Emissions Trading Systems - Ecofys

IMPACT No 02 | 2012

IMPAC T EMISSIONS TRADING

China: Fighting climate change in Tianjin Designing a pilot emissions trading system

T aking EU ETS on the road Establishing a benchmarking methodology for Phase III

Gaining ground in North America California’s new cap-and-trade scheme

IMPACT No 02 | 2012

CONTENTS 03 Editorial 04 Fighting climate change in Tianjin: How Ecofys is helping Tianjin Climate Exchange design a pilot emissions trading system 06 Taking EU ETS on the road: Establishing a benchmarking Publisher

Chief editors & editorial office

ECOFYS

Yvonne Kettmann | Mariëlle Vosbeek

Kanaalweg 15-G | 3526 KL Utrecht | The Netherlands

[email protected]

T: +31 (0)30 662-3300 | F: +31 (0)30 662-3301 [email protected] | www.ecofys.com Managing directors Manon Janssen | Kees van der Leun

Kommunikation Ganswind Cologne, Germany www.kommunikation-ganswind.de

Bosbach Kommunikation & Design GmbH

Cologne, Germany | T: +49 (0)221 270 70-100

Cologne, Germany

London, UK | T: +44 (0)20 74230-970 Brussels, Belgium | T: +32 (0)25 881 267

08 Gaining ground in North America: California’s new cap-and-trade scheme

Layout & design

International offices

Berlin, Germany | T: +49 (0)30 29773579-0

methodology for Phase III

12 Emissions trading growing up

www.bosbach.de Printing

14 News & Market

OFFSET COMPANY Druckereigesellschaft mbH Wuppertal, Germany www.offset-company.de

Oregon, USA | T: +1 541 7668200

16 Developments & Facts

Subscription Beijing, China | T: +86 10 8405-3593

[email protected]

Editorial staff

References graphics and photographs

Alyssa Gilbert | [email protected]

© Ecofys – All rights reserved.

Christian Ellermann | [email protected]

Coverpage © shutterstock / testing

18 People

p. 7, © shutterstock / wavebreakmedia Paul Blinde | [email protected]

p. 9, © shutterstock / Arunas Gabalis

Lina Li | [email protected]

This journal was carefully produced in all its

Carlos Casanova-Allende | [email protected]

parts. Nevertheless, authors and publishers do not warrant the information contained therein to be free of errors. Readers are advised to keep in mind that statements, data, illustrations or other items may inadvertently be inaccurate. All rights reserved. No part of this issue may be reproduced in any form – photoprint, microfilm, or any other means – nor transmitted or translated without permission in writing of the publisher. Place of jurisdiction is Utrecht, The Netherlands.

2

printed by OFFSET COMPANY SCC-13

Myth and reality — ETS development in China China is taking increasingly bold steps in its environmental agenda. Concerns about energy security, rising environmental damage and pressure to maintain the country’s competitiveness are all pushing in one direction – a greener future. The 11th Five-Year Plan tested the waters and the 12th Five-Year Plan (2011 – 2015) demonstrates China’s ambition to be a leader in environmental policy formulation.

Christian Ellermann

Talking about carbon trading in China

and market observers can expect variation

Chief Representative, Ecofys China

used to mean talking about the

between the various systems.

Clean Development Mechanism (CDM). Now carbon trading means so much

The most common error made by keen

more. There is a domestic consensus

China observers is to be too optimistic,

that carbon should have a price,

assuming that the Chinese pilot programs

and increasing confidence that a

are going to be a game changer for E TS

marketbased tool can ensure carbon

worldwide. The fact is that ETS piloting in

savings are delivered at the lowest

China is still in its infancy. And while ETS

possible cost.

is out there being practised on the ground, carbon taxation is waiting in the wings.

Seven cities and provinces are setting up pilots to test emissions trading

The best is yet to come. Perhaps the

systems (ETS). Since 2010 the National

right attitude towards China’s ETS is to

and Local Development and Reform

remain moderately optimistic – and if

Commissions, exchanges, think tanks,

possible, to join in the learning-by-

research institutions and academics

doing journey and together pave the way

have been gearing up to deliver those

for a sustainable and prosperous carbon

pilots. Despite being quick off the mark,

market in China in future.

the deadlines are tight. The original expectation was to start trading within

Besides looking at developments in

each region by 2013 and trade at a cross-

China, this issue of IMPACT also focuses

regional or even national level by 2015.

on how California plans to mitigate the impact of climate change through

Though the prospect of Chinese ETS is

its own cap-and-trade scheme, and

attracting attention, the details of these

how Ecofys is helping to establish a

emissions trading systems remain hidden.

benchmarking methodology for Phase III

Yet it is these details that matter most.

of the EU Emissions Trading System.

