Climate Action

EU ETS Outreach and Linking

The Future of the International Carbon Market

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International challenge: The Gap

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Role of the international carbon market• Drive investments and achieve mitigation objectives at

least cost;

• Incentivise more ambitious abatement action;

• Generate financial flows to developing countries;

• Need instruments that provide environmentally robust credits/allowances at scale and facilitate transition to comprehensive multi-sectoral cap-and-trade.

Climate Action

EU Emission Trading System

• In place since January 2005

• > 30 countries

• Covers half of EU emissions: power and manufacturing industry

• One single EU price

• Market value >100 bn €

• Linear reduction factor 1,74% of annual reduction

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EU ETS – the latest developments

• Phase 3 starting in 2013:• Length: 8-year trading period (2013-2020) • Central EU benchmarking-based allocation• Common auctioning platform• Single EU registry

• Auctioning - Backloading proposal• 2012 Carbon Market Report• Aviation – „stopping the clock“ for one year• Linking discussions with Switzerland

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EU ETS – Australian Carbon Pricing Mechanism Linking (1)

Agreed pathway towards linking•Partial link:

• Interim step (July 2015 until no later than July 2018)• AU businesses can use EUAs for compliance purposes (up

to 50% of their liabilities under the Carbon Pricing Mechanism)

•Two-way link:• No later than July 2018• Businesses can use carbon units from Australia or Europe

for compliance under either system.

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EU ETS – Australian CPM Linking (2)

EU: Commission to seek a negotiating mandate launched early

December 2012 for formal linking

Benefits of Linking

•Increases market liquidity and reduced price volatility

•Reduces costs of cutting emissions

•Supports global cooperation on climate change.

Climate Action

Size of EU ETS and AU CPM

Cap in Mio t

Year

AU cap not yet defined; used default cap from Clean Energy Act, section 17 & 18

Year AU Cap

EU Cap

2015 318 1964

2018 282 1852

2020 258 1777

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EU ETS Co-operation with China (1)

• Financing agreement for €5 million bilateral cooperation

between the Commission and NDRC

• project length – 3 years

• Signed in September at the EU-China Summit

• Focus:

• Capacity building

• ETS building blocks

• Work could start in spring 2013

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EU ETS Co-operation with China (2)

• Direct technical assistance to the 7 Chinese ETS Pilots

• Technical workshops in MRV conducted

• EU MRV ETS legislation translated into Chinese

• Workshops on the Power Sector, MRV and Registries in

Beijing 21-23 November

• Frequent visits by Chinese ETS pilots to Brussels

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EU ETS Co-operation with Korea

• Korean ETS to be launched in January 2015

• Frequent expert level discussions

• Monthly visits by Korean delegations

• Discussions focussed on:

• ETS architecture

• Benchmarking excercise and data collection

• Registry

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World Bank Partnership for Market Readiness

• Bringing together developing and developed countries• Building readiness for new and innovative market-based

instruments• Capacity building• Piloting

• 10 contributing participants (eg European Commission, Australia, USA)• Over 80 mln $ raised

• 15 implementing countries (eg China, India, Mexico, Brazil)Preparation phase funding 350 000 $ for each country

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A growing number of regions developing emission trading or cap-and-trade systems to deliver their 2020 pledge

Need to clarify rules to measure progress to Quantified economy-wide emission reductions targets pledged by Annex I countries

Key to develop robust market-based systems and clear accounting rules

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New Market Mechanism: objectives

• Scale up mitigation effort in developed and developing countries;

• Recognise own appropriate mitigation action by DCs; • Move away from pure offsetting approach;• Operate at broader scale than project-based approach;• Host country ownership, flexibility at choosing method of

implementation; • Reduce transaction costs

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New Market Mechanism – how would it work?

Many separate projects;No recognition of own contribution

Broad segment of economy;Own contribution: convenient and cost-effective mitigation opportunities

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International carbon market: EC vision for post-2012

• Link compatible domestic cap-and-trade systems to develop an OECD-wide market;

• New sectoral carbon market mechanism for (advanced) DCs as a step towards cap-and-trade systems;

• Reform and better focus CDM (focus on LDCs);

• EU remains strongly committed to the UNFCCC process;

• Progress with the New Market Mechanism in Doha?

Climate Action

Further information

EU ETS: http://ec.europa.eu/clima/policies/ets/index_en.htm