The European Union Emissions Trading Scheme: What can we expect?

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1 The European Union Emissions Trading Scheme: What can we expect? Anaïs Delbosc, Mission Climat of Caisse des Dépôts September 22, 20

Phase II outlook: 20 prices: EUA vs. Secondary CERs 35 30 25 20 15 10 5 0 juil.-05 août-05 sept.-05 oct.-05 nov.-05 déc.-05 janv.-06 35 30 25 20 15 10 juin-06 févr.-06 mars-06 avr.

2 Phase II outlook: 20 prices: EUA vs. Secondary CERs juil.-05 août-05 sept.-05 oct.-05 nov.-05 déc.-05 janv juin-06 févr.-06 mars-06 avr.-06 mai-06 Jan- Feb- Mar- Apr- May- Phase I price Jun- Jul- Phase II price Aug- CER index juil.-06 août-06 sept.-06 oct.-06 nov.-06 déc.-06 janv.- févr.- mars- avr.- mai- juin- juil.- août- sept.- oct.- nov.- déc.- janv.- févr.- mars- avr.- mai- juin- juil.- août- BlueNext Phase I EUA spot prices ECX EUA Dec - ECX Reuters CER Index DEC Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- EUA Déc. : 25,19 CER Index Déc. : 21,21 Jun- Jul- Aug- Source: Mission Climat of Caisse des Dépôts; data Point Carbon, BlueNext and ECX. Prix du quota européen à échéance Déc. - ECX Prix des CER à échéance Déc. - Indice Reuters

3 Phase II outlook: What could be the supply/demand balance? Verified emissions in 2006 Additional emissions in 20: - Bulgaria+Romania - UK installations opted-out in last Phase I Additional emissions in 20: - New sectors for 16 MS - EEE countries (Norway, Iceland, Liechtenstein) - Phase II NE Emissions total 2,062 Mt ~ Mt environ Mt -? + 54,7 Mt + 25 Mt? 2,200 Mt Allocations limited to ~ 2,100 Mt Expected minimum shortage: 100 Mt /y + airlines demand (~ 70 Mt/y in 2012) Source : Mission Climat - Club Tendances Carbone.

4 Phase II outlook: Assessing the risks for CER issuance (1) Before UNFCCC registration, the project validation: Very few rejected project at validation after approbation Success rate varies among country: Intermediate or high for most countries E.g. China: no rejected project among 1,253 in development After UNFCCC registration, the CER delivery: A methodology risk-assessment 75% of expected CERs are delivered on average More than 100% for HFC/N 2 O 60-80% for energy projects ~50% for industrial (cement, steel), agricultural and transportation projects

5 Phase II outlook: Assessing the risks for CER issuance (2) 120% 100% 80% 60% , ,498 Number of projects in development 40% 20% ,8 0 2,022 Mt 14 Expected CER until 2012 (Mt) 0% Source : Mission Climat of Caisse des Dépôts from CDM pipeline, UNEP Risoe, June 20.

6 Phase II outlook: Assessing the CER imports in the EU ETS ~2 bn CER issued by 2012 But, delays in issuance may reduce the available volume to 1.4 bn Estimated number of CER used for Kyoto compliance: 0.3 bn it may not be possible to use the 1.4 bn EU ETS ceiling for CERs in Phase II

7 Current negotiations for the future EU ETS Sharing the carbon constraint Among sectors: EU ETS vs others Among Member States The allocation choices Environmental and economic efficiency Keeping a reasonable level of flexibility through international credits through new mechanisms

8 Sharing the burden: Emissions cap for EU ETS and non EU ETS sectors Mt CO 2 e EU ETS Non EU ETS Total , , , , targets 1, , , % scénario 2020 allocation (in % of 2005 emissions) -21% -9% -14% -30% scénario 2020 targets 1 374, , , allocation (in % of 2005 emissions) -37% -16% -25% Source : Mission Climat - Club Tendances Carbone.

9 Allocation choices: Balancing environment, economy and policy Harmonization needed Auctioning should favor environmental goals revenue recycling? contradiction with national auctioning The question of competitiveness losses How to assess it? Solutions: free allocation, BTA

10 Flexible mechanisms: Integrating non trading sectors? Restriction on the use of CER/ERUs Conservation of projects mechanisms: at the international level at the European level through domestic offset projects A way to use the carbon price signal in other sectors First experiences in the EU in phase II through JI projects Not only in newer MS but also in Germany and France for example

11 Prix de la tonne de CO 2 ( ) Upward expected impacts on Phase II EUAs ,9 /t 45,7 /t 38,9 /t ,1 /t 32,1 /t 25 23,3 /t janv.-05 janv.-06 janv.- janv.- janv.-09 janv.-10 janv.-11 janv.-12 janv.-13 ECX Futures Dec Moyenne Moyenne - Ecart type Moyenne + Ecart type Source : Mission Climat - Club Tendances Carbone.

12 Thank you for your attention Anaïs Delbosc, Mission Climat of Caisse des Dépôts Mission Climat publications Club Tendances Carbone, Association for the Promotion of Research in Carbon Economics (APREC),

GAMINGRE 8/1/ of 7

GAMINGRE 8/1/ of 7 FYE 09/30/92 JULY 92 0.00 254,550.00 0.00 0 0 0 0 0 0 0 0 0 254,550.00 0.00 0.00 0.00 0.00 254,550.00 AUG 10,616,710.31 5,299.95 845,656.83 84,565.68 61,084.86 23,480.82 339,734.73 135,893.89 67,946.95