Environmental dimension of the EEP - EU ETS I ■ V Filip Černoch černoch @,mail.muni. cz CENTER FOR ENERGY STUDIES Run-up to the EU ETS 1988 EC's communication „The Greenhouse Effect and the Community." 1998 EC's communication „ Climate Change - Towards an EU post-Kyoto strategy." 1999 EC's communication ^Preparing for Implementation of the Kyoto Protocol." 2001 — EU ETS legal preparation launched, approved in 2003. Designated the first period from 1.1.2005 to 31.12.2007, covering about 11.500 facilities in 25 MS = 45% C02 emitted in the EU. CENTER FOR ENERGY STUDIES EU ETS: The first phase 2005 - 2007 Country Mil. EUAs Share of the overal amount of EUA Number of incl. facilities The aim of Kyoto Belgium 188,8 2,9 363 -7,5 Czech Republic 292,8 4,4 435 -8 Denmark 100,5 1,5 378 -21 Estonia 56,85 0,9 43 -8 Finland 136,5 2,1 535 0 France 469,5 7,1 1 172 0 Ireland 67 1 143 +13 Italy 697,5 10,6 1 240 -6,5 Cyprus 16,98 0,3 13 - Luxembourg 10,07 0,2 19 -28 Lithuania 36,8 0,6 93 -8 Latvia 13,7 0,2 95 -8 Zdroj: Massai, 2012, s. 174 ENERGY STUDIES ! EU ETS: The first phase 2005 - 2007 Problems with the decentralised system of distribution. Overestimation of emissions — with the exemption of Germany and Slovenia (4 % surplus). Drop in the prices of allowances. Very limited impact on emissions of GHG. NAP — only Austria, Denmark, Finland, Germany, Ireland and Slovenia in time. CENTER FOR ENERGY STUDIES Igure 2: EU ETS emissions allowance prices: April 2005 - December 2009 35 30 25 S 20 ft E S 15 JAN 2006 JAN 2007 J AN 2008 JAN 2009 MP 10 Phase I (2005-2007) —Phase II (2008-2012) CENTER FOR ENERGY STUDIES EU ETS: The first phase 2005 - 2007 Difficult calculations due to: • Proneness to cheating. • Changing level of industrial production. • Changes in energy prices. • Increasing deployment of RES (canibalism of targets). • Permit stockpiling. • Weather... Not only GHGs decrease is desirable, but also the stability of price of EUAs. CENTER FOR ENERGY STUDIES EU ETS: The second phase 2008 - 2012 • More stringent approach of EC - cuts of NAP (litigation at ECJ). • Relatively stable (but low) price of allowances. • Iceland, Liechtenstein and Norway part of ETS. • Pressure to change the whole system. „Nearly all 25 EU MS did not meet the 30 June 2006 deadline for the submission of the second phase NAPs (only Estonia was on time). Preinfringement letters were sent by the EC to 14 MS, namely Austria, Belgium, Cyprus, the C^ech Republic) Denmark, Finland, Hungary, Latvia, Malta, the Netherlands, Portugal, Slovenia, Slovakia and Sweden. " CENTER FOR ■ ENERGY STUDIES! ■ Historic evolution of volumes and spot prices for emission allowances under EU ETS un-OS Dec-OS Jun-Q9 Dec-09 Jun-IQ Dec-10 Jun-ll Dec-ll Jun-12 Dec-12 Jun-13 Dec-13 Jjn-14 Historic/ECX exchange volume ^^EUA Dec 2014 ^^Spot (OTC history) CENTER FOR j ENERGY STUDIES i EU ETS: The second phase 2008 - 2012 • Beween 2008 - 2012 the C02 price declined from around €20 MtC02 to around €8 MtC02 • The reduction of energy demand due to the financial and economic crisis starting in 2008. • Inflow of international credits (Certified Emission Reduction CER of CDM and others). • Impact of other EU policies such as RES and energy efficiency policy. • Rising prices of fuels. • The design of the EU ETS doesn't allow the adjustment of supply of EUA in reaction to the changes in demand. • Since the banking is allowed between the second and third trading period = surplus of 2-2,5 bn EUA. CENTER FOR ENERGY STUDIES Volume of C02 Allowance Trades (chtih average) 100.000 10,000 g, 1,000 100 10 EU 2005 CDM 1 i r + RGGI Voluntary markets New Zealand 2006 2007 2008 2009 2010 2011 2012 CENTER FOR ENERGY STUDIES EU ETS: The third phase 2013 - 2020 • Changes introduced by Energy and climate package 2009. • Increased coverage of GHG (C02+nitrous oxide N02 and perfluorocarbons PFCs) and activites (airlines). • Energy intensive industry, such as oil refineries, steel works, production of iron, aluminium, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids, bulk of organic chemicals. Energy industry. CENTER FOR ENERGY STUDIES EU ETS: The third phase 2013 - 2020 EU-wide emission cap to replace NAPs. A linear reduction factor of -1,74 %/y applied. Auctioning of permits as a default method. More than 40 % of EUA to be auctioned in the first year of 3rd period with progressively rising shares each year. • End of free permits to the power sector. In other sector the progresive transition to the auctioning. Common auctioning platform for the sale of permits (exept Germany, UK, Poland). 