2015 01 26 DAY1 Presentation Serre Rationale & Overview of...

Rationale for ETS &Overview of state of ETS worldwideOverview of state of ETS worldwide

Camille Serre, ICAP Secretariat26 January 2015

Rationale for carbon pricing

• More cost-efficient than command-and-control (e.g.: China)

• Need to internalize cost for pollution that is otherwise not taken into account

• Polluter pays principle

• Create revenues for climate action (RGGI, IKI in Germany), redistribution to low-income households, support of other policies…

International Carbon Action Partnership 2

to low-income households, support of other policies…

But also…

• Global momentum for putting a price on GHG emissions:

NY Climate Summit in September 2014, World Bank Statement followed by Carbon Pricing Leadership Coalition, issue addressed at the World Economic Forum…

• Why introducing an ETS?

• Environmental considerations

• Economical considerations

• Political considerations

• Look at the “global picture”: growth and diversification of carbon markets

• ETS - a flexible instrument

Overview


ETS - a flexible instrument

• Overview of ETS worldwide

• Asia Pacific

• Latin America

• North America

• EU and neighbors

Environmental rationale

• „Cap“: Maximum amount of emissions ensures that reductions are achieved with a high degree of certainty

⇒ Emissions targets often are formulated in absolute manner, e.g. California AB32: reduce GHG to 1990 levels by 2020

• Long-term: Possibility of sharpening of cap (vs. raising tax rates)


• Long-term: Possibility of sharpening of cap (vs. raising tax rates)

⇒ The ETS can adjust to new climate ambitions and to changing international and domestic circumstances

(session on Tuesday about “cap setting” and on Thursday about “ex-post

program changes”)

Economical rationale

• Reductions happen where they are the most cost-efficient:• Within entities covered by ETS (session on Tuesday)• Outside the scope of ETS via (domestic or international) offsets (session on Wednesday)

• Reductions happen when they are the most cost-efficient: companies can adjust their compliance strategy to their needs, within a compliance period and in many operating ETSs across compliance periods (so-


period and in many operating ETSs across compliance periods (so-called “banking”) (session on Wednesday)

⇒ Environmental target is achieved at the lowest cost to the economy as a whole⇒ Equitable access to least-cost abatement options

Economical rationale (2)

• Instrument automatically adjusts to economic conditions

Carbon price is established by the market:

• In times of economic downturn, emissions are reduced and hence the price falls. >> ETS lowers costs when the economy is at its weakest.

• In turn, when the economy booms, GHG emissions increase and the carbon price rises. >> When there are more capacities, the carbon price ‘bites’ most.


‘bites’ most.

⇒ Counter-cyclical effect can help achieve macroeconomic stability

Political considerations• Public acceptability:

• Flexibility in the compliance strategy leads to greater political acceptability

• Possibility to take into account distributional issues, various mitigation potentials and competitiveness concerns via allocation method => broader sector coverage possible, rather than exclusion from policy (sessions on Tuesday and Wednesday)

• May allow to gain consensus on higher emissions reduction goals


• What can better fit international mechanisms?• Alignment with international commitment (e.g. NZL)• Adjustment to the international carbon price(s) via use of

international credits (session on Wednesday)• Possibility of linking: a larger market improves cost effectiveness (session on Thursday)

NB: In practice, choice of instrument often depends on which Ministry/ public authority is in charge and what its competencies are.

Look at the “global picture” - QUIZ

1. How many ETS are in force as at January 2015?a) 10 b) 17 c) 20

2. Jurisdictions with an ETS in force make up: a) 25%, b) 40% or c) 50% of global GDP?

3. ETS can be implemented only on national level: a) True or b) False?


4. This year, the EU ETS (world’s largest and first international system) turns a) 5 b) 8 or c) 10?

5. Which among these systems are the first three largest carbon markets?a) Shanghai b) EU c) RGGI d) California-Québece) New-Zealand f) Rep. of Korea

Source: Upcoming ICAP Status Report 2015 on Emissions Trading Worldwide

Look at the “global picture”

ETS over the world as at January 2015:

17 systems in operation, 1 scheduled, 14 under consideration


Source: Upcoming ICAP Status Report 2015 on Emissions Trading Worldwide. See also the ICAP Interactive ETS Map at: https://icapcarbonaction.com/ets-map

Look at the “global picture”


Source: Upcoming ICAP Status Report 2015 on Emissions Trading WorldwideSource: Upcoming ICAP Status Report 2015 on Emissions Trading Worldwide.

ETS – a flexible instrument

Great diversity in terms of design: No one-size fits all.

• Not only Annex 1 countries, but growingly non-Annex 1 countries introduce (or consider introducing) an ETS to reduce their GHG emissions. Programs can be adapted to suit rapidly developing economies.

• In smaller jurisdictions (Québec, Delaware), megacities and provinces that are economically the size of countries (Tokyo, California) and large, diverse regions (EU)


diverse regions (EU)

• Adapted for economies that rely on heavy industry, advanced service sectors, or large agriculture and forestry sectors.

• In countries with a high level of renewable energy, as well as those which predominantly rely on coal.

