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Recent Cap and Trade Programs: EU ETS and RGGI. Joe Kruger. Resources for the Future. Overview. Key features of the EU ETS Key features of the RGGI proposal Conclusions. Summary of the EU Trading System. Participants: 25 Member States (MS) Timing: Periods are 2005-2007 and 2008-2012

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recent cap and trade programs eu ets and rggi
Recent Cap and Trade Programs: EU ETS and RGGI

Joe Kruger

Resources for the Future

overview
Overview
  • Key features of the EU ETS
  • Key features of the RGGI proposal
  • Conclusions
summary of the eu trading system
Summary of the EU Trading System
  • Participants: 25 Member States (MS)
  • Timing: Periods are 2005-2007 and 2008-2012
  • Coverage:
    • Sectors:Energy activities (including electric power), iron & steel, minerals, pulp and paper
    • ~12,000 installations covering 46% of CO2 emissions
summary of the eu trading system cont
Summary of the EU Trading System (cont.)
  • Allowance Distribution
    • European Commission provides general guidelines on allocation
    • MS submit National Allocation Plans (NAPs) to Commission
    • Commission reviews 25 plans and can request changes
    • NAPs set both the cap level and allocation methodologies for each Member State
naps multiple decisions

Kyoto Target

Allocation to ETS

Allocation to Trading Sectors

Allocation to Installations

NAPs:Multiple Decisions
  • Decision #1: How much of Kyoto target will be in trading program?
  • Decision #2: What will be the allocations for each sector?
  • Decision #3: How will allowances be allocated to each installation?
national allocation plans naps criteria for eu ets
National Allocation Plans (NAPs) Criteria for EU ETS
  • Consistent with overall Kyoto target
    • Take into account
      • Proportion of emissions in capped sector
      • Other policies
      • Technical potential of activities within sector
      • Early action
      • Competition from non-EU countries
      • New entrants
  • May auction 5% in Phase I, 10% in Phase II
results of phase i allocation process
Results of Phase I Allocation Process
  • For Phase I, most Member States have
    • chosen 100% free allocation
    • allocated allowances using historical data from most recent years available
  • In general, electricity sector required to take most reductions
  • Commission reduced the caps of some Member States
  • Phase II NAPs due June 2006
summary of the eu trading system cont1
Summary of the EU Trading System (cont.)
  • Other Provisions
    • Banking: Restrictions in Phase I; but Member States must allow in Phase II
    • Project-level offsets: JI/CDM credits
    • Monitoring guidelines: Standardized but some discretion given to Member States
    • Registries: MS registries are linked
    • Excess emissions penalties:
      • € 40/ton CO2e in 1st Phase (2005-2007)
      • €100/ton CO2e in 2nd Phase (2008-2012)
regional ghg initiative rggi
Regional GHG Initiative (RGGI)
  • Regional cap and trade program proposed by Governor Pataki
  • Nine states in New England and Mid-Atlantic have joined
  • Status: Draft proposal released last week
summary of the rggi proposal
Summary of the RGGI Proposal
  • Coverage: Electric power sector, units over 25 MW (~500-600 units)
  • Cap and Timing:
    • Phase I (2009-2015) stabilize emissions at current levels
    • Phase II (2015-2020) 10% reduction from current levels
  • Apportionment to States:
    • Based on historic emissions, but also considers electricity consumption, population, expected new sources and other factors
summary of the rggi proposal continued
Summary of the RGGI Proposal(continued)
  • Allocation to Firms
    • Generally, decisions left to States (similar to NOx Budget Trading Program)
    • However,
      • States must propose that 20% of allowances be used for a “public benefits” purpose
      • States set aside 5% for a Strategic Carbon Fund to achieve additional emissions reduction outside the cap
summary of the rggi proposal continued1
Summary of the RGGI Proposal(continued)
  • Other Provisions
    • Unlimited banking
    • Compliance and enforcement provisions similar to SO2 and NOX programs
    • Offsets allowed, with some restrictions
    • Use of CDM and EU allowances if prices hit a certain level
    • Comprehensive review in 2015
conclusions
Conclusions
  • Both programs largely follow the SO2/NOx downstream model, but add some new twists
  • Transport sector not covered
  • Allocation processes are decentralized to meet political considerations of multiple jurisdictions
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