EU Climate Change Policy

1. EU Climate Change Policy Jürgen Lefevere International and Institutional Coordinator Climate, Ozone and Energy Unit Environment Directorate General European Commission, Brussels

2. Overview • The Commission’s Communication “Winning the Battle Against Global Climate Change” • The EU’s response to Climate Change • EU Emissions Trading (EU ETS) and its link with the Kyoto Mechanisms • “post-2012” – “post-Montreal”

3. The EU’s post-2012 strategy “Winning the Battle against Global Climate Change” 9 February 2005 • The Climate Challenge • Benefits & costs • The Participation Challenge • The Innovation Challenge • The Adaptation Challenge

4. The importance of the 2°C target 2°C

5. “Millions at Risk”

6. Approx. annual mean surface temperature distribution for a global increase of 2°C

7. The probability to reach the 2°C target

8. EU international climate policy: Winning the battle against climate change Five essential elements: • Build on Kyoto • Broaden participation • Include more sectors and all gases • Deploy and develop technologies • Adapt to the effects of residual climate change

9. 1st element: Build on Kyoto • Build a truly global carbon market • Emissions trading • Joint Implementation • Clean Development Mechanism • Clear rules for monitoring and reporting • Multi-lateral compliance regime

10. 2nd element: The top 25 ‘climate footprints’ Top 25 in Population Top 25 in GDP Netherlands, (Taiwan) Thailand Canada, S.Korea, Australia, S.Africa, Spain, Poland, Argentina USA, China, EU25, Russia, India, Japan, Germany, Brazil, UK, Italy, Mexico, France, Indonesia, Iran, Turkey Bangladesh, Nigeria, Viet Nam, Philippines, Ethiopia, Egypt, Congo Top 25 in Emissions Ukraine, Pakistan S. Arabia WRI/Pew Center; data for 2000

11. 2nd element: Common but differentiated responsibilities and respective capabilities Qualitative non-binding Partial not strict Lower Stage of development Business As Usual No-regret PAMs Sustainable Development (eg via CDM) SD-PAMs S-CDM Non-binding target(~> dual target) Sectoral target Relative emission ceiling Absolute emission ceiling + price ceiling Absolute emission ceilings Possible indicators: GNP per capita, CO2/Joule CO2 per capita Human Development Index Relative importance of sectors Quantitative binding All-inclusive strict Higher Stage of development

12. 3rd element: Include more sectors aviation maritime transport deforestation

13. Subsidise new technologies (e.g. guarantee demand, set standards, large scale demos, public-private partnerships for technology development, tax reductions) Emissions trading Level playing field (abolition of fuel subsidies, carbon taxes, feed in tariffs) Co-benefits (security of supply, rising oil prices) 4th element: Deploy and develop technologies! PUSH FACTORS PULL FACTORS

14. 4th element: Don’t miss near-term opportunities • EU: Build and refurbish 700 GW of electricity generation by 2030 (equal to current installed capacity). • China: 562 coal- fired plants -- nearly half the world's total – by 2013 • India: 213 coal-fired power plants by 2013 • United States is expected to build 72 until 2013 • $ 16 trillion investment into the world’s energy systems until 2030

15. 4th element: There is no silver bullet Emissions (Gt CO2)

16. 5th element:Adapt to the adverse effects of climate change • identify vulnerabilities • implement measures to increase resilience

17. No time to loose….Concrete steps: • Immediate and effective implementation of agreed policies (e.g. EU Energy Efficiency Initiative) • Increased public awareness • More and better focussed research • Stronger co-operation with 3rd countries • New phase of the European Climate Change Programme in 2005 (review, cars, aviation, carbon capture and storage, adaptation)

18. The EU’s response toClimate Change

19. Ratification on 31 May 2002 (Decision 2002/358/EC)The Bubble:

20. European Climate Change Programme (ECCP): main elements • Objectives • Identify and develop cost effective elements of EU strategy to meet our Kyoto target • Major Milestones • Launch March 2000 • May 2003 : second progress report • New phase started on 24 October 2005 (review, aviation, transport, adaptation and carbon capture and storage) • Major Achievements • Total reduction potential of identified measures: 578 - 696 Mt CO2eq./year = twice Kyoto ‘-8%’ • EU Measures currently “in implementation”: 276 - 316 Mt CO2eq./year

21. Domestic action:Recently adopted measures Cross-cutting issues • Directive on GHG emissions trading within the Community (Oct. 2003) • Linking project-based mechanisms to GHG emissions trading (Oct. 2004) • Decision for monitoring Community GHG emissions and for implementing the Kyoto Protocol (Feb. 2004) Energy • Directive on the promotion of renewable energy sources (Sept. 2001) • Directive on taxation of energy products (Oct. 2003) • Directive on energy performance of buildings (Jan. 2003) • Directive on the promotion of cogeneration (CHP) (Feb. 2004) Transport • Promotion of the use of bio-fuels for transport (May 2003)

