Emissions Trading Scheme current status

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1 EU ETS Phase IV EU ETS Reform, Emissions Trading and Brexit Wynn s Hotel, Dublin. Dr. Maria Martin Senior Manager, ETU, Office of Environmental Sustainability

2 Emissions Trading Scheme current status EU ETS covers more than 11,000 power stations and industrial plants in 31 countries, as well as airlines. 102 stationary installations and 15 aircraft operators currently come within the scheme in Ireland million tco 2 reported by stationary installations for million tco 2 reported by aviation Operators for Free allocation (stationary and aviation) in 2017 est. value of 50.88M. Examples of Incumbents: Power generation (approx. 64% of stationary emissions in 2017) Cement industries, Aughinish Alumina and Food related (Glanbia, Kerry Ingredients, Nutricia Infant Nutrition, Lakeland Dairies) Ryanair, Aer Lingus, Stobart, City Jet, Norwegian, ASL

3 Auctioning EPA designated as the auctioneer in Ireland Monetary value of allowances auctioned in 2017 was about 53.6 million Revenue is channelled by Central Bank to DCCAE and then to central Government Funds Administration of the scheme is financed from this revenue but there is no hypothecation Currently no charges to operators for obtaining and revising permits compare other MS.

4 ETS Phase 3 ( ) -Features ETS Cap linear reduction factor of 1.74% to reach 1834 Mt in 2020 Auctioning = 57% of the cap; No free allocation to Powergen Free allocation is on a benchmark basis - reduces 80% to 30% by 2020 except for those deemed subject to carbon leakage Free allocation -subject to a Cross Sectoral Correction Factor to stay within overall cap Optional indirect costs compensation 300 million allowances in the new entrants reserve for cofinancing carbon capture and storage (CCS) and innovative renewable energy technologies

5 ETS Revision for Phase 4 ( ) -1 ETS Cap linear reduction factor to increase to 2.2% p.a. - Auctioning to remain at 57% in principle but reduced by up to 3% of the total quantity if CSCF applies Carbon leakage (CL) only for sectors at genuine risk CL principally assessed at NACE level but 8-digit level (PRODCOM) is possible see later slides from JH. Market Stability Reserve used to withdraw allowances from market and increase price of carbon. Comes into operation in 2019 but the rate of withdrawal will be doubled from 12% to 24% up to 2023 and from 2023 some cancelling of allowances in the reserve will be allowed.

6 ETS Revision for Phase 4 ( ) -2 Two allocation phases ( and ) Verified data on production activity, transfers of heat and gases, electricity production and emissions at sub-installation level for first allocation phase to cover will be submitted in first half of 2019 exact date to be decided MS submits data to CION by 30 September Benchmark reductions (CO 2 /tonne product or steam or useful heat) based on efficiency improvements in two bands giving effective reductions of 3% or 24% for the period with a further reduction in giving a 4% and 32% reduction v. current Benchmarks

7 Simplification/ reduction of admin burden Simplification of scope: MS may exclude installations emitting less than 2,500 t.p.a. MS may exclude reserve or back-up units which do not operate more than 300 hours per year in each of the three years inclusive Simplification of Monitoring and Reporting Regulation To reduce admin burden/clarify definitions/improve readability and enforceability/promote better use of IT/improve internal consistency within the Regulation. Due for publication by end of 2018.

8 ETS Revision for Phase 4 ( ) -3 Financing aspects Auction revenues should be used for indirect carbon cost compensation, in accordance with State Aid guidelines but MS should seek to use less than 25% of auction revenues and if exceed must report to CION the reasons for going above 25%. Innovation fund CCS, innovative renewable energy technologies and low carbon innovation in industry - environmentally safe Carbon Capture and Use (CCU). Modernisation Fund for energy sector in 10 lower GDP MS - also allowed to give free allocation to electricity producers

9 ETS Revision for Phase 4 ( ) -4 Timeframe to conclusion After more than 28 months of discussion agreement was reached on 08 December. Directive was published on 19 March Commission decisions to follow (by implementing or delegated acts) Carbon leakage list for Free allocation rules (basis for the data collection), Decision on the updated BM values Decision on the allocation changes based on production changes in Phase 4 List of incumbents and verified baseline data to be submitted by 30 September 2019

