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Experience with Carbon Markets Experience with Carbon Markets and offsetting under the EU ETS

Directorate General for Climate Action Directorate General for Climate Action European Commission Damien Meadows, Head of Unit International Carbon Market, , , Aviation and Maritime

London 30 March 2011 London, 30 March 2011

The EU ETS in brief

• Mandatory cap-and-trade system in place since

January 2005, now in its seventh year of operation y , y p

• Across 30 countries
• Covering around half EU GHG emissions (2 bn t)

Covering around half EU GHG emissions (2 bn t)

• From power generation, steel, cement, chemicals,

refineries pulp and paper lime aviation (amongst refineries, pulp and paper, lime, aviation (amongst

• thers)
• Essential infrastructure in place: EU allowance
• Essential infrastructure in place: EU allowance

registry, data management, compliance and enforcement enforcement

• Constitutes around 80% of ‘global carbon market’

EU ETS – Carbon Pricing EU ETS – Carbon Pricing

EU ETS is majority of International Carbon Market: 87% by Value, 80% by Volume

(Source: Bloomberg, New Energy Finance)

EU ETS’s interactions w ith third countries

• Linking of emission trading systems foreseen
• 27 countries initially covered extension to Norway Iceland
• 27 countries initially covered, extension to Norway, Iceland

and Liechtenstein taken place, applicable for Croatia, linking negotiations underway with Switzerland, 2007-2009 g y ,

• Access for certain international credits
• Up to half of emission reductions made below 2005 levels
• Up to half of emission reductions made below 2005 levels
• Additional access for credits to meet EU Member States’

national reduction targets for 2020 (‘Effort Sharing Decision’) g ( g )

• Use of significant auction revenues to tackle climate

change/adaptation including in third countries change/adaptation including in third countries

• Sharing ‘lessons learned’ and experience gained

I nternational Credits ( JI / C / l di i ) CDM/ sectoral crediting)

• EU ETS provides for companies to use

international credits for compliance under EU law: p

• Up to half of emission reductions made below 2005 levels - under

unilateral EU 20% reduction commitment, around 1.7 billion credits)

All JI d CDM dit bj t t t d d

• All JI and CDM credits, subject to standards:
• No double-counting
• No temporary forestry credits (‘lCERs’, ‘tCERs’)
• No temporary forestry credits ( lCERs , tCERs )
• No nuclear credits
• No HFC or Adipic Acid credits from 2013 onwards
• EU law provides for possibility for further measures
• And allows for bilateral/ multilateral agreements for

‘sectoral crediting’ (Article 11a(5))

Significant em ission reductions need to be m ade globally

EU

80% 100%

EU objective: 80 to 95% reductions largely through domestic measures:  around -80% internal reductions in 2050

20% 40% 60%

 a ou d 80% te a educt o s 050 compared to 1990 Developed Countries: similar effort

0% 20% 1990 2000 2010 2020 2030 2040 2050

Baseline Global action

p Developing Countries:  -5% compared to 1990

Developed Countries

80% 100%

 p

Developing Countries

400% 500%

 Equivalent to - 80% compared to business as

0% 20% 40% 60%

100% 200% 300%

usual

6

0% 1990 2000 2010 2020 2030 2040 2050

Baseline Global action

All sectors need to contribute (or other countries/ sectors do more)

0% 1990 2000 2010 2020 2030 2040 2050

Baseline Global action

‘Offsetting’ alone cannot solve li h bl clim ate change problem

Figure 1: Projected development of greenhouse gas emissions in different regions of the world g

70 80

alents

... If EU ETS and other OECD countries reduce emissions to zero

40 50 60

O2 equiva

Rest of World Other annex 1

emissions to zero

20 30 40

gatonnes C

Other annex 1 EU 10

1990 2050

Gig

... Global emission path compatible with 2°C scenario

1990 2050

Source: Greenhouse gas reduction pathways in the UNFCCC process up to 2025, CNRS/LEPII-EPE, RIVM/MNP, ICCS-NTUA, CES-KUL (2003).

Mechanism s w ith an ‘ow n t ib ti ‘ contribution‘ are necessary

• EU seeking agreement on this evolution through

UNFCCC

• EU ETS allows for bilateral/ multilateral agreements

for ‘sectoral crediting’ (Article 11a(5))

• And provides for transition:
• Continued access for credits from new CDM projects in Least

Developed Countries from 2013 onwards Developed Countries from 2013 onwards

• And from existing CDM projects in other countries (but not

new ones)

• Once there is an international climate agreement, only credits

from countries that have ratified that agreement may be used that provides for companies to use international credits for p p compliance under EU law

A vision: A vision: carbon m arket transition

Bilaterally linked cap and trade Emissions not covered cap and trade

Relative sha

Emissions not covered by cap and trade

are of global em

Sectoral crediting applied

missions

Reformed CDM

TIME

I i f LDC

• Increasing focus on LDCs
• Strengthen governance
• Strengthen environmental integrity

Experience with Carbon Markets Experience with Carbon Markets and offsetting under the EU ETS

Directorate General for Climate Action Directorate General for Climate Action European Commission Damien Meadows, Head of Unit International Carbon Market, , , Aviation and Maritime

London 30 March 2011 London, 30 March 2011