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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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