The success or failure of the Chinese pilots

We hope you enjoy your read.

will influence the pace and prospects of a China-wide ETS and will be critical in informing the debate around carbon pricing in general. The pilots are already

Christian Ellermann

showing signs of genuine experimentation

Chief Representative, Ecofys China sustainable energy for everyone

3

IMPACT No 02 | 2012

Fighting climate change in Tianjin: How Ecofys is helping Tianjin Climate Exchange design a pilot emissions trading system As part of the 12th Five-Year Plan (2011 – 2015), China plans to launch seven emissions trading system (ETS) pilots in some of its biggest emitting cities and provinces – the municipalities of Beijing, Shanghai, Shenzhen, Tianjin and Chongqing, and the provinces of Guangdong and Hubei. This demonstrates China's firm will to tackle the environmental impact of its high-growth economy.

T

he Asian Development Bank (ADB) has given China a

“Ecofys is looking forward to working closely with Tianjin to build

grant to help launch a carbon market in the municipality

a solid carbon market," says Kornelis Blok from Ecofys. "For us

of Tianjin. This is the first major project commissioned by

this represents a significant and important project that will help

a large international donor that supports aspects of ETS development for one of the pilots in China.

China lead the way in building successful domestic emissions trading systems.” The team put together by Ecofys comprises some of the best-known and reputable domestic and international experts with ample experience working on ETS both in China and internationally. Some have supported the design of the EU ETS from the very beginning.

Providing strategic policy advice on overall TETS design The key experts from Ecofys, China’s Energy Research Institute, Tsinghua and other well-know organisations are providing Tianjin Pradeep Perera,

Prof. Kornelis Blok,

Asian Development Bank

Ecofys

with an in-depth review of existing and planned ETS around the world, as well as of domestic and international climate change policies. This review is also taking a close look at the impact these

“This pilot project will offer valuable lessons for the design of a nationwide scheme to reduce the carbon intensity of the Chinese

policies will have on Tianjin. The project will develop methods to calculate the cost of such policies to the Tianjin economy and

economy,” says Pradeep Perera, Principal Energy Specialist in

illustrate how emissions trading stacks up against policy options.

ADB’s East Asia Department. The project has the potential to bring

Some examples of the very challenging questions the project

about real change and impact the development of ETS pilots in

team is tackling are detailed here. Chinese policy thus far has

China. Lessons drawn from this project, as well as the expertise

used an intensity-based emissions reduction target, but how can

accumulated by domestic experts, will be used in the development

this be translated into an absolute emissions cap? Alternative

of China's nation-wide ETS.

approaches that will help a cap-and-trade scheme fit into an intensity -based paradigm are also being explored. Moreover, it is

4

Ecofys, the international energy and climate consultancy, has been

important to consider how the ETS will interact with other policies

commissioned to provide technical assistance to the Tianjin Climate

aimed at reducing carbon and energy intensity, such as energy

Exchange (TCX) in designing the Tianjin ETS (TETS) pilot, trading

savings targets, and the penalties already in place for industries

rules, the regulatory framework and the trading platform. Tianjin

that operate inefficiently. The sectoral coverage of the ETS needs

is looking for ambitious and comprehensive support covering most

to be determined – a decision that should consider many factors,

elements of the design of an ETS.

including the sector’s competitiveness, its ability to reduce

Tianjin City, China

emissions and preparedness of sector

other ETS in China would enable emission allowances to be traded across several

entities to participate in the ETS. Last but

ETS and increase market liquidity.

not least, once the design of the ETS has been established, it will be important to

Commissioning design of TETS trading platform and registry

understand what the cost of compliance

SFW Ltd, a UK-based international IT consultancy, is leading the information technology

is likely to be for participants, and how it

work necessary to establish a functional registry and safe and secure trading

may impact on the economy as a whole.

