3 proposals to make the EU ETS fit for purpose France Ministry of Environment, Energy and the Sea 21/03/2016 Ministère de l’Environnement, de l’Énergie et de la Mer www.developpement-durable.gouv.fr
FR’s vision of the EU’s on carbon pricing 1. Gather worldwied momentum on the idea of carbon pricing 2. Implementa price corridor in the EU carbon market 3. Integrate a carbon component in the energy taxes of Member States who wish to do so 4. Work for the generalisation of carbon pricing outside the European Union and unite countries that choose to act 5. Take the measures necessary to prevent a risk of carbon leakage
How to solidify the carbon price signal for investments ? Source: based on Thomson Reuters, ICAP q Article 4.19 of Paris agreement to communicate long term strategy for low carbon growth: § Long term strategy for the flagship instrument of EU’s climate policy? EUAs price: q Plunge by 80% since its higher level; § Plunge by more than 40 % since end of 2015; § Expected auction revenues for 2016 - 2020 have been divided by 2 in 1 month § Barclays last report (“2 ° C of separation”) mentions the possibility to have CO 2 § prices at 5€/tCO 2 in 2030
The EU ETS price: the everlasting gap between volume based expectations and actual price delivery Source: based on Thomson Reuters’ consensus of analysists q While other countries are securing long term strategies for decarbonisation following COP21: § Should we give ourselves a price corridor as a basis for the EU’s strategy? § (or should we trust our luck with the current rules?)
A price corridor for the EU ETS – Why? q The soft price collar FR proposed for discussion lets the market work: § Minimum price and “maximum” price just secure the market between a minimum and a maximum; § The soft price collar acts as safety valves and does not set a fixed price per allowance. q A soft price collar for the European carbon market would : § Reduce volatility due to adverse expectations ; § Improve predictability of the price carbon; § Create a strong incentive in favor of low-carbon investments ; § Incentivize green growth and green jobs; § Improve renewable energies competitiveness è reduce the need in feed-in; § Secure revenues for member states : no more uncertainties on the minimum price ; § Offer a guarantee on minimum CO 2 prices è better view on revenues to be used for climate purpose (including for the innovation fund, modernization fund or article 10c) è A corridor is not designed to lead to an additional effort, just to guarantee we will get what we expect in terms of carbon price signal
Fair and efficient free allocation based on actual carbon leakage risk 1. Not decrease the auction share 2. Recognise that the risk of carbon leakage varies greatly between industrial sectors 3. Focus free allocation according to the evidence of carbon leakage risk facing each industrial sector 4. Minimise and if possible remove the need to rely on the Cross- Sectoral Correction Factor (CSCF) The aim of tiered free allocation is to distribute the available supply of free allowances in a fairer manner; there is no intention to reduce the total amount available for industry below that of the Commission’s proposal. 6
q A non paper by France and the United Kingdom illustrating the implementation of a tiered free allocation. q Provide a technical basis and figures so that everyone can take home the table in the annex and try their own simulations and build their own tiered scenarios. q Trigger further debate in Council and among stakeholders on the design of the free allocation system. France and the UK are eager to work with other interested Member States in taking this forward. IA tiered Large High Risk Balanced High Sectors receiving more Commission proposal carbon x approach Tier Risk Tier than 10Mt allocation in Share of FA trade Share Share Share phase 4 % FA After CSCF (before % FA % FA % FA intensities of FA of FA of FA CSCF) Coke 17,45 100% 83% 0,8% 100% 0,8% 100% 0,8% 100% 0,8% Fertilisers >4* 100% 83% 5,7% 100% 5,7% 100% 5,7% 100% 5,7% Mines 5,34 100% 83% 0,2% 100% 0,2% 100% 0,2% 100% 0,2% Steel >2,5* 100% 83% 30,0% 100% 30,0% 100% 30,0% 100% 30,0% Aluminium >2,5* 100% 83% 1,8% 100% 1,8% 100% 1,8% 100% 1,8% Organic chemicals 2,08 100% 83% 9,2% 80% 7,3% 100% 9,2% 100% 9,2% Refineries 1,98 100% 83% 17,3% 80% 13,8% 100% 17,3% 100% 17,3% Inorganic chemicals >2* 100% 83% 2,2% 80% 1,8% 100% 2,2% 100% 2,2% Pulp 1,68 100% 83% 0,5% 80% 0,4% 100% 0,5% 100% 0,5% Cement 1,27 100% 83% 21,6% 80% 17,3% 100% 21,6% 75% 16,2% Paper 1,17 100% 83% 4,5% 80% 3,6% 100% 4,5% 75% 3,4% Flat glass 1,02 100% 83% 0,9% 80% 0,7% 100% 0,9% 75% 0,7% Lime and plaster 0,97 100% 83% 4,2% 60% 2,5% 30% 1,3% 75% 3,2% Ceramic tiles and flags 0,93 100% 83% 0,9% 60% 0,5% 30% 0,3% 75% 0,6% Refractory products 0,87 100% 83% 0,2% 60% 0,1% 30% 0,1% 50% 0,1% Hollow glass 0,78 100% 83% 1,4% 60% 0,8% 30% 0,4% 50% 0,7% Man-made fibers 0,72 100% 83% 0,2% 60% 0,1% 30% 0,1% 50% 0,1% Lead, zinc, and tin 0,71 100% 83% 0,2% 60% 0,1% 30% 0,1% 50% 0,1% Extraction of crude petroleum 0,53 100% 83% 2,9% 60% 1,7% 9% 0,3% 50% 1,4% Sugar 0,52 100% 83% 1,0% 60% 0,6% 9% 0,1% 50% 0,5% Copper 0,48 100% 83% 0,3% 60% 0,2% 9% 0,0% 50% 0,2% Oils and fats 0,43 100% 83% 0,3% 60% 0,2% 9% 0,0% 50% 0,1% Starches 0,43 100% 83% 0,5% 60% 0,3% 9% 0,0% 50% 0,3% Plastics in primary forms 0,42 100% 83% 0,7% 60% 0,4% 9% 0,1% 50% 0,3% Dyes and pigments 0,41 100% 83% 0,3% 60% 0,2% 9% 0,0% 50% 0,1% Veneer sheets and wood- based panels 0,31 100% 83% 1,2% 60% 0,7% 9% 0,1% 50% 0,6% Other sectors above 0.2 100% 83% 1,2% 60% 0,7% 9% 0,2% 50% 0,6% Industrial gases 0,17 30% 25% 0,4% 9% 0,1% 9% 0,1% 9% 0,1% Bricks, tiles,etc 0,17 30% 25% 0,4% 9% 0,1% 9% 0,1% 9% 0,1% District heating 0,00 30% 25% 4,5% 9% 1,4% 9% 1,4% 9% 1,4% Other sectors 30% 25% 5,2% 9% 2,0% 9% 2,0% 9% 2,0% Total 121% 96% 101% 100% Remaining allowances -21% 4% -1% <1% 7
Carbon inclusion mechanism: a complementary approach to carbon leakage risk mitigation q Level-playing field q WTO compatible q Protection against carbon leakage risk q Transitional complementarities with free allocation
Thank you Hope to discuss with you all 3 non papers by FR: q Price corridor in the EU ETS q Progressive free allocation q Carbon inclusion mechanism Ministère de l’Environnement, de l’Énergie et de la Mer www.developpement-durable.gouv.fr
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