allocation for electricity-generating plants of 17 % The bidder group is not limited Start with selling switch to auctioning by 2010 at the latest Technical implementation of the auction within the context of an ordinance (Auctioning Ordinance, VerstVO) 28
Brussels 29
Calculation of Germany's cap by the EU Commission The Commission's "global formula": (VET 2005 x growth factor x factor for the ) + additional 2006 2010 improvement in installations carbon intensity x = (474.17 x 109.65 x 0.8503) + 11 million t x = 453.07509 million t/a 30
Interventions by the Commission 31
Decisions by the Commission on NAP s for the second period Insgesamt Litauen Slowakei Finnland Schweden Zypern Malta Tschech. Rep. Niederlande Polen Irland Estland Ungarn Vereinigtes Königreich Frankreich Griechenland Belgien Luxemburg Slowenien Deutschland Österreich Italien Spanien 32 Lettland 0,0% -10,0% -20,0% -30,0% -40,0% -50,0% -60,0% Kürzung durch die KOM in % zum Vorschlag NAP I
Auctioning in the NAP II of other EU Member States (EU volume status 16 June 2007: approx. 100 million t/a) 33
10% 8% 6% 4% 2% 0% 34 Niederlande Polen Großbritannien Ungarn Irland Italien Lettland Luxemburg Österreich B elgien
Belgien; 0,2 Österreich; 0,4 Ungarn; 1,5 Irland; 0,1 Großbritannien Italien; 12,0 17,2 Lettland; 0,5 Niederlande; 3,9 Luxemburg; 0,2 Polen; 20,9 35
The EU ETS-review 36
Review - process Stakeholder group in the framework of the European Climate Change Programme (ECCP) Participants: Governments, business sector, NGO s, Science, Trade Unions four meetings : 8./9.3.2007; 26./27.4.2007; 21./22.5.2007; 14./15.6.2007 Review report = records of the four meetings Next step: Amendments of the EU ETS Directive proposal by the Commission on december 5 th 2007 (?) 37
Review Report Expansion to other greenhouse gases (CH 4 and N 2 O)? Expansion to other sectors (aviation, transport, private households)? Harmonisation of the scope Harmonisation of central allocation rules (new entrants, closure rule, cap-setting) Change of the allocation methods (benchmarking, auctioning) Interactions with other mechanisms Treatment of offset projects Clarification of the treatment of small emitters Extension of the trading period to eight, ten or fifteen years Inclusion of governments and regions outside of the EU Strengthening of the EU Commission s position Treatment of CCS Monitoring, reporting, verification, register 38
Trends Extension of the trading period to eight years Cap-setting will become more transparent and predictable cap setting on the EU-level? 28 th Member State? Distinction between industry and energy (main reason: international competition) Auctioning to become the dominant and binding allocation methods allocation methods have to be harmonized and have to be mandatory Allocation on the EU-level? Central allocation rules have to be harmonised (creation of a "level playing field") Emissions trading will be extended beyond the EU Emissions trading will probably be extended to other sectors (aviation, shipping) and greenhouse gases Project-related mechanisms will remain a component of emissions trading (safety valve?) 39
By the way 40
Cases before the European Court Member States against decisions by the Commission on National Allocation Plans for the second period Estonia Latvia Poland Slovakia Czech Repblic Hungary 41
Thank you for your attention. www.bmu.de 42