EU Climate Change Policy

1
EU Climate Change Policy
Jürgen Lefevere International and Institutional
Coordinator Climate, Ozone and Energy
Unit Environment Directorate General European
Commission, Brussels
2
Overview

• The Commissions Communication Winning the
  Battle Against Global Climate Change
• The EUs response to Climate Change
• EU Emissions Trading (EU ETS) and its link with
  the Kyoto Mechanisms
• post-2012 post-Montreal

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The EUs post-2012 strategy
Winning the Battle against Global Climate
Change 9 February 2005

• The Climate Challenge
• Benefits costs
• The Participation Challenge
• The Innovation Challenge
• The Adaptation Challenge

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The importance of the 2C target
2C
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Millions at Risk
6
Approx. annual mean surface temperature
distribution for a global increase of 2C
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The probability to reach the 2C target
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EU international climate policy Winning the
battle against climate change

• Five essential elements
• Build on Kyoto
• Broaden participation
• Include more sectors and all gases
• Deploy and develop technologies
• Adapt to the effects of residual climate change

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1st element Build on Kyoto

• Build a truly global carbon market
• Emissions trading
• Joint Implementation
• Clean Development Mechanism
• Clear rules for monitoring and reporting
• Multi-lateral compliance regime

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2nd element The top 25 climate footprints
Top 25 in Population
Top 25 in GDP
Netherlands, (Taiwan)
Thailand
Canada, S.Korea, Australia,
S.Africa, Spain, Poland, Argentina
USA, China, EU25, Russia, India, Japan, Germany,
Brazil, UK, Italy, Mexico, France, Indonesia,
Iran, Turkey
Bangladesh, Nigeria, Viet Nam, Philippines,
Ethiopia, Egypt, Congo
Top 25 in Emissions
Ukraine, Pakistan
S. Arabia
WRI/Pew Center data for 2000
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2nd element Common but differentiated
responsibilities and respective capabilities
Qualitative non-binding Partial not strict
Lower Stage of development

• Business As Usual
• No-regret PAMs
• Sustainable Development (eg via CDM)
• SD-PAMs
• S-CDM
• Non-binding target(gt dual target)
• Sectoral target
• Relative emission ceiling
• Absolute emission ceiling price ceiling
• Absolute emission ceilings

Possible indicators GNP per capita,
CO2/Joule CO2 per capita Human Development
Index Relative importance of sectors
Quantitative binding All-inclusive strict
Higher Stage of development
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3rd element Include more sectors

• aviation

• maritime transport

• deforestation

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4th element Deploy and develop technologies!
PUSH FACTORS
PULL FACTORS

• Subsidise new technologies (e.g. guarantee
  demand, set standards, large scale demos,
  public-private partnerships for technology
  development, tax reductions)

• Emissions trading
• Level playing field (abolition of fuel subsidies,
  carbon taxes, feed in tariffs)
• Co-benefits (security of supply, rising oil
  prices)

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4th element Dont miss near-term opportunities

• EU Build and refurbish 700 GW of electricity
  generation by 2030 (equal to current installed
  capacity).
• China 562 coal- fired plants -- nearly half the
  world's total by 2013
• India 213 coal-fired power plants by 2013
• United States is expected to build 72 until 2013
• 16 trillion investment into the worlds energy
  systems until 2030

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4th element There is no silver bullet
Emissions (Gt CO2)
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5th elementAdapt to the adverse effects of
climate change

• identify vulnerabilities
• implement measures to increase resilience

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No time to loose.Concrete steps

• Immediate and effective implementation of agreed
  policies (e.g. EU Energy Efficiency Initiative)
• Increased public awareness
• More and better focussed research
• Stronger co-operation with 3rd countries
• New phase of the European Climate Change
  Programme in 2005 (review, cars, aviation, carbon
  capture and storage, adaptation)

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The EUs response toClimate Change
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Ratification on 31 May 2002 (Decision
2002/358/EC)The Bubble
EU-15 Member State QELRC commitment( reduction of base year/period emissions)
Austria -13
Belgium -7.5
Denmark -21
Finland 0
France 0
Germany -21
Greece 25
Ireland 13
Italy -6.5
Luxembourg -28
The Netherlands -6
Portugal 27
Spain 15
Sweden 4
United Kingdom -12.5
Total EU-15 Commitment -8 Total EU-15 Commitment -8
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European Climate Change Programme (ECCP) main
elements