22. Domestic action:Ongoing work…. Energy • Proposal for a framework directive on eco-efficiency requirements for energy-using products • Proposal for a Directive on energy end-use efficiency and energy services • Commission Green Paper on energy efficiency or doing more with less Transport • Proposal for improvements in infrastructure use and charging • Proposal on special tax arrangements for diesel fuel used for commercial purposes and on the alignment of excise duties on petrol and diesel fuel • Proposal for a regulation on the granting of Community financial assistance to improve the environmental performance of the freight transport system (Marco Polo I and II program) Products • Proposal for legislative action on fluorinated gases

23. Implementation challenge ahead:The EU’s projected progress Slide 3/96

24. Distance-to-target in 2010 (percentage points) for the EU-25, including Kyoto mechanisms Notes: Data exclude emissions and removals from land-use, land-use change and forestry. All EU-15 Member States provided projections assuming existing domestic policies and measures. Several countries provided projections with additional domestic policies and measures. For following Member States the additional effects of the use of Kyoto mechanisms is included: Austria, Belgium, Denmark, Finland, Ireland, Italy, Luxembourg, the Netherlands and Spain),. For EU-15 the effect of use of Kyoto mechanisms is calculated based on information from these nine countries. Projections for Poland cover only CO2 and N2O and include LULUCF. Projections for Spain cover only CO2. Projections for Cyprus and Malta are not available. Source: EEA, 2005

25. Use of Kyoto Mechanisms:Planned purchases by Member States(in addition to company use!) Almost 520 Million tonnes of CO2eq (2008-2012) Allocated resources thus far: 2.7 billion €

26. EU Emissions Trading

27. Why emissions trading? • It is a modern environmental policy: • It rightly places a greater emphasis upon cost-effectiveness and encouraging innovation • The larger the cuts, the more difficult to stick to “old style” regulation • The world is becoming a "global village" where companies compete internationally and are based themselves across different continents • Tackling a global environmental problem requires environmental policies which work in conjunction with these international markets

28. Cap and Trade Irrelevant where GHG are emitted! • Set overall target covering group of sources • Allocate allowances • Sources can choose: • Emit as allocated • Reduce emissions below allocation and sell or bank • Emit more than allocation and buy

29. EU ETS: scheme coverage • CO2 emissions from energy intensive industry above specific capacity thresholds (45 – 50 % of EU CO2 emissions) • 11,500 or more installations • electricity generators • heat & steam production • mineral oil refineries • ferrous metals: production & processing • cement, lime glass, bricks and ceramics • pulp & paper sector

30. EU Greenhouse Gas Emissions Trading Simple and transparent: • Subsidiarity – important role for Member States • Based on and linked to other Community legislation (Integrated Pollution and Prevention Control – IPPC Directive) • Starts with known large emitters, measurable emissions • Building blocks – easy to expand Lower costs & guaranteed environmental outcome

31. Key Instruments • Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/61/EC [Emissions Trading Directive] • Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004 amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms [Linking Directive, amending Emissions Trading Directive] • Commission Decision of 29 January 2004 establishing guidelines for the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC of the European Parliament and of the Council [Monitoring and Reporting Guidelines] • Commission Regulation of 21 December 2004 for a standardised and secured system of registries pursuant to Directive 2003/87/EC of the European Parliament and of the Council and Decision 280/2004/EC of the European Parliament and of the Council [Registries Regulation]

32. Key Terms • Activity (Annex I) • Installation (IPPC definition) • Installation means a stationary technical unit where one or more activities listed in Annex I are carried out and any other directly associated activities which have a technical connection with the activities carried out on that site and which could have an effect on emissions and pollution • Operator • Operator means any person who operates or controls and installation or, where this is provided for in national legislation, to whom decisive economic power over the technical functioning of the installation has been delegated • Activities in Annex I leading to GHG emissions cannot be undertaken unless the operator holds a permit • The operator must hold sufficient allowances to cover GHG emissions from installation

33. Timing & Coverage • 2005 – 2007 • 2008 – 2012 & subsequent 5-year periods • Initially limited to CO2 only • Large sources, mostly covered by IPPC (Annex I) (45% of EU CO2 emitting activities, around 11’500 installations) • Add in additional sectors/gases through: • Unilateral inclusion (below thresholds, new gases and activities) • amendments

34. Coverage

35. Allocation • By Member States, but: • National Allocation Plan (NAP) (total allocation and allocation methodology), draft by 31 March 2004 • 95% of allocation free of charge (90% after 2008) • Guidelines for Allocation in Annex III • Commission Allocation Guidance by 31 December 2003 (7 Jan 2004) – further guidance expected soon • State aid provisions • 3 month assessment of NAPs by Commission • Allocation 3 months before start of trading period • [Issue annually by 28 February]

