Emissions Trading Worldwide International Carbon Action Partnership ICAP Status Report 2016 Editorial TeamMarissa Santikarn, Alexander Eden, Lina Li, William Acworth, Iurii Banshchikov, Aki Kachi, Martina Kehrer, Kateryna Stelmakh, Charlotte Unger, Kristian Wilkening, and Constanze Haug.Cite as ICAP. 2016. Emissions Trading Worldwide Status Report 2016. Berlin ICAP.The ICAP Secretariat expresses its gratitude to policymakers from the ICAP membership and further collaborators from the emissions trading field, who provided insightful, written contributions and carefully reviewed the reportSoffia Alarcn Daz Mexico, Marc Allessie Netherlands, Botagoz Akhmetova Kazakhstan, Marco Aurlio dos Santos Arajo Brazil, JeanYves Benoit Qubec, Suzanne Beurskens Netherlands, Ana Luiza Oliveira Champloni Brazil, Chen Zhibin Sinocarbon, Dave Clegern California, Mary Jane Coombs California, Claude Ct Qubec, Neil Cunningham Manitoba, MajaAlexandra Dittel European Commission, Bill Drumheller Washington State, Johannes Enzmann European Commission, Vctor Hugo Escalona Gmez Mexico, Marcus Ferdinand Point Carbon, Amelia GuyMeakin New Zealand, Kay Harrison New Zealand, Huang ChiaWen Taiwan, Satoru Iino Japan, Justin Johnson Vermont, Zhanel Karina Kazakhstan, Dalwon Kim European Commission, Masahiro Kimura Tokyo Metropolitan Government, Agnieszka Kozakiewicz European Commission, Jan Wouter Langenberg European Commission, Marat Latypov Russia, Lee Hyungsup Korea, Pongvipa Lohsomboon Thailand, Aloisio Lopes Pereira de Melo Brazil, Eva Murray New Zealand, Sachiko Nakamura Tokyo Metropolitan Government, Lois New New York, Yasushi Ogasawara Japan, Qian Guoqiang SinoCarbon, Nicole Singh RGGI, Beatriz Soares da Silva Brazil, Cameron Smith New Zealand, William Space Massachusetts, Sumon Sumetchoengprachya Thailand, Tony Usibelli Washington State, Sophie Wenger Switzerland, Harm van de Wetering Netherlands, Zeren Erik Yaşar Turkey, Olga Yukhymchuk Ukraine.The ICAP Secretariat is grateful to the Dutch Emissions Authority NEa for funding this report. adelphi consult GmbH lends scientific and technical support to the ICAP Secretariat and coordinated the implementation of the report.2Bildquelle, Bildunterschrift3international carbon action partnershipForewordLast December, the international community united in Paris to conclude a new global climate change agreement. Under the landmark Paris Agreement, all nations commit to contribute to climate change mitigation, with the goal of keeping global warming below 2C. While the current pledges may not yet be sufficient to meet this objective, the level of international commitment to this issue has never been as strong, and regular reviews will ensure that, as technology and policy evolve, countries continue to ratchet up ambition.More than 185 countries have now ted their Intended Nationally Determined Contributions INDCs, covering roughly 95 of global greenhouse gas emissions GHG. Nearly half indicate that they will use or consider using international carbon markets to reach their climate targets. At the same time, many subnational governments engaged in the fight against climate change are either using or considering domestic carbon markets as a tool to reduce their GHG emissions. Against this background, the Paris Agreement sends a highly welcome, positive signal on carbon markets. The Agreement endorses both the option for transferring mitigation outcomes among Parties and for making use of a mechanism to support mitigation and sustainable development that will succeed the Clean Development Mechanism CDM. This brings with it the need for a transparent and robust accounting framework to prevent doublecounting so that Parties can engage in marketbased cooperation on climate action while ensuring tangible emission reductions. Indeed, the Paris Agreement also delivered on this front. Now that countries have put forward their commitments and the international framework is in place, the focus is turning to domestic action. Each country will need to decide on the best way to meet their target, and the next few years will see a proliferation of domestic climate measures, including those that put a price on emissions. Emissions Trading Systems ETS are already the central element of climate policy in a number of national and subnational jurisdictions and this number will grow further in the years to come. Also beyond COP21 in Paris, 2015 has been a good year for carbon markets. Last September, Chinese President Xi Jinping officially confirmed that China will establish a national carbon market in 2017. The fact that the world’s largest emitter ally committed to strong climate action via an ETS not only strengthens the case for carbon pricing, but the announcement also gave significant momentum to the COP21 negotiations. Once operational, the Chinese national ETS will overtake the EU ETS as the world’s largest carbon market.The last year