Revision of EU ETS for

Transcription

1 Revision of EU ETS for Cogen conference 23 March 2016

2 EU leaders guidance ETS revision proposal Difficult package agreement - finely crafted balance Environmental aspects: Targets: At least 40% domestic emission reductions; ETS: 43% Cap to decrease by 2.2 % from 2021 onwards Auction share shall not decline 57% Economic aspects Free allocation to continue, benchmarks to be updated, 2 carbon leakage groups, more flexible production data Financing aspects: Low-carbon funding mechanisms: Innovation fund million allowances Modernisation fund - around 310 million allowances Free allocation to power in lower income MS

3 Many roads lead to Rome Preserve consistent, coherent and harmonised set-up Maintain / strengthen innovation incentives Be implementable in due time to minimise uncertainty for industry Simple choices minimise administrative burden & avoid unnecessary red tape!

4 Environmental aspects

5 Cap & Linear reduction factor (LRF) LRF is an existing concept in ETS Directive LRF provides: Predictability Orderly functioning of carbon market Transparency Investment signal

6 Auction share ( ) De facto auction share already exists in phase 3 Use of carbon assets society (auctioned) vs. industry (free) Advantages of explicit auction share: No complex calculations Predictability Transparency

7 Auction revenue Since 2013 ETS delivers significant auction revenue MS decide what use the money is put to: 50 % should be used for climate and energy purposes Directive lists many purposes: energy efficiency, low-carbon transport etc. Proposal adds 3 items to this list: Indirect cost compensation Climate finance for vulnerable third countries Low-carbon skill formation for workforce Revenue expected to grow in the years to come 3.2 billion in 2014; 8.9 billion for

8 Economic aspects

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10 Free allocation formula Free allocation= benchmark value (CO2/t product) * production (t product) * carbon leakage factor * possible cross sectoral correction factor

11 Update of benchmark values Existing benchmark values derived from 2008 data => 22 years old in 2030 Update benchmark values twice for and for standard rates (0,5 % - 1 % - 1,5 % p.a.) Classification based on verified data The proposed approach reinforces innovation incentives is simple and predictable allows to decide major elements in the Directive

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13 Free allocation formula Free allocation= benchmark value (CO2/t product) * production (t product) * carbon leakage factor * possible cross sectoral correction factor

14 Better alignment with changing production More flexibility achieved by means of 1. Shorter allocation cycles Two 5-year allocation cycles: , Reduced time-lag between production and allocation 3. In-cycle adjustments for significant production level changes Symmetric approach Avoid unnecessary red tape Aligned data collection for benchmarks and production Flexible design of New Entrants Reserve (NER): Allocation for increased / decreased production comes from / goes back to NER

15 Phase 3 production and allocation

16 Commission proposal on production and allocation for phase 4

17 Free allocation formula Free allocation= benchmark value (CO2/t product) * production (t product) * carbon leakage factor * possible cross sectoral correction factor

18 Carbon leakage groups better focus Carbon leakage list valid for 10 years Evolution of current approach with two groups: High risk installations receive 100% Low risk installations receive 30% Build on existing criteria: trade & emission intensity ~50 major energy intensive sectors likely to keep high risk status = ~94% of emissions Qualitative assessment for borderline cases

19 Free allocation formula Free allocation= benchmark value (CO2/t product) * production (t product) * carbon leakage factor * possible cross sectoral correction factor

20 Need for a correction factor? Correction factor as a backstop provision remains, while need and size minimised by inter alia: Updating benchmark values twice in the period Eliminating choice and updating production figures used for allocation twice in the period Keeping carbon leakage list stable for 10 years Reducing number of sectors in high risk group Creating initial new entrants reserve with phase 3 unallocated allowances 21 April expert meeting to review analysis on need for correction factor

21 Indirect carbon cost compensation Relevant for power-intensive industry State aid guidelines in place for phase 3 Continued state aid approach in phase 4 with active encouragement to compensate Technical impediments to full/further harmonisation Lack of resources money or free allowances? Lack of information No single electricity market Key design choices in any compensation system: Eligible sectors currently 15 Degree of compensation currently degressive over time from 85% to 75%

22 Low-carbon funding mechanisms

23 Low carbon funding mechanisms

24 Innovation fund Support for low-carbon demonstration 400m allowances + 50m allowances from MSR, amount depending on carbon price For carbon capture and storage, innovative renewables New: also for low-carbon innovation in industrial sectors Increased maximum funding rate (60%) Possibility to receive funding when certain milestones are achieved

25 Modernisation fund 2% of ETS allowances ( 310 mio) Aim: modernise energy sector and energy efficiency For 10 lower income Member States with GDP per capita < 60% of EU average (2013) Distribution of funds among Member States agreed by European leaders Proposal sets out governance structure: Investment Board Management Committee

26 Free allocation to the power sector Continue existing provisions for 10 lower income Member States Limited quantity - up to 40% national auction budget Increased transparency: for investments as of 10Mio Member States to set up a competitive bidding process

27 Thank you! Visit DG Climate Action online: ec.europa.eu/ clima/ facebook.com/ EUClimateAction twitter.com/ EUClimateAction pinterest.com/ EUClimateAction youtube.com/ EUClimateAction