• Objectives
• Identify and develop cost effective elements of
  EU strategy to meet our Kyoto target
• Major Milestones
• Launch March 2000
• May 2003 second progress report
• New phase started on 24 October 2005 (review,
  aviation, transport, adaptation and carbon
  capture and storage)
• Major Achievements
• Total reduction potential of identified measures
  578 - 696 Mt CO2eq./year twice Kyoto -8
• EU Measures currently in implementation 276 -
  316 Mt CO2eq./year

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Domestic actionRecently adopted measures

• Cross-cutting issues
• Directive on GHG emissions trading within the
  Community (Oct. 2003)
• Linking project-based mechanisms to GHG
  emissions trading (Oct. 2004)
• Decision for monitoring Community GHG emissions
  and for
• implementing the Kyoto Protocol (Feb. 2004)
• Energy
• Directive on the promotion of renewable energy
  sources (Sept. 2001)
• Directive on taxation of energy products (Oct.
  2003)
• Directive on energy performance of buildings
  (Jan. 2003)
• Directive on the promotion of cogeneration (CHP)
  (Feb. 2004)
• Transport
• Promotion of the use of bio-fuels for transport
  (May 2003)

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Domestic actionOngoing work.

• Energy
• Proposal for a framework directive on
  eco-efficiency requirements for energy-using
  products
• Proposal for a Directive on energy end-use
  efficiency and energy services
• Commission Green Paper on energy efficiency or
  doing more with less
• Transport
• Proposal for improvements in infrastructure use
  and charging
• Proposal on special tax arrangements for diesel
  fuel used for commercial purposes and on the
  alignment of excise duties on petrol and diesel
  fuel
• Proposal for a regulation on the granting of
  Community financial assistance to improve the
  environmental performance of the freight
  transport system (Marco Polo I and II program)
• Products
• Proposal for legislative action on fluorinated
  gases

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Implementation challenge aheadThe EUs
projected progress
Slide 3/96
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Distance-to-target in 2010 (percentage points)
for the EU-25, including Kyoto mechanisms
Notes Data exclude emissions and removals from
land-use, land-use change and forestry. All EU-15
Member States provided projections assuming
existing domestic policies and measures. Several
countries provided projections with additional
domestic policies and measures. For following
Member States the additional effects of the use
of Kyoto mechanisms is included Austria,
Belgium, Denmark, Finland, Ireland, Italy,
Luxembourg, the Netherlands and Spain),. For
EU-15 the effect of use of Kyoto mechanisms is
calculated based on information from these nine
countries. Projections for Poland cover only CO2
and N2O and include LULUCF. Projections for Spain
cover only CO2. Projections for Cyprus and Malta
are not available. Source EEA, 2005
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Use of Kyoto MechanismsPlanned purchases by
Member States(in addition to company use!)
Million tonnes of CO2 eq.
Austria 35.00
Belgium 42.00
Denmark 22.50
Finland At least 3.0
Ireland 18.50
Italy 198.00
Luxembourg 15.00
Netherlands 100.00
Spain 100.00
Sweden At least 5.0
Almost 520 Million tonnes of CO2eq
(2008-2012) Allocated resources thus far 2.7
billion
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EU Emissions Trading
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Why emissions trading?

• It is a modern environmental policy
• It rightly places a greater emphasis upon
  cost-effectiveness and encouraging innovation
• The larger the cuts, the more difficult to stick
  to old style regulation
• The world is becoming a "global village" where
  companies compete internationally and are based
  themselves across different continents
• Tackling a global environmental problem requires
  environmental policies which work in conjunction
  with these international markets

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Cap and Trade

• Irrelevant where GHG are emitted!
• Set overall target covering group of sources
• Allocate allowances
• Sources can choose
• Emit as allocated
• Reduce emissions below allocation and sell or
  bank
• Emit more than allocation and buy

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EU ETS scheme coverage

• CO2 emissions from energy intensive industry
  above specific capacity thresholds (45 50 of
  EU CO2 emissions)
• 11,500 or more installations
• electricity generators
• heat steam production
• mineral oil refineries
• ferrous metals production processing
• cement, lime glass, bricks and ceramics
• pulp paper sector

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EU Greenhouse Gas Emissions Trading