has also seen renewed interest in carbon markets in North America. With climate change moving up the political agenda in Canada, Ontario and Manitoba have both stepped forward to announce a new ETS in their respective provinces, implying that the Western Climate Initiative WCI carbon market of California and Qubec is set to grow in the upcoming years. The approval of the Clean Power Plan in the United States has also sparked interest in emissions trading as a policy option for states to meet their compliance obligations. Meanwhile, existing systems are initiating structural improvements. The overarching objective of these efforts is to ensure a credible carbon price signal over the longer term, a vision broadly shared by actors involved in emissions trading. For example, in the EU, policymakers are drawing on a decade of ETS experience to ensure their system continues to deliver emissions reductions and play its role as the key pillar of European climate policy. Other jurisdictions, like the Regional Greenhouse Gas Initiative RGGI and New Zealand are equally reviewing and adjusting their systems, in order to align with changing domestic circumstances and mitigation targets.This year’s ICAP Status Report presents an overview of all ETSs both in operation and under consideration, alongside articles from international policymakers and carbon market experts outlining the latest developments in their jurisdictions. As the report shows, the great advantage of emissions trading is that it offers policymakers a flexible tool to reduce emissions. From the city level, to the state, national, and supranational levels, an ETS can operate in a wide spectrum of political and economic settings. And as the global response to the climate challenge develops, systems will also adapt, enabling more ambitious targets to be set and eventually linking across borders to drive the global transition to a carbonneutral economy. With the Paris Agreement providing new impetus to climate policy worldwide, we are confident that the lessons learned from existing systems can in and inspire the next generation of ETS.Jean-Yves BenoitCoChair of the International Carbon Action Partnership, Steering Committee Director, Carbon Markets Division, Qubec Ministry of Sustainable Development, Environment and the Fight Against Climate ChangeMarc AllessieCoChair of the International Carbon Action Partnership, Steering CommitteeDirector, Dutch Emissions Authority NEa5international carbon action partnershipForewordJeanYves Benoit and Marc Allessie, CoChairs, International Carbon Action Partnership ICAPPractitioner Insights Designing Cap-and-Trade08 The EU ETS Preparing for Phase Four MajaAlexandra Dittel, Johannes Enzmann and Dalwon Kim, European Commission10 A Simple ETS is a More Future Proof ETSDutch Research Project The Administrative Burden of the EU ETS Can Be Reduced without Affecting the System’s ReliabilityHarm van de Wetering and Suzanne Beurskens, Dutch Emissions Authority12 The California Cap-and-Trade ProgramLooking Back on the First Phase Dave Clegern and Mary Jane Coombs, California Air Resources Board14 The Regional Greenhouse Gas InitiativeA Model for Implementing the Clean Power Plan Will Space, Massachusetts Department of Environmental ProtectionLois New, New York State Department of Environmental ConservationJustin Johnson, State of Vermont16 Emissions Trading in ChinaProgress on the Path towards a Unified National SystemQian Guoqiang and Chen Zhibin, SinoCarbon Innovation http//www.arb.ca.gov/cc/inventory/data/graph/trends/ghg_trends_00-1three.onum_2015050four.onumsm.png13international carbon action partnershipAllowance prices are gradually risingAllowances are issued by the Californian Air Resources Board and are sold at quarterly auctions. All bidders pay the same auction settlement price the lowest bid above the reserve floor price. When compliance began in 2013, the reserve price was 10.71 USD. As of 2015, this has risen to 12.10 USD and will continue to increase annually at a rate of 5 plus inflation. In the past three years, the settlement price has seen a 20 rise from 10.09 USD at the first auction held in November 2012, to 12.73 USD at the most recent, soldout auction in November 2015. To date, the settlement price has been at or very near the floor price, which has served to keep the cost of compliance relatively modest. During the quarterly auction, covered entities also have the option of buying allowances for future compliance. four.onumThis regulatory feature provides further flexibility, as companies can buy future vintage allowances while the price is low and then bank them for future use. At the most recent advance auction in November 2015, all available vintage 2018 allowances were auctioned for 12.65 USD.Linking with Qubec and beyondCalifornia’s Program has been linked with the Canadian Province of Qubec’s CapandTrade system since 1 January 