platform for TETS. The work will commence by drawing up the technical specifications

Answering these questions will touch upon

for the trading platform and registry, and then the team will provide support in the

many elements of climate change policy,

commissioning of contractors to deliver the actual trading platform and registry.

including abatement costs, carbon leakage and long-term low-carbon investments. People’s Republic of China

Designing trading rules and regulatory systems The TETS needs a strong legal basis and clearly defined responsibilities. To this end, the Ecofys team will make very practical suggestions that should help the market to function properly. Advice will, for example, cover institutional arrangements for market regulation, procedures for issuing emission allowances to ETS participants as well as monitoring, reporting and verification (MRV) procedures. The practical advice Ecofys will provide will also cover the allocation methodology to distribute free allowances, the eligibility of offsets in the ETS and the

> Population: 1.3 billion > Area: 9.6 million square kilometres > Regions: 23 provinces, five autonomous regions, four central administrative authorities and two special administrative areas > Total CO ² emissions: 7,711 million metric tons in 2010 (source: Energy Information Administration); this makes China the world‘s largest emitter (in absolute terms) > Total investment in renewable energy: $ 48 billion in 2010 (source: Bloomberg New Energy Finance) Targets under the 12th Five-Year Plan (2011 – 2015): > Non-fossil fuel to account for 11.4 % of primary energy consumption > Water consumption per unit of value-added industrial output to be cut by 30 % > Energy consumption per unit of GDP to be cut by 16 % > CO² emissions per unit of GDP to be cut by 17 % > Forest coverage rate to rise to 21.66 % and forest stock to increase by 600 million cubic metres > Carbon intensity to be reduced by 40 – 45 % by 2020

potential to link TETS to other markets, including voluntary ones. Links with sustainable energy for everyone

5

IMPACT No 02 | 2012

Taking EU ETS on the road: Establishing a benchmarking methodology for Phase III Ecofys, the international energy and climate consultancy, has played a major role in shaping the EU Emissions Trading System (EU ETS) – and particularly in the preparations for Phase III.

P

hases I and II of the EU ETS were characterised by a

for each installation would be simple. However, this was not

reliance on historical emissions as the basis for free

the case in practice. Even though the methodology appeared

allowance allocation to participants. Ecofys consultants

straightforward, a great deal of additional guidance was

worked with the European Commission to establish a

needed, e.g.:

credible benchmarking-based methodology for free allocation to participants in the years that followed. This was to prepare for Phase III of the EU ETS (2013 – 2020). For over two years

> Choice of methodology: What processes are actually

(2010 – 2012), Ecofys supported the EU-27 Member States in

covered by dedicated product benchmarks? When should

applying these methodologies in order to calculate the free

a fallback approach such as a heat or fuel-based

allocation of allowances for individual installations. Ecofys

benchmark be used?

consultant Paul Blinde, who led the project, recalls how

> Heat flows: How should you deal with heat flows that

extensive this process was: “We produced over 500 pages of

cross installation boundaries? Who should receive

guidance, delivered 17 workshops throughout Europe, and

the emission allowances for this heat? And what if heat

ran a telephone and e-mail helpdesk.”

flows to or from entities outside the EU ETS? How should you deal with heating networks featuring multiple heat

The allocation methodology used in Europe for the period 2013

suppliers and / or consumers? Of course, no approach should

to 2020 is based on benchmarks. Dedicated benchmarks had to

lead to an oversupply of free emission allowances, but at the

be developed for a number of manufacturing processes. These

same time it should not reduce the incentives for efficiency

benchmarks are based on output, e.g. tonnes of bricks. In total, there are just over 50 of these so-called product benchmarks

improvements through heat integration. > Waste gases: What should you do with waste gases

in relation to the EU ETS. For all other processes, and there are

generated in one process and combusted in another?

many, fallback approaches that tend to focus on energy input

> Changes: How should you deal with capacity extensions,

are applied.

capacity reductions, newcomers and closures? > Data collection: What data need to be collected from

The benchmarking allocation framework may seem simple,

which installation? What should you do if data are missing

and indeed some people expected that once the benchmarks

or inaccurate?

were set, determining the amount of free emission allowances

6

"We were very happy with the presentations from Ecofys at the workshop on free allocation. They offered a clear explanation of complex issues. I would recommend Ecofys for questions regarding the allocation of allowances. And we very much appreciated the way that Ecofys followed up on questions we put to the EU helpdesk." Matej GASPERIC Environmental Agency Republic of Slovenia

Since the Ecofys team worked on site in the countries, knowledge

and gratified by their valuable insights and the suggestions

could be directly transferred to those who were going to use

they have made," Paul Blinde says. "The writing of guidance

it. These local workshops revealed differences in organisation,

documents required us to be in touch almost daily with staff

culture, and the relationships between government and industry.

at the European Commission.”