• Simple and transparent
• Subsidiarity important role for Member States
• Based on and linked to other Community
  legislation (Integrated Pollution and Prevention
  Control IPPC Directive)
• Starts with known large emitters, measurable
  emissions
• Building blocks easy to expand
• Lower costs guaranteed environmental outcome

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Key Instruments

• Directive 2003/87/EC of the European Parliament
  and of the Council of 13 October 2003
  establishing a scheme for greenhouse gas emission
  allowance trading within the Community and
  amending Council Directive 96/61/EC
• Emissions Trading Directive
• Directive 2004/101/EC of the European Parliament
  and of the Council of 27 October 2004 amending
  Directive 2003/87/EC establishing a scheme for
  greenhouse gas emission allowance trading within
  the Community, in respect of the Kyoto Protocol's
  project mechanisms
• Linking Directive, amending Emissions Trading
  Directive
• Commission Decision of 29 January 2004
  establishing guidelines for the monitoring and
  reporting of greenhouse gas emissions pursuant to
  Directive 2003/87/EC of the European Parliament
  and of the Council
• Monitoring and Reporting Guidelines
• Commission Regulation of 21 December 2004 for a
  standardised and secured system of registries
  pursuant to Directive 2003/87/EC of the European
  Parliament and of the Council and Decision
  280/2004/EC of the European Parliament and of the
  Council
• Registries Regulation

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Key Terms

• Activity (Annex I)
• Installation (IPPC definition)
• Installation means a stationary technical unit
  where one or more activities listed in Annex I
  are carried out and any other directly associated
  activities which have a technical connection with
  the activities carried out on that site and which
  could have an effect on emissions and pollution
• Operator
• Operator means any person who operates or
  controls and installation or, where this is
  provided for in national legislation, to whom
  decisive economic power over the technical
  functioning of the installation has been
  delegated
• Activities in Annex I leading to GHG emissions
  cannot be undertaken unless the operator holds a
  permit
• The operator must hold sufficient allowances to
  cover GHG emissions from installation

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Timing Coverage

• 2005 2007
• 2008 2012 subsequent 5-year periods
• Initially limited to CO2 only
• Large sources, mostly covered by IPPC (Annex I)
• (45 of EU CO2 emitting activities, around 11500
  installations)
• Add in additional sectors/gases through
• Unilateral inclusion (below thresholds, new gases
  and activities)
• amendments

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Coverage
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Allocation

• By Member States, but
• National Allocation Plan (NAP) (total allocation
  and allocation methodology), draft by 31 March
  2004
• 95 of allocation free of charge (90 after 2008)
• Guidelines for Allocation in Annex III
• Commission Allocation Guidance by 31 December
  2003 (7 Jan 2004) further guidance expected
  soon
• State aid provisions
• 3 month assessment of NAPs by Commission
• Allocation 3 months before start of trading
  period
• Issue annually by 28 February

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The NAP decisions.
Last NAP approved on 20 June 2005 (Greece)
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Monitoring, Verification, Compliance

• Monitoring, Reporting
• Calculation, basic guidelines in Annex IV
  (Commission Decision of 29 January 2004)
• Verification
• Basic guidelines in Annex V, Member States to
  decide on role authorities/private verifiers
  (voluntary coord?)
• Compliance
• Member State competence, harmonized penalty
• (40-100 compensating for shortfall naming
  and shaming )
• Existing EU compliance framework
• (Member State implementation penalties for
  failure to do so)

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The Registry System

• Combined EU-UNFCCC registry system
• EU allowances, AAUs, CERs ( lCERs, tCERs), ERUs,
  RMUs
• UNFCCC Independent Transaction Log
• Community Independent Transaction Log
• http//europa.eu.int/comm/environment/ets/welcome
  .do
• 26 National Registries
• Registries Regulation!
• 18 Registries online thus far (10 February 2006)

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Membership of the Trading Scheme

• 25 EU Member States
• Future Member States (Bulgaria, Romania, Turkey,
  Croatia)
• EEA (Norway, Iceland, Liechtenstein)
• Art 25 bilateral agreements with other regimes
• Switzerland, Canada, New Zealand, Japan..