2014; the linked systems have held joint auctions since fall 2014. This is the first time subnational jurisdictions have coordinated and linked their CapandTrade systems. Thanks to close consultation and planning, the linking process has run smoothly. Linkage with Qubec has also increased the environmental and economic benefits of both systems. Not only are more emissions being reduced, but market liquidity has also increased. This successful process provides a model for future linkage, as carbon markets continue to grow and mature across North America and the rest of the world. Looking ahead, California and Qubec’s joint program may expand even further with the announcement of a new CapandTrade policy planned in the Canadian province of Ontario. The three jurisdictions are currently holding discussions regarding potential linkage.California is also conducting ongoing conversations with a number of jurisdictions either already operating or planning a CapandTrade program, with the goal to strengthen carbon markets around the world. These jurisdictions include China, Japan, South Korea, the European Union’s Emissions Trading System, and the Regional Greenhouse Gas Reduction Initiative. Discussions are also underway with other U.S. states, particularly in light of the Obama Administration’s recently unveiled Clean Power Plan CPP. Signed by the U.S. Environmental Protection Agency EPA Administrator in August 2015 and published in October 2015, the CPP regulation establishes targets for each state to reduce carbon emissions from existing power plants by 2030. With states given the flexibility to decide how to meet these targets, the California CapandTrade Program may provide an attractive compliance model.California sees its carbon market not only as a means of driving down emissions, but as a vehicle for building stringent national and international standards for quantifying carbon reductions. While the marketbased approach has a number of benefits, it is viewed as a regulatory means to an end, and not an end in itself. Agreement on solid and verifiable standards for emissions reductions is critical to mitigating the worst impacts of climate change.ConclusionThe CaliforniaQubec carbon market provides impetus for the development and use of cleaner, renewable fuels, and further evidence that weaning society from heavy use of fossil fuels need not be a painful effort. The growth in awareness of climate change issues and emissions reduction programs by private businesses, spurred on by customers and stockholders, is a strong indication the world is beginning to change direction. The fact is, none of us are ‘going it alone’ anymore in the battle against climate change, and a healthy carbon market provides another opportunity for us to work together to tackle a problem none of us can take on by ourselves. “The California-Qubec carbon market provides impetus for the development and use of cleaner, renewable fuels, and further evidence that weaning society from heavy use of fossil fuels need not be a painful effort.”“To date, the settlement price has been at or very near the floor price, which has served to keep the cost of compliance relatively modest.”14The Regional Greenhouse Gas InitiativeA Model for Implementing the Clean Power PlanWill Space, Massachusetts Department of Environmental ProtectionLois New, Office of Climate Change, New York State Department of Environmental ConservationJustin Johnson, Office of the Governor, State of VermontThe Clean Power Plan mandates state-wide reductionsPower plants are the largest source of carbon emissions in the United States, accounting for about onethird of domestic greenhouse gas emissions. On 3 August 2015, the U.S. Environmental Protection Agency EPA issued the Clean Power Plan CPP, incorporating extensive public comments on the draft released in 2014, thereby establishing a national program to reduce carbon pollution from power plants by 32 below 2005 levels by 2030. The CPP sets a CO2reduction goal for each state, while giving the states considerable flexibility in how they achieve their respective goals.1The success of the Regional Greenhouse Gas Initiative RGGI states in reducing CO2has made the RGGI program a model for many elements of the CPP, and the structure of the final CPP could potentially foster the expansion of powersector carbon markets across the U.S. Whether and how this will occur will not be known for several years, but regional trading could play an important role.The CPP is a key component of President Obama’s Climate Action Plan. The structure of the CCP is consistent with the U.S. Clean Air Act which requires the EPA to regulate carbon emissions from existing power plants. The CPP sets statewide emissions reductions targets, and then allows states to decide which policies should be implemented to achieve them. For example, a state may choose to cap the total amount of emissio