Yet there were also definite similarities, as Paul Blinde points out: “Despite significant differences between countries, we

Once a month, progress was discussed in technical working

found that authorities were dealing with the same key questions

group meetings with representatives from national governments.

everywhere. For example: Has industry provided the right data? What should we do if data are missing or if there is a particular heat network?”

“These meetings provided excellent examples of how European policy can work in the environmental sphere," Paul Blinde adds. "We enjoyed being right at the heart of these negotiations. If 27 countries can agree on such complex issues under this kind

Needless to say, this work involved close interaction with

of time pressure, what can be achieved is surely only limited by

European and national authorities. “We were impressed

ambition."

"I would like to thank Ecofys so much for co-operation over the last few months and for all the effort that was put in towards development of Slovak NIMs. Ecofys provided us with valuable insights regarding the calculation of free allocation to installations in Slovakia. Their visit was more than helpful and I fully recommend Ecofys for questions regarding the allocation of allowances." Veronika Jaceková

"We very much appreciated the way that Ecofys followed up on the questions that we put to the EU helpdesk." Dr. Maria Martin Environmental Protection Agency Ireland

Ministry of Environment Slovak Republic

sustainable energy for everyone

7

IMPACT No 02 | 2012

Gaining ground in North America: California’s new cap-and-trade schemee The State of California aims to reduce its emissions of greenhouse gases to 1990 levels by 2020. This amounts to a 30 % reduction in the projected emissions for 2020. Ultimately, the goal is to achieve a reduction of 80 % by 2050.

T

he Californian government is

In addition, California has put into place

taking a long-term view. Emissions

a cap-and-trade program that currently

reductions will reduce the adverse

covers over 500 facilities. The program

effects of greenhouse gases on the global

includes three compliance periods in

climate, and will also reduce local risks.

which the covered entities need to

California’s real estate assets, economy,

balance emissions with allowances. The

water supply and biodiversity are all set

first of these periods starts on 1 January

to face serious risks as a result of climate

2013 and ends in December 2014. The

change impacts. Apart from reducing

second period will start in 2015 and end

risks, the plan promotes improved public

in 2017. The third period will start in 2018

health by reducing harmful pollution.

and end in 2020. The program initially covers industrial facilities, electricity

California aims to achieve emission

generators, electricity importers and

reduction goals through a range of

suppliers of carbon dioxide. With the

policies, some of which are described

start of the second compliance period

below:

in 2015, the program will also include

> Transportation: 30 % reduction in

suppliers of fuels. Only entities that

vehicle greenhouse gas emissions by

need to balance annual emissions above

2016; 10 % decrease in carbon intensive

a threshold of 25 kt CO2 are included

vehicle fuels through the low-carbon

automatically. Entities with emissions

fuel standard by 2020

below this threshold may apply to be

> Electricity and energy (including imports): Improved appliance efficiency

program will cover 85 % of California’s

standards and other aggressive energy

emissions. A certain number of

efficiency measures; 33 % renewables

allowances will be given to industry

by 2020, including solar roofs, solar hot

for free in its transition to low carbon

water heating and other measures

technology and to avoid both loss of

> Industry: Audit of the 45 largest

8

included via opt-in provisions. The

market share and new investments to

industrial sources to identify

regions with less stringent climate policy

greenhouse gas reduction opportunities

(so-called carbon leakage).

