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Incentivizing CCS in the EU ETS and CDM: Best Practices for Climate Policy

Explore the role of CCS as an additional option in meeting emission caps, the challenges within the ETS market, and the potential of CDM in providing financial incentives for CCS projects. Learn about incentivization methods and regulatory challenges.

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Incentivizing CCS in the EU ETS and CDM: Best Practices for Climate Policy

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  1. CCS in the EU ETS and CDM Dr. E. Woerdman Associate Professor of Law and Economics & Mr. Anatole Boute PhD Researcher in Energy Law

  2. CCS in the EU ETS (E. Woerdman) • CCS is not a necessary instrument, but an additional option to meet the emission caps • Not policymakers, but the ETS market should determine when CCS becomes profitable • Policymakers should be restrictive in giving subsidies to CCS, also in the demo phase

  3. ETS is corner stone of EU climate policy • Effective (cap) and efficient (trade) • Reduces costs and increases options • CCS is an additional option • Reject measures that: • Inflate cap or reduce efficiency • Increase costs or reduce options

  4. Incentivize CCS by giving extra allowances? • Bad idea: leads to over-allocation or subsidizes a costly technology • Incentivize CCS by giving auction revenues? • Bad idea: underinvestment in cheaper reduction methods • Incentivize CCS by making it obligatory? • Bad idea: increases costs

  5. Incentivize CCS by imposing a carbon tax? • Bad idea: effectiveness uncertain • Incentivize CCS by subsidizing demo projects? • Good idea: attacks innovation market failure • Big warning: increases costs when industries lobby for too much money for too long

  6. II. CCS in the CDM (A. Boute) • The issue: • Huge storage potential in developing countries • Most future growth in GHG emissions • CDM could provide the required additional financial incentive for CCS projects

  7. The main regulatory challenge: Liability for emission releases Are rewards provided today for future emissions? • During crediting period: project emissions • After crediting period: temporary v. permanent CER; buyer v. host state liability.

  8. Assessment criteria: • Financial viability of CCS projects: market value of CERs; • Climate integrity: polluter pays (site selection); • Effectiveness: who controls the project?; • Administrative feasibility: weak capacity of developing countries; • Equity: developing countries to buy credits on carbon market?

  9. Potential outcome: Permanent credits with division of liability over 2 periods of time • Project participant: after injection; • Host country: transfer of liability after assessment of site; • CoP/MoP: storage site selection criteria; • UNFCCC: assist host country in site closure.

  10. Conclusion Woerdman: • Allowance price should and can determine when CCS becomes profitable • Conclusion Boute: • Division of liability would allow to reconcile financial viability with climate integrity of CCS projects

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