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The Linking Directive

• Direct use of JI and CDM credits by operators in
  the EU ETS to achieve compliance with their
  targets (1 CER or ERU 1 EU Allowance)
• CDM from 2005, JI from 2008
• All project credits, except Nuclear energy
  projects (up to 2012) and LULUCF projects (review
  in mid-2006
• From 2008 use limited to of allocation of
  allowances to each installation

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The result.
42
Carbon prices traded volumes
3 February 2006EUA 2005 spot (/tCO2)  27.18
2005 total volume 260 million allowances
approx. 2005 market valuation 5.4 billion
Source Point Carbon's Carbon Market Daily
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Facts and figures

• Close to 6.6 billion allowances will be allocated
  in 2005-2007
• Total asset value over 140 billion
• 1-3 million allowances traded daily
• 14 national registries online, all expected to be
  operational by the end of 2005

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The next steps..

• Commission issued additional allocation guidance
  on 22 December 2005
• Compliance
• Submission of verified emissions report by 31
  March annually
• Surrender of allowances by 30 April annually
• New NAPs by 30 June 2006
• Commission Communication of 27 September 2005
  Reducing the Climate Change Impact of Aviation
  (COM(2005) 459)
• Review of ETS by 30 June 2006

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What the review is about

• Improve the functioning of the scheme based on
  practical implementation experience
• Streamline current scheme
• More predictable allocation rules through
• stable baseline years and/or
• longer allocation period and/or
• derive future allocation from past allocation
• More harmonised approach to new entrants and
  closures, based on experience during 2005-07
  period
• Further harmonisation in the area of verification
  
• and expand to other sectors and gases, beyond
  aviation

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Main results of the EU ETS stakeholder survey
(McKinsey and Ecofys, 2nd half 2005)

• EU ETS has an impact on corporate behaviour all
  sectors price in value of allowances
• Long-term topics have highest priority for all
  stakeholders
• However no clear consensus harmonise
  allocation, but how?
• Companies vote for longer allocation periods (ten
  years or more)
• Benchmarking seen as interesting alternative,
  however most companies think more than 3
  benchmarks per sector are needed
• More auctioning disliked by companies but
  favoured by other stakeholders
• Wide consensus that scheme design changes should
  be brought in with sufficient lead-time

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Action on Climate Change post-2012
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COP President Stéphane Dions Three IsResults
of Montreal (December 2005)

• Implement
• Adopt the Marrakech Accords
• Adopt the compliance regime
• Improve
• Strengthen the Clean Development Mechanism
• Innovate
• Start a dialogue on future action to tackle
  climate change both under the Convention and the
  Protocol

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The results Implementation

• Adoption of the Marrakech Accords the rulebook
  for the Kyoto Protocol adopted in full on
  Wednesday of the first week.
• Adoption of the Compliance Decision discussions
  on the Saudi proposal to amend the Kyoto Protocol
  started to be finalised by COP/MOP-3.
• Five-year adaptation work programme agreed full
  set of activities, including work to further
  enhance our knowledge on the impacts of and
  vulnerabilities to climate change and contains
  concrete measures to plan for adaptation and take
  adaptation measures.
• Adaptation Fund details on the Funds management
  will be elaborated during 2006

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The results Improvement

• Strengthening the Clean Development Mechanism
  (CDM) clarification and strengthening of the CDM
  Executive Boards executive and supervisory role.
  Parties pledged US 8,188,050 to the operation of
  the CDM (US 5 million from the EU, and US
  890,000 from the Commission).
• Carbon Capture and Storage (CCS) presentation
  special report on CCS by Intergovernmental Panel
  on Climate Change (IPCC). Follow-up workshops in
  May to disseminate its results and to consider
  role of CCS under the CDM. The inclusion of CCS
  in the CDM will be further considered at the next
  COP/MOP.
• Kick-starting Joint Implementation (JI) JI
  institutions set up. Preparatory work done for
  the CDM can also be used for the approval of JI
  projects. EU pledged over US 700,000 (incl. US
  250,000 from the Commission) to the JI
  Supervisory Committee, Canada pledged US 500,000.

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The results Innovation

• The Convention Track forward-looking dialogue
  under the Convention, up to four Workshops over
  the next two years, results reported back to the
  COP.
• The Kyoto Track ad-hoc working group under the
  Kyoto Protocol, will complete its work as early
  as possible and in time to ensure that there is
  no gap between the first and the second Kyoto
  commitment period, next years full review of the
  Kyoto Protocol prepared with submissions of views
  in September.

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• More information on EU climate change policy

http//europa.eu.int/comm/environment/climat/home_
en.htm