Emerging emissions trading systems around the world

A broad range of emissions trading systems (ETS), or proposed emissions trading systems, is emerging: > L aunched in 2009, the Regional Greenhouse Gas Initiative (RGGI) covers power generation emissions in 9 north-eastern states of the USA (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island and Vermont). > Quebec’s ETS, which will be launched in 2013, will seek to be linked to the Californian program; both are part of the Western Climate Initiative (WCI) which several Canadian provinces are still considering. > New Zealand’s mandatory ETS, the second of its kind in the world, began with the forestry sector in 2009, and the phased rollout will ensure all sectors are covered by 2015. > In 2010 Tokyo introduced Japan’s first ETS covering 1,340 emitters and accounting for 1 % of businesses in Tokyo but 40 % of all CO2 emissions in the city. > Australia's carbon tax, which was introduced in July 2012, will be transformed into an ETS in 2015. > South Korea is developing the details of its ETS, which has now been approved by Parliament. > Vietnam, Thailand and Mexico have all announced their intention to establish an ETS, although the nature of some of these schemes has yet to be confirmed. > China is moving forward with seven regional ETS pilots and thus building the basis for a nation-wide ETS (the municipalities of Beijing, Shanghai, Shenzhen, Tianjin and Chongqing, and the provinces of Guangdong and Hubei).


9

IMPACT No 02 | 2012

Developing benchmarks for distribution of emission allowances Ecofys is currently leading a consortium that is helping California to achieve its ambitious goals by advising its Air Resources Board (ARB). Over a period of 18 months, an international

The challenge of benchmarking in the refinery

consortium, which includes the University of California,

industry

Berkeley, will help the ARB to establish output-based benchmarks for the distribution of free emission allowances

Although all refineries process crude to make a broadly

to industrial activities. Ecofys also helped develop the output-

similar range of products (LPG, gasoline, kerosene,

based benchmarks used for free allocation in the EU Emissions

gasoil / diesel and fuels oils), they may produce these

Trading System (EU ETS). Distributing free allowances based

products in differing relative and absolute quantities,

on benchmarks rewards facilities that are more efficient or

and also differ in the types of process units and their

use cleaner fuels to reduce greenhouse gases relative to the

relative and absolute size. More complex refineries

benchmark.

are typically more capable of producing a higher share of lighter products. A specific product can be made

California's Cap-and-Trade Regulation defines product-based

in different ways with a resultant variety of carbon

benchmarks for 23 activities. Facilities that perform one or more

footprints. Consequently, a refinery's CO2 emissions

of these activities receive a certain number of allowances based

performance does not readily correlate with simple

on the relevant annual output (expressed in units of output

indicators such as crude throughput, product portfolio

per year) and the corresponding benchmark (expressed in

or the like, and a lower emissions intensity based on

allowances per unit of output), a cap adjustment factor and an

these indicators does not necessarily mean a higher

assistance factor. The number of allowances is updated each year

efficiency. This poses challenges in comparing the

to reflect changes in output, cap adjustment and the assistance

emissions efficiency of refineries. Other challenges

factor. For industrial activities not covered by a product-based

include:

benchmark, facilities receive a specific number of allowances

> Differences in the proportion of emissions from

based on steam and fuel consumption in an historical baseline

> Imports and exports of electricity and steam

units per year) and one or two energy-based benchmarks. Unlike

> Transfer of intermediate fractions from one refinery

the allowances distributed via product-based benchmarks, the number of allowances distributed via energy-based benchmarks

to another > Integration and overlap with the petrochemical

is calculated only once and not updated each year to reflect

industry (steam cracking, production of hydrogen

changes in output.

and synthesis gas, propylene and aromatics)

One of the main results of the Californian project will be output-based benchmarks for selected sectors, for which no such benchmarks currently exist (mainly food processing). A major part of the project focuses on the benchmarking approach for refineries in the period after 2015 (for more details see box).

10

on-site production of electricity

period (steam and / or fuel expressed in million British thermal

A major part of the project focuses on the benchmarking approach for refineries


11

IMPACT No 02 | 2012

Emissions Trading growing up You can say what you like about it, but emissions trading is here to stay. Policymakers the world over seem to love this marketbased approach, which was born out of a desire to reduce emissions as cost effectively as possible. As existing emissions trading systems (ETS) are expanded and refined, a whole new generation of systems is joining their ranks, and the momentum shows no signs of slowing down.