300 million EUA in the New Entrants Reserve to fund innovative RES technologies and CCS. An expanded list of restrictions on the use of credits from the CDM. CENTER FOR ENERGY STUDIES EU ETS: The third phase 2013 - 2020 • Distribution of auction revenues (88% to MS, 10 to MS with low per capita income and 2% to MS that had achieved a 20% emission reduction in their Kyoto protocol base by 2005). • At least half of revenues to combat climate change. CENTER FOR ENERGY STUDIES Exeptions and derogations • Countries, producing more than 60 % of their electricity from coal or poorly interconnected to European grids could provide up to half of the allowances in energy sector freely • Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Poland and Romania • A risk of carbon leakage. • Process industries may get part or, if subject to carbon leakage, all of their EUA for free at the level of harmonized industry best practice practice. • Carbon leakage list to be published every 5 years (2009, 2014). CENTER FOR ENERGY STUDIES EU ETS: Latest development •At the end of 2nd period another 900 mil. EUA. • +the selling of left-over allowances in national phase 2 new entrant reserves. • + early auctioning to meet sector hedging demand. • + the forward selling of phase 3 allowances to generate funds for the NER300 program. • About 2 - 2,2bn of EUAs surplus. • Backloading: delaying the auctioning of emission allowances intended to be allocated in 2013-2015 until 2018-2020. • Market Stability Reserve (from 2021) — to address the surplus of EUAs by automatically adjusting the supply of EUAs to be auctioned. • Change of the linear factor to -2,2% from 2021. CENTER FOR ENERGY STUDIES EU ETS-Assesment + it works at a technical level. It is the first and the largest international scheme for trading allowances. 31 countries, trading reached 8bn tonnes and a value of over €50bn in 2012. +It has a modest (but limited) effect on carbon emissions. Emission stayed within the cap. +It generates some revenue to promote climate change objectives. CENTER FOR ENERGY STUDIES EU ETS-Assesment - Low prices of EUA - Tensions with other instruments. - Perception of competitiveness problems. - Lack of credibility. Environmental dimension of EEP • Climate change — EU aim to develop a low-carbon economy •Measures primarily to reduce GHG emissions • EU ETS - covers 40% of EU emissions • individual targets of MS for the non-EU ETS sectors (housing, agriculture, transport, waste) — cover 60% of EU emissions • CCS • Measures to transform the energy sectors • RES • Energy Efficiency • Research and development, new technologies CENTER FOR ENERGY STUDIES A shared effort between sectors and MS GHG Target: -20% comparedto 1990 n=i | -14% comparedto 2005 EU ETS ■21% compared to 2005 ESD sectors -10% comparedto 2005 28 Member State targets, ranging from -2Q:o to +20:o | l_ _1 CENTER FOR ENERGY STUDIES Non-EU ETS emissions •20% target is divided between a) a 21% target compared to 2005 for EU ETS emissions and b) a 10% target compared to 2005 for the non-ETS emissions. • The later goal is split into national sub-targets. •Traffic management, low-GHG transport, bio fuels, urban planning, improved energy performance standards for public building, labeling system, eco design... •To support it some measures at the EU level — emission standards for vehicles, fuel quality directive center for U11CCLLVC. . . energy studies Individual targets of MS Member State greenhouse gas emission limits in 2020 compared to 2005 levels 20% t is*.™. CENTER FOR ENERGY STUDIES Emission obligations of the EU Kyoto Protocol — EU15 to reduce its GHG emissions by 8% compared to base year (1990, 1995) during the first commitment period 2008 — 2012. Estimates of 16,3% without LULUCF EU supports the Doha Amendment extending the KP from 2013 to 2020 Energy and climate package 2009 - A 20% reduction in EU greenhouse gas emissions from 1990 levels by 2020 Roadmap for competitive low carbon economy 2011 — up to 80% reduction to 2050 compared to 1990 2030 Climate and energy framework — 40% by 2030 compared to 1990 CENTER FOR ENERGY STUDIES Map showing countries with an ETS and their populations Source: Map generated by the Parliamentary Library; sources for population data: CIA World Factbook and census data for US, Canada and Japan. CENTER FOR ENERGY STUDIES Sources • IEA (2014): Energy Policies of IEA Countries — The European Union. • Talberg, A.-Swoboda, K.: Emissions trading schemes around the world, 2013. • Buchan, D.(2009): Energy and Climate Change: Europe at the Cross Roads. • Buchan, D.-Keay, M.(2015): Europe's Long Energy Journey: Towards an Energy Union? CENTER FOR j ENERGY STUDIES!