ETS – a flexible instrument

• Considerable flexibility in terms of system size, gas and sector coverage


Overview of ETS worldwide:Dynamism in Asia

• 9 new systems over the past three years, incl.:

• Republic of Korea

• 7 Chinese Pilot programs


⇒Most dynamic region

China

• 12th Five Year Plan (2011-2015): gradually build a national market

• Seven pilots selected (city/provincial levels) which started in 2013-14

• Beijing, Shanghai, Tianjin, Chongqing, Shenzhen

• Guangdong, Hubei

• Price ranges from ~20 to 51 RMB/CNY (3.25 to 8.29 USD)

• Uniformity: Direct and Indirect Emissions of CO2, Chinese CERs (with various add. provisions)


various add. provisions)

• Devolved: Sectoral coverage decisions, Allocation methods, Price stabilization

• National system expected as early as 2016

• Started in January 2015• Legislation passed in May 2012 with bipartisan support

• Building on experience with Target Management System

• Overall GHG reduction goal -30% from BAU (revision of BAU)

• 2nd largest system worldwide: three-year cap of 1.687 billion tons, cap in 2015: 573 MtCO2e

Republic of Korea


billion tons, cap in 2015: 573 MtCO2e

• 525 business entities from 23 sectors covered

• No international offsets until at least 2020

• Korean CERs

Tokyo

• First ETS on city level and in Asia

• Participants: Industry, large commercial buildings

New Zealand

• Start in 2008, sectors phase-in over time

Further ETS in the Asia Pacific region


• Transition period with reduced obligation through 2015

• Current prices around 3.80 NZD (3.19 USD)

Australia

• Repeal of CPM/ ETS

• Planned alternative: Emissions Reduction Fund - Financing of reduction projects

Vietnam

• ETS for steel sector in 2020?

Thailand

• Various instruments under development, which may transition into an ETS in the long-term

Further ETS in the Asia Pacific region


into an ETS in the long-term

Latin America

• Mexico: from carbon tax on fossil fuels to an economy-wide ETS?

• Chile: Carbon tax adopted in 2014 and to enter in force in 2017: USD 5 per ton of CO2 and on particulate matter. 2013: roadmap for ETS introduction with PMR support.


introduction with PMR support. TBD now with carbon tax.

• Brazil: ETS one of the options under assessment. Current in a holding pattern on local levels (Rio de Janeiro und Sao Paulo)

Regional Greenhouse Gas Initiative (RGGI)

• Started in 2009

• Electricity sector, almost all allowances auctioned

• Positive effect despite low prices

• Reform completed in 2012. Changes include increased cap reduction


include increased cap reduction

• Prices now USD ~$5.20

California and Québec (WCI)

• Compliance started in 2013

• Members of the Western Climate Initiative (WCI)

• Link effective from 1 January 2014

• First international link (no binding legal contract)

• Mutual recognition of allowances and offsets

• Joint Auctions since late 2014

Current prices around ~$11-12 USD


• Current prices around ~$11-12 USD

• Linked markets form the 3rd carbon market worldwide

• 2015: Expansion of coverage (fuel distribution)

• ~85% coverage of domestic emissions

National EPA-Clean Power Plan

• Carbon targets set per state based on reasonable ability to implement measures

• „Building blocks“ : Power plant efficiency, low emission generation, renewable energy,

US National Level


generation, renewable energy, energy efficiency

• States can use collective approach to comply

• Potential to push other states to action

Europe and its periphery (1)

European Union ETS• 28 Member States plus Norway,

Liechtenstein, Iceland• Reform: EU Commission proposal for

2030• 40% reduction (own effort)• Linear reduction path increases from

1.74% to 2.2%• Market stability reserve


• Market stability reserve

• Prices ~7 EUR• Linking negotiations with Switzerland

Switzerland• Transition from carbon tax with

voluntary ETS (2008) to mandatory ETS in 2013

• Similar design as EU ETS

Europe and its periphery (2)

Kazakhstan• Pilot phase 2013, start 2014• Delay in allocation processes,

regulatory reform• Prices ~$2 – 2.50 USD

Russia


Russia • ETS under discussion

Ukraine• Development of domestic ETS

stipulated in EU association agreement

• Internationally: expect more clarity on post-2020 international framework

• First and second generation ETS have matured:

• Caps will have started to ‚bite‘, with implications for prices

• CA/QC, Korea, others: offset mechanisms (fully) developed

ETS post-2020 – some possible trends


• CA/QC, Korea, others: offset mechanisms (fully) developed

• Rising share of auctioned allowances

• Inclusion of additional sectors/gases?

• „Third generation ETS“ on stream? China, Ukraine, Mexico, Chile, Turkey, Thailand, Vietnam, Russia, others?

ICAP - ETS Information Platform

ICAP Interactive ETS Map

• Comprehensive, up to date information about existing and planned ETS

• Ability to compare and download detailed profiles

ICAP Status Report 2015 „Emissions Trading Worldwide“ to be released early February


• New report on existing and planned ETS, market trends, detailed factsheets, infographics, and articles

Quarterly Newsletter “Global Trends in Emissions Trading”

www.icapcarbonaction.com

Thank you for your attention!

www.icapcarbonaction.comwww.icapcarbonaction.comcamille.serre@icapcarbonaction.com

@ICAPSecretariat

Date post:	05-Jul-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

2015 01 26 DAY1 Presentation Serre Rationale & Overview of...

Documents