T

he largest ETS is the EU Emissions

But where does this confidence in

In the light of these challenges, the

Trading System (EU ETS), which

emissions trading come from, and is

arguments for an alternative to

commenced in 2005 and will enter

it really justified? If we look back at

emissions trading are becoming stronger.

its third trading period in 2013. This

the performance of these systems, we

Some argue that a carbon tax provides

ETS has evolved significantly since its

see a volatile market that has failed to

greater predictability, transparency

inception and also increased in terms

live up to its potential. Critics of the

and simplicity than an ETS, and allows

of scope and coverage by incorporating

EU ETS will point to market failures,

less room for perverse incentives and

new sectors (e.g. aviation) and green-

such as the over-allocation of free

exploitation by special interests.

house gases.

allowances in the early years, leading to initial windfall profits for some, and

Cap-and-trade schemes primarily aim

The EU ETS builds on the success of

ultimately to an allowance price close

to reduce emissions at the lowest overall

earlier smaller-scale trading systems

to zero. Despite tightening the cap

cost to industry. However, schemes can

such as the US cap-and-trade scheme

and revising the allocation process for

also be designed to create a long-

for sulphur emissions, known as the Acid

the second phase (2008 – 2012), the

term price signal to drive low carbon

Rain Program. Studies claim that this

global economic downturn has led to a

investment. With proper compliance

program reduced policy costs by up to

further lack of demand for allowances,

systems, a cap on emissions will, by

50 % compared to command-and-

dampening the intended impact of the

definition, guarantee a certain

control measures such as taxation. 1

EU ETS. Low prices resulting from caps

environmental outcome, achieving the

being set when industrial production

first objective mentioned above. However,

Many other newer cap-and-trade

and emissions were considerably higher

achieving the second objective has

schemes are now emerging. The

than they are today are currently a

proved more challenging. Carbon prices

announcement of a link between the

characteristic of almost all emissions

around the world have plummeted to

Australian scheme and EU ETS, and

trading systems.

new depths, mirroring the global reces-

the link planned between Quebec and

sion. For industry, the business case for

California are now demonstrating in

A further criticism of cap-and-trade

low carbon investment appears much less

practice that these smaller schemes

schemes centres around the potential for

urgent if predicted long-term carbon

could be the building blocks for a global

price manipulation and in extreme cases

prices drop from ¤ 100 / metric ton (mt)

carbon market.

fraud, all of which can undermine the

to ¤ 20 / mt.

environmental objectives of the scheme.

1 Acid Rain Program Benefits Exceed Expectations, US Environmental Protection Agency, http://www.epa.gov / capandtrade / documents / benefits.pdf

12

The reputation of the EU ETS took a

In cap and trade’s defence, it is unlikely

significant knock following proof of

that any policy measure can deliver

large-scale carousel frauds and the theft

two key objectives immediately. Both

of allowances from electronic accounts.

established systems and more recent

ones are learning from past mistakes

existing systems edge closer to maturity

the mechanism is not yet perfect, but it

to create tighter and more effective

the potential to link them to create a

does have the potential to make a real

instruments. Phase III of the EU ETS

truly global carbon market becomes

contribution to emissions reductions.

beginning in 2013 will tackle the most

greater, although this creates its own

Policymakers must continue to learn

significant problems so far, particularly

new set of challenges.

from experiences over the past ten years,

in relation to security.

and allow emissions trading systems Emissions trading is certainly growing

to adapt to external pressures. Having

As the mechanism moves into its next

up. Despite teething problems, it has

made it this far, the odds are that

stage of development, a new set of goals

become an integral tool in the battle to

emissions trading will make it further

and challenges must be addressed. As

mitigate climate change. It is clear that

still.


13

IMPACT No 02 | 2012

NEWS & MARKET EU: 252 million UN carbon credits forecast for 2012

no details of the structure or scope of the scheme were finalised. Possible approaches include bilateral offset schemes,

Participants in the EU Emissions Trading

or sectoral plans for action in cutting

System (ETS) are predicted to use over

emissions within global economic sectors

250 million UN-backed carbon credits

such as cement, power or shipping.

in 2012, an increase of 84 % on 2011. ETS

Discussions of the new mechanism will be

participants can let the carbon credits

a key point on the agenda of the 2012

count towards a percentage of their

UN Climate Conference in Qatar.

target instead of buying more expensive EU allowances or reducing emissions internally. This large increase is the result of new rules in the EU ETS from

Australian carbon pricing scheme introduced

2013, when many existing credits will no longer be eligible. So ETS participants

After years of debate, the Australian

are keen to use them while they are still

carbon pricing scheme is set to become

valid.

