Regional Training on ETS Allocation Part II In-depth study Maarten Neelis Developed by Alyssa Gilbert, Maarten Neelis, Dian Phylipsen, Monique Voogt, Alistair Ritchie Supporting the Design and Implementation of Emissions Trading Systems in China - 中欧 碳交易 能力建设项 目 Beijing, September 17 th 2014 This project/programme is funded by the European Union Project implemented by ICF International together with Sinocarbon, SQ Consult and EcofysCurrent status Well-functioning China National ETS Road maps Cap setting Allocation MRVA Registry Market oversight Capacities built over time Supporting the Design and Implementation of Emissions Trading Systems in China - 中欧碳交易能力建设项目 ECOFYS | | 17/09/2014 Maarten Neelis Exploring allocation IN-DEPTH STUDY 3 The benchmark-based allocation ology in the EU ETS ECOFYS | | Allowance allocation in the EU ETS Phase III 17/09/2014 Maarten Neelis Allocation tCO2 Benchmark tCO2 / t product X Reference production t / year X Carbon leakage exposure factor X Cross-sectoral correction OR Linear reduction Installations can choose median of 2005 – 2008 OR 2009 - 2010 To keep the total amount of free allocation below the cap Decreasing from 80 in 2013 to 30 in 2020 Stays 100 for activities deemed to be exposed to carbon leakage How to calculate free allocation exactly 4 ECOFYS | | Product benchmarks cover a complete production process 17/09/2014 Maarten Neelis Product Fuel Heat production Production process Fuel Heat Fuel Fuel Fuel Emissions from fuel combustion Emissions from fuel combustion Process emissions from raw material Product BM t-CO 2 /t-product x Production t-product ula for calculating basic free allocation Scope of benchmark 5 ECOFYS | | There are 52 product benchmarks in the EU-ETS at present 17/09/2014 Maarten Neelis Overview of product benchmarks in the EU-ETS in 2013-2020 6 ECOFYS | | 17/09/2014 Maarten Neelis Alternative approaches for activities not covered by a product benchmark 1/2 Heat Benchmark t-CO 2 /GJ heat x Heat consumption GJ Product Fuel Heat production Production process Fuel Heat Fuel Fuel Fuel Emissions from fuel combustion Emissions from fuel combustion Process emissions from raw material ula for calculating basic free allocation Scope of benchmark Benchmark is based on natural gas and 90 conversion efficiency 7 ECOFYS | | 17/09/2014 Maarten Neelis Product Fuel Heat production Production process Fuel Heat Fuel Benchmark t-CO 2 /GJ fuel x Fuel consumption GJ Fuel Fuel Fuel Emissions from fuel combustion Emissions from fuel combustion Process emissions from raw material Alternative approaches for activities not covered by a product benchmark 2/2 ula for calculating basic free allocation Scope of benchmark Benchmark is based on natural gas 8 ECOFYS | | Role of various actors in benchmarking process 17/09/2014 Maarten Neelis - Draft proposal for benchmarking - Define guidelines for industry on what ination to provide - Data collection - Development of benchmark curves and values - Description of how data was collected rulebooks - Validation of ologies and data - Setting of final benchmarks European Commission Industry Most intensive stakeholder interaction This ination is not made public Process steps in the development of benchmarks 9 ECOFYS | | Take away messages Allocation deals with the initial distribution of allowances to the market participants There are three basic allocation ologies 1. Auctioning participants need to buy the allowances 2. Free allocation through “Grandfathering” based on historical emissions 3. Free allocation through “Benchmarking” based on perance benchmarks Auctioning i.e. no free allocation is in theory the best to have a perfect carbon signal and to avoid windfall profits for participants passing on allowance costs Free allocation is chosen for three principle reasons 1. to lower initial costs of participants 2. to increase political acceptability 3. to protect industry competitiveness Grandfathering is often chosen for free allocation in first phases of ETS systems, but benchmarking and auctioning gain more and more momentum and are used together in California and the EU ETS 17/09/2014 Maarten Neelis Basic lessons learned Conclusions 10 ECOFYS | | Reading materials of allocation  EU Commission Decision concerning national implementation measures for the transitional free allocation of greenhouse gas emission allowances http//eur-lex.europa.eu/legal-content/EN/TXT/uriCELEX32013D0448  California cap on greenhouse gas emissions and market-based compliance mechanisms to allow for the use of compliance instruments issues by linked jurisdictions http//www.arb.ca.gov/cc/capandtrade/capandtrade/unofficial_ct_082014.pdf  Australia Clean Energy Act 2011 http//law.gov.au/Details/C2013C00372  State and trends of carbon pricing 2014 , May 2014 http//documents.worldbank.org/curated/en/2014/05/19572833/state-trends-carbon- pricing-2014  An Introduction to Emissions Trading Schemes website of International Carbon Action Partnership https// 17/09/2014 Maarten Neelis 11