10 Timeline Free allocation Decisions Submission to CION by 30/9/19

11 ETS Aviation Regulation Regulation (EU) 2017/2392 Takes into account the new global market based mechanism adopted by ICAO - Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) - commences 2021 as a pilot, including EU. Continues reduced scope of EU ETS for aviation to Not clear how EU ETS will apply to aviation from 2021 given the implementation of CORSIA o Offsetting scheme not an emissions trading system o Domestic flights and small aircraft operators excluded o Commission stated that will use EU ETS to implement CORSIA

12 EU ETS Phase IV: Key Issues for Ireland During Negotiations Dr Jonathan Healy Environmental Economist 1/5/18 EU ETS Reform, Emissions Trading and Brexit Wynn s Hotel, Dublin 1

13 Irish Government s Input 3-year process of analysis, consultations, negotiations (trilogues) and bi-laterals with Commission Cross-Departmental work (DBEI & DCCAE) Stakeholder input (IBEC, IDIA, individual installations) Slide 13

14 Key Irish Concerns Carbon Leakage/ Article 10(b): 1. Ensuring sectors at genuine risk are covered 2. Ensuring all sectors continue to receive some free allocation Avoiding application of CSCF, as this penalises all sectors (including CL) and has competitiveness impacts Strengthening ETS fairly so that decarbonisation (industrial and powergen) is incentivised without CL risk Indirect costs: continue to be at the MS discretion Slide 14

15 Carbon Leakage EU Commission proposed major cull of CL sectors (150 --> 50) and continuation of 30% free allocation to non-cl sectors EU Parliament: No free allocation to sectors not on CL list Agreement: 30% free allocation to sectors not on CL list until Linear reduction from 2026 to 0% in 2030 Ireland successful in highlighting the need to recognise carbon leakage risks at product and sub-sector level Agreed text reflects the need to permit CL assessment of subsectors (NACE-6) and their products (NACE-8) at disaggregated quantitative and/or qualitative assessment This will benefit several exposed sectors, including Dairy Slide 15

16 Final CL Text to Be Transposed Slide 16

17 Slide 17

18 Qualitative & Disaggregated Quantitative CL Assessment Slide 18

19 What is the Impact of the Compromise? Gradual diminishing of the risk of the CSCF (as less pressure on the CL share), with more pressure on auctions to cover compliance needs Competitiveness impacts reduced as sectors not on the CL list will still constitute a small share of total ETS Many sectors will continue to be considered at high risk of carbon leakage and receive 100% of their benchmark as free allocation Strengthened ETS with appropriate signal to industry & powergen to decarbonise Slide 19

20 Slide 20

21 Phase IV Amendment Published in OJEU Slide 21

22 Further Info policies/ets/allowances_en Slide 22

23 Potential Opt-outs Art 27 Art 27 - Small installations: < 35 MW thermal input and < 25,000 CO 2 over preceding 3 years (e.g ). Subject to equivalent measures and on-going monitoring of CO 2 reintroduction if go above threshold of 25,000 tonnes in any one year (or install additional capacity to bring them above 35MW). Hospitals can also be excluded subject to equivalent measures Must be notified before 30 September 2019 and CION has 9 months to object

24 Potential Opt-outs Art 27a Article 27a micro installations Emissions < 2,500 tonnes CO 2 per year for 3 years prior to notification (e.g if notified in 2019 latest date would be 30 September 2019). On-going monitoring of CO 2 but no equivalent measures need to be notified to CION Reintroduction if go above threshold of 2,500 tonnes in any one year. The opt-out is made public. This opt-out can also be applied to reserve or back-up units operating < 300 hours per year per year for 3 years prior to notification.

25 Pros and Cons of Opt-outs Advantages Reduce admin burden on operators and EPA Possible cost savings in terms of verification costs and allowance costs Disadvantages Full carbon tax on fuel Increased emissions included in non-ets sector for Ireland. For those close to threshold or designed for emergency use could flip-flop in and out of the EU ETS depending on emissions or hours of use. Will need to continue CO 2 monitoring (except hospitals)

26 Other Discretionary Elements Indirect costs compensation Integration of GHG permit with IED licence Limited diversion of EUA s from auction for use to meet non- ETS targets applies to IE and 8 other MS. Modernisation fund not applicable to IE. Voluntary cancellation of allowances by Member States: in the event of closure of electricity generation capacity due to national policies, Member States may cancel allowances from their auction share to counteract the impact,