law following approval by Australia's Senate (upper house) and Parliament. The scheme began in July 2012 as a

New UN climate mechanism under discussion

carbon tax and from summer 2015 will become an emissions trading system. On 28 August 2012 the Australian and

14

Discussion continues over the design

EU governments announced that

of a new UN market-based climate

there would be a link between the

mechanism. The introduction of a new

EU Emissions Trading System and the

mechanism was agreed at the UN Climate

Australian scheme. Initially, there will

Conference in Durban in 2011, although

be a partial link, enabling Australian

participants to purchase EU emission allowances for compliance and, subject to an agreement between the Australian and EU governments, a two-way link will be in place by 2018 at the latest.

South Korea approves ETS In May 2012 South Korea's Parliament approved a long-delayed bill to start trading CO2 emissions in 2015. The legislation approved in May 2012 means South Korea will become one of the first Asian countries to implement a nationwide cap-and-trade scheme. The Bill was first introduced to Parliament in April 2011, but was delayed by strong objections from industry groups in the country. Shopping district in South Korea


15

IMPACT No 02 | 2012

DEVELOPMENTS & Facts Implementing ETS in industry

implemented within a relatively short

projects were supported by institutions

time. By outsourcing all relevant

such as the Danish Energy Agency, the

With the third trading period of

compliance issues such as monitoring

Dutch and German Environmental

the EU ETS starting in January 2013,

and reporting, application for free

Ministries, the German organisation for

companies are facing additional

allowances and communication with

international collaboration (GIZ) and the

implementation pressures. Ecofys, the

authorities, companies are able to

Inter-American Development Bank. In

international energy and climate

concentrate on their core business.

2007, all parties to the United Nations

consultancy recognised as a founding

Framework Convention of Climate Change

father of the European ETS, has been supporting energy-intensive companies

(UNFCCC) agreed on the concept of NAMAs

Supporting NAMA implementation

from various industries (power,

cooperation on climate change. NAMAs

cement, glass, paper, chemicals, iron

Ecofys recently supported pilot projects on

promise to serve as a bridge between

and steel) since 2005. The underlying

nationally appropriate mitigation actions

developed and developing countries,

legislation that has to be adopted is

(NAMAs) in various countries, including

following the principle of ‘common but

often very complex and has to be

Tunisia, Chile, Peru and Mexico. Those

differentiated responsibilities’.

Participatory Workshop, Ecofys

16

as a new instrument in international

Identifying carbon leakage risks

White certificate trading schemes

reporting and verification (MRV) of emissions is an essential part of any

Major changes in the allocation

Ecofys has supported the German and

emissions trading system, and is indeed

methodology for Phase III of the EU ETS

Swiss governments in assessing whether

crucial to many climate change policies.

(as of 2013) may have a significant impact

white certificates might be the right

The MRV requirements of the EU ETS

on the competitiveness of industry, as

approach in their particular policy

were important in delivering robust

a significant number of credits will no

contexts. Energy efficiency policies are

emissions information from industrial

longer be issued for free. This may even

very closely related to emissions trading

participants right from the start. Over

lead to relocation and hence cause

systems. The recently approved EU

time the MRV guidelines have been refined.

so-called carbon leakage, i.e. a shift in

Energy Efficiency Directive (EED) includes

production, and thus emissions, from

a so-called sector obligation on utilities

one region with a strict climate policy to

to deliver downstream energy efficiency

a different region with a less strict policy.

improvements. The EED also calls

Domestic offsetting

Recently, Ecofys supported a number of

upon EU governments to consider the

The Irish, Dutch and German govern-

European industries concerned about

applicability of such an obligation with

ments have hired Ecofys to look at the

their international competitiveness

the option of a tradable element, i.e. a

potential for different types of domestic

by evaluating their figures to identify

white certificate scheme.

offsetting schemes. Domestic offsetting

any possible carbon leakage risk. The

harnesses market-based mechanisms to

salt, ceramics, mineral wool, dairy and

deliver emissions reductions in sectors

processed potatoes industries made use of Ecofys expertise to demonstrate

Monitoring, reporting and verification

not covered by a capped trading scheme. The use of offsets from other regions is an important consideration in many

this risk to the European Commission. The respective companies may receive

Together with the Vienna-based

emissions trading systems, and offers

compensation for increased production

Environment Agency Austria and

an attractive opportunity to stimulate

costs if a structured, bottom-up review

PricewaterhouseCoopers (PwC), Ecofys

homegrown reductions.

of the emissions and financial profile of

recently updated the EU ETS Monitoring

the sector in question actually provides

and Reporting Regulation for the

evidence of such carbon leakage risks.