36. The NAP decisions…. Last NAP approved on 20 June 2005 (Greece)

37. Monitoring, Verification, Compliance • Monitoring, Reporting: • Calculation, basic guidelines in Annex IV (Commission Decision of 29 January 2004) • Verification: • Basic guidelines in Annex V, Member States to decide on role authorities/private verifiers (voluntary coord?) • Compliance: • Member State competence, harmonized penalty (€40-100 + compensating for shortfall + “naming and shaming” ) • Existing EU compliance framework (Member State implementation – penalties for failure to do so)

38. The Registry System • Combined EU-UNFCCC registry system • EU allowances, AAUs, CERs (+ lCERs, tCERs), ERUs, RMUs • UNFCCC Independent Transaction Log • Community Independent Transaction Log http://europa.eu.int/comm/environment/ets/welcome.do • 26 National Registries Registries Regulation! • 18 Registries online thus far (10 February 2006)

39. Membership of the Trading Scheme • 25 EU Member States • Future Member States (Bulgaria, Romania, Turkey, Croatia) • EEA (Norway, Iceland, Liechtenstein) • Art 25: bilateral agreements with other regimes: • Switzerland, Canada, New Zealand, Japan…..

40. The Linking Directive • Direct use of JI and CDM credits by operators in the EU ETS to achieve compliance with their targets (1 CER or ERU = 1 EU Allowance) • CDM from 2005, JI from 2008 • All project credits, except Nuclear energy projects (up to 2012) and LULUCF projects (review in mid-2006 • From 2008 use limited to % of allocation of allowances to each installation

41. The result….

42. Carbon prices & traded volumes 3 February 2006EUA 2005 spot (€/tCO2)  €27.18 2005 total volume: 260 million allowances approx. 2005 market valuation: €5.4 billion Source: Point Carbon's Carbon Market Daily

43. Facts and figures • Close to 6.6 billion allowances will be allocated in 2005-2007 • Total asset value over € 140 billion • 1-3 million allowances traded daily • 14 national registries online, all expected to be operational by the end of 2005

44. The next steps….. • Commission issued additional allocation guidance on 22 December 2005 • Compliance: • Submission of verified emissions report by 31 March annually • Surrender of allowances by 30 April annually • New NAPs by 30 June 2006 • Commission Communication of 27 September 2005 “Reducing the Climate Change Impact of Aviation” (COM(2005) 459) • Review of ETS by 30 June 2006

45. What the review is about • Improve the functioning of the scheme based on practical implementation experience • Streamline current scheme … • More predictable allocation rules through • stable baseline years and/or • longer allocation period and/or • derive future allocation from past allocation • More harmonised approach to new entrants and closures, based on experience during 2005-07 period • Further harmonisation in the area of verification • …and expand to other sectors and gases, beyond aviation

46. Main results of the EU ETS stakeholder survey (McKinsey and Ecofys, 2nd half 2005) • EU ETS has an impact on corporate behaviour – all sectors price in value of allowances • Long-term topics have highest priority for all stakeholders • However no clear consensus – harmonise allocation, but how? • Companies vote for longer allocation periods (ten years or more) • Benchmarking seen as interesting alternative, however most companies think more than 3 benchmarks per sector are needed • More auctioning disliked by companies but favoured by other stakeholders • Wide consensus that scheme design changes should be brought in with sufficient lead-time

47. Action on Climate Change “post-2012”

48. COP President Stéphane Dion’s Three “I”sResults of Montreal (December 2005) • Implement: • Adopt the “Marrakech Accords” • Adopt the compliance regime • Improve • Strengthen the Clean Development Mechanism • Innovate • Start a dialogue on future action to tackle climate change both under the Convention and the Protocol

49. The results: Implementation • Adoption of the Marrakech Accords: the rulebook for the Kyoto Protocol adopted in full on Wednesday of the first week. • Adoption of the Compliance Decision: discussions on the Saudi proposal to amend the Kyoto Protocol started to be finalised by COP/MOP-3. • Five-year adaptation work programme: agreed full set of activities, including work to further enhance our knowledge on the impacts of and vulnerabilities to climate change and contains concrete measures to plan for adaptation and take adaptation measures. • Adaptation Fund: details on the Fund’s management will be elaborated during 2006

50. The results: Improvement • Strengthening the Clean Development Mechanism (CDM): clarification and strengthening of the CDM Executive Board’s executive and supervisory role. Parties pledged US$ 8,188,050 to the operation of the CDM (US$ 5 million from the EU, and US$ 890,000 from the Commission). • Carbon Capture and Storage (CCS): presentation special report on CCS by Intergovernmental Panel on Climate Change (IPCC). Follow-up workshops in May to disseminate its results and to consider role of CCS under the CDM. The inclusion of CCS in the CDM will be further considered at the next COP/MOP. • Kick-starting Joint Implementation (JI): JI institutions set up. Preparatory work done for the CDM can also be used for the approval of JI projects. EU pledged over US$ 700,000 (incl. US$ 250,000 from the Commission) to the JI Supervisory Committee, Canada pledged US$ 500,000.