By: Jon Paul Driver Origins The basics Time Periods Market - - PowerPoint PPT Presentation

Cap and Trade By: Jon Paul Driver

 Origins  The basics  Time Periods  Market Functions  Problems

Earth Summit (Rio de Janeiro): 1992 Kyoto Protocol : 1997 European Climate Change Program (ECCP): 2001 EU Ratification of Kyoto Protocol: 2002

Origins

 Each member state:

• Measures its own emissions
• Sets its own emission reduction goals

 Belgium -15%, Germany -14%, Poland +14%,

• Develops “National Allocation Plan”
• Reports to the EU

 EU has power to veto proposal

• Allocates emissions to companies for free
• Countries “own” emission rights

• Experimentation
• Allowances determined by the member states

 National Allocation Plan (NAP)  Yearly Reports

• Member states could ask for exclusions if their laws

already accounted for a equivalent amount of reduction

• Exclusions for certain installations in case of “Force

Majeure”

• 5% Auctioning

• Coincide with the Kyoto commitment
• Allowances still determined by the member states

 (NAPII)

• Reform in monitoring and reporting

 Completeness, consistency, transparency, accuracy, cost- effectiveness, faithfulness and improved performance

• Inclusion of Nitrous Oxide
• 10% Auctioning

 Single EU wide cap

• Member states do not set the cap
• 1.9 billion tonnes

 Inclusion of

• Planes and Boats

 More extensive auctioning

 Auctioning  Markets  Penalties

“At least 50% of the proceeds from auctioning should be used for climate-related adaption and mitigation purposes”

 Reasons

• Polluter Pays Principle

Power Plants Year % of a auctioning

• ning

2013 100% Manufac ufactu turin ing 2013 13 20% 20% 2020 70% 2027 100% Power r Plants (New w Member er States) es) 2013 13 30% 30% 2020 100%

 9 Markets (pointcarbon.com)

• EU ETS
• CDM & JI
• Nord Pool

 Price remains fairly low because of

competition between the different markets

€ 0 € 4 € 8 € 12 € 16 € 20 € 24 € 28 € 32

Dec- 04 Feb- 05 Apr- 05 Jun- 05 Aug- 05 Oct- 05 Dec- 05 Feb- 06 Apr- 06 Jun- 06 Aug- 06 Oct- 06 Dec- 06 Feb- 07 Apr- 07 Jun- 07 Aug- 07 Oct- 07

Source: Point Carbon Phase I allowances Phase II allowances

 Companies emitting in excess of the

allowance prescribed will incur a fine

• €40/tonne of carbon dioxide equivalent from

2005-2007

• €100 after 2008,

 excess having to come

• ut of the following year's allowance.

 Economic Recession  Carbon Leakage  International Competition  Auctioning and the European “playing field”  Legal Battles

Manufac ufactu turin ing 2013 13 20% 20% 2020 70% 2027 100% Manufac ufactu turin ing 2013 13 15% 15% 2020 70% 2027 100%

 Carbon

bon lea eakage age

• occurs when there is an increase in carbon dioxide

emissions in one country as a result of an emissions reduction by another country with a stricter climate policy.

 Carbon leakage may occur if

• environmental policies in one country add a

premium to certain commodities, then the demand may decline and their price may fall. Countries that do not place a premium on those items may then take up the difference in production.

 Who is going to bear the burden of cleaning

up within the EU?

 How will EU companies compete with

companies outside the EU?

• Give more credits
• Tax incoming goods

 Companies vs. the EU

• Article 230

 Countries vs. the EU

• Difference in industries

 Energy-intensive sectors are likely to end up with a very

considerable number of unused freely allocated allowances which can be carried over into phase 2013-2020.

 There are already measures in place to help energy

intensive industries: free allocation and access to international credits.

 Unused free allowances have been monetized.  Investment in low-carbon technology in energy-intensive

sectors has strengthened their overall productivity.