The EU ETS: Perspectives for US Climate Policy A. Denny Ellerman - - PowerPoint PPT Presentation

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The EU ETS: Perspectives for US Climate Policy A. Denny Ellerman - - PowerPoint PPT Presentation

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The EU ETS: Perspectives for US Climate Policy A. Denny Ellerman Massachusetts Institute of Technology Mission Climat, Caisse des Dpts 7 th INFRADAY Conference Berlin, Germany October 10, 2008 Agenda What did the EU ETS accomplish?

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SLIDE 1

The EU ETS: Perspectives for US Climate Policy

  • A. Denny Ellerman

Massachusetts Institute of Technology Mission Climat, Caisse des Dépôts

7th INFRADAY Conference Berlin, Germany October 10, 2008

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SLIDE 2
  • A. Denny Ellerman

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Agenda

  • What did the EU ETS accomplish?
  • Positive lessons
  • Negative lessons
  • US Policy Outlook
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  • A. Denny Ellerman

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A Technical Success

  • A mechanism in place to limit GHG

emissions to whatever level desired

  • Supporting regulatory infrastructure is

developed and functioning well

  • A market with ample trading has

created the only unified price in the EU

  • Conditions for efficient abatement exist
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SLIDE 4
  • A. Denny Ellerman

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Despite Great Odds

  • A new and unfamiliar regulatory

instrument

  • Little experience and some hostility to

emissions trading

  • Extremely rushed implementation
  • Very poor data on installations and

ETS emissions

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SLIDE 5
  • A. Denny Ellerman

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A Political Success

  • Triumph of Community institutions

despite decentralized structure

  • Successfully played on strong public

support and self-identification as an environmental leader

  • Now a source of considerable pride

with no thought of its disappearance

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  • A. Denny Ellerman

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Results

  • Modest but measurable abatement in the

trial period

  • CO2 price is being integrated into
  • perational & investment decisions
  • Worldwide impact on project

development

  • No transforming technological innovation
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SLIDE 7
  • A. Denny Ellerman

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Agenda

  • What did the EU ETS accomplish?
  • Positive lessons
  • Negative lessons
  • US Policy Outlook
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  • A. Denny Ellerman

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Economic Impact Is Imperceptible

  • No visible macro-economic effect

–De-industrialization of Europe??

  • Energy-intensive sectors more at risk

–Here too little effect, so far

  • Why? CO2 is but one price among many

–All others as important now as before –True for investment, also?

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  • A. Denny Ellerman

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Crude Steel Imports, EU25

1 4 0 ,0 0 0 1 5 0 ,0 0 0 1 6 0 ,0 0 0 1 7 0 ,0 0 0 1 8 0 ,0 0 0 1 9 0 ,0 0 0 2 0 0 ,0 0 0 2 1 0 ,0 0 0 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 000 tonnes

  • 3 0 ,0 0 0
  • 2 5 ,0 0 0
  • 2 0 ,0 0 0
  • 1 5 ,0 0 0
  • 1 0 ,0 0 0
  • 5 ,0 0 0

5 ,0 0 0

N e t Im p o rts C o n s u m p tio n

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  • A. Denny Ellerman

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Borrowing Works without Abuse

  • EU ETS is only cap-and-trade system

with unrestricted year-ahead borrowing

  • An alternative compliance option that

was used significantly in 2005-06

  • All paid back in 2007
  • Redistributed demand is a useful way
  • An alternative to a price cap in US
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  • A. Denny Ellerman

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Evidence of Borrowing in the UK

10 20 30 40 50 60 70 80 2005 2006 2007 M illion s E U A s

Net short Net imports Borrowing Carried over borrowing

70 % 42 %

Why?

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  • A. Denny Ellerman

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Recap on Borrowing

  • 3000 short installations in 2005 & 2006

– 475 show evidence of borrowing (16%)

  • Short positions of 409 Mt in 2005-06

– At least 63 Mt borrowed (15%)

  • Only foreign EUAs can be observed; no

doubt domestic EUAs as well

  • Perhaps as much of 30% of short positions

covered by borrowing

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  • A. Denny Ellerman

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Multinational Systems can be created

  • EU is not the United States of Europe

– Member States are sovereign nations

  • Successfully bridged very large gaps in eco-

nomic circumstance, institutional prepared- ness, and commitment to climate policy

  • EU club benefits explain adherence as well

as vital role of Commission

  • What could replace this on a world scale?
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  • A. Denny Ellerman

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Agenda

  • What did the EU ETS accomplish?
  • Positive lessons
  • Negative lessons
  • US Policy Outlook
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  • A. Denny Ellerman

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Coverage

  • Good reasons for partial coverage in EU

– But expansion is proving difficult

  • Complicated by point of regulatory obliga-

tion – Partial ⇒ downstream – Comprehensive ⇒ upstream

  • The link to free allocation
  • US system should be comprehensive
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  • A. Denny Ellerman

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Allocation

  • Was free allocation a mistake?

– Political practicalities and existing use – Unleashing the revenue-seekers – Windfall profits? What did you expect?

  • Trade-impact as a basis for allocation

– Over-allocation and auction exemption

  • But a useful evolution to more auctioning
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  • A. Denny Ellerman

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Agenda

  • What did the EU ETS accomplish?
  • Positive lessons
  • Negative lessons
  • US Policy Outlook
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  • A. Denny Ellerman

Page 18

  • Pres. Bush is

not the Problem

  • Next president will be favorably disposed

– Pres. Clinton was too

  • Serious discussion under way

– Action to date is disappointing – Revealing lack of consensus and of willingness to compromise

  • Will climate change be the real priority of

the new president?

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  • A. Denny Ellerman

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The EU ETS Effect

  • US action depends on finding resolution to

internal differences

  • Remarkable attention being given to the EU

ETS by all in US debate

  • This example counts for more than

anything else said or done by Europe

  • One of many important issues engaging the

EU-US relationship