European Commission. Monitoring, sustainable energy for everyone

17

IMPACT No 02 | 2012

PEOPLE Alyssa Gilbert

Maarten Neelis

Martijn Overgaag

Alyssa Gilbert manages the Market-based

Maarten Neelis manages the recently

Martijn Overgaag is currently coordinating

Mechanisms unit at Ecofys. Alyssa has

established Industrial Processes unit at

projects in the potatoes, dairy and

been working in emissions trading for

Ecofys. After leading the Carbon Market

mineral wool industries. Before joining

nearly ten years with a focus on policy

Strategies unit for two years, he is now

Ecofys in 2008, he worked as a chemical

design elements of the EU ETS, including

focusing on supporting corporate clients

engineer in the chemical and brewing

the mid-term review, new entrant issues,

in the field of industrial energy efficiency

industries. His ambition in joining Ecofys

support in implementation (e.g. in

through monitoring or identifying

was to support industry in sustainability

Romania) and linking. The new issues she

energy-saving potentials in sectors such

transitions. With a clear focus on ETS,

is tackling include domestic offsetting in

as chemicals. He is also supporting public

his background allows him to assist

Europe and new market mechanisms. She

clients in designing and implementing

industries, industry associations and

is also now applying her EU ETS experience

energy and carbon policies for the

policymakers in developing and applying

to other regions, including the USA,

manufacturing sector.

methods that work.

China and other parts of Asia. The clients include the European Commission, the UK government and environment agencies.

Lina Li Lina Li joined the Chinese team of Ecofys to support development of the ETS business in China early in 2011. She holds a Master's degree from Peking University, where she majored in international environmental politics, and previously worked in various functions for multinational companies such as Shell, Bosch and Daimler. Her expertise includes climate and low carbon policy, ETS and carbon markets, and international climate negotiations.

18

Jan Martin Rhiemeier

Paul Blinde

Christian Ellermann

Jan-Martin Rhiemeier has led the

Paul Blinde is leading the consortium

Christian Ellermann was appointed

German-based team of the Industrial

developing benchmarks for the

Chief Representative of Ecofys in China

Processes unit at Ecofys since January 2012.

Californian cap-and-trade scheme for

in 2011. He majored in Chinese Studies

He is an expert on EU ETS implementation

the California Air Resources Board. Paul

and Economics in Germany, writing his

and his team supports energy-intensive

has been working on the development

graduate thesis on the CDM in China.

industries through their ample experience

and implementation of emissions

Christian joined Ecofys in 2006 and

in the field of monitoring and reporting

trading systems since 2008. For the

mainly worked on projects in the area of

of CO2 emissions. Since the start of the

European Commission he was involved

post-Kyoto climate change policy. These

EU ETS, his team has supported various

in establishing and implementing

projects often involved extensive work

clients from the power sector, the mineral

the rules for the allocation of free

on greenhouse gas data as well as the

industry, the chemical industry and the

allowances for the third trading period

design of mitigation mechanisms. Given

cement industry. As emissions trading

of the EU ETS (2013 – 2020). He also

his specific interest in Chinese energy and

systems emerge around the world, this

supported the design of the Swiss ETS

climate change policy, he is now building

knowledge is also being increasingly

and the pilot emissions trading project

up the Ecofys business in the Chinese

applied in global assignments outside

in Shanghai.

region, mainly working on domestic

Europe.

emissions trading systems and broader low carbon development topics. Noémie Klein Noémie Klein joined the Market-based Mechanisms team at Ecofys in September 2012. Noémie is an expert on carbon markets, international climate policies and climate change adaptation. Before joining Ecofys, she ran her own consultancy business in Hong Kong, advising multilateral organisations, governments and the private sector on climate change mitigation and adaptation. Before moving to Asia, Noémie worked for EcoSecurities in the UK where she managed the team providing technical and policy assistance for the development of carbon projects.


19
