Embed Size (px)
DESCRIPTION
An overview of emissions trading (cap-and-trade), how it works and a focus on allocation of allowances. This presentation was given by Shell to a group of London media representatives on February 18th 2009.
Citation preview
Copyr
ight
: SI
PC
Emissions TradingEmissions TradingEmissions Trading in an energy &Emissions Trading in an energy &
climate change policy frameworkclimate change policy framework
•Where to use emissions tradingWhere to use emissions trading
•The key question - allocationThe key question - allocation
•Global considerationsGlobal considerations
David Hone Group Climate Change Adviser
. .Shell International B V
2
Oil Biomass Gas Coal Nuclear Renewables
Primary Energy
Liquids
Direct combustionIndustry and
Manufacturing
Mobility
Final Energy
Agriculture and Land
Use
Energy
En
erg
y
En
erg
y
Buildings
Power Generation
Key Sectors in the “energy and CO2 economy”
3
A structured policy approach is needed
A simple, high profile and credible target for the renewables’ share of power generation, supported by a range of incentives to encourage investment.
Measures to incentivise new fuels based on their “well-to-wheels” CO2 reduction potential,
implementation of vehicle efficiency standards and vehicle/road-use programs targeted at drivers
A series of robust energy standards for buildings, appliances etc. with incentives for retrofit of existing infrastructure.
"Cap and trade" emissions trading systems for power generators, most industrial facilities and large fleet transport such as aviation.
4
Emissions Trading or “Cap-and-trade”
Initial emissions100 Mt p.a.
Year 5 at 95
Year 15 at 80Year 10 at 88
Offsets
Allowance trading between facilities$ CO2
Government issues 88 million allowances into
the economy
CCS Project
Efficiency Project
5
Advantages of Emissions Trading
• It is designed to deliver an environmental outcome, in that the cap must be met.
• It will deliver its environmental objective at lowest cost to the economy.
• A national trading system can be linked with other such systems, delivering over time a global carbon market.
• It works. The trading system will deliver what it is asked to do.
6
The new flow of capital in the economy
CO2
Goods and services pass into the economy, with the price of CO2
embedded
Emitters buy allowances from the government through auction
Governmentrecycles auction
revenue to consumers through the tax system
7
The CO2 price and allocationPoints of regulation
Resource
Power Generation
FactoriesHeavy industry Light industry
Consumer
Electricity
Tim
e CO2 price impact
• Over time, the CO2 price will impact the entire value chain.
• The rate at which this happens varies considerably.
• It can be very fast for electricity.
• It will be very slow for some products where the price is established outside the capped market.
8
The CO2 price and allocationPoints of regulation
Resource
Power Generation
FactoriesHeavy industry Light industry
Consumer
Electricity
Tim
e CO2 price impactFree allocation early on as little / no price pass through
Progressive shift to auctioning as the CO2 price impacts the economy
Full auctioning as the CO2 price impacts the entire value chainAuction funds recycled to consumers through the tax system
9
External Projects (or offsets)
Emission reduction projects executed outside the capped sector can offer important benefits;
• An inflow of compliance units (credits) can offer further flexibility in meeting the cap.
• Access to external projects can act as an efficient cost control mechanism within the capped sector.
• Projects can help developing countries begin managing emissions.
• The flow of project credits can help build a global CO2 market.
All national emission trading systems should recognise the same global project mechanisms.
10
Going global !
Linkages develop between all systems and more systems appear
2000 2005 2010 2015 2020 2025
Danish-ETS
UK-ETSAustralian ETS
US National “cap-and-trade”
Norwegian ETS
EU-ETS
CDM
CDM evolves to includes sectors
Pre-Kyoto Kyoto Post 2012
Expanding EU-ETS
Japan technology standards
Linkage framework
New technology mechanisms evolve (e.g. for CCS)
China adopts CCS standard
New Zealand ETS
11
Evolution of the EU Cap
2005
2006
2007 20
0820
0920
10 2012
2013
2014 20
15 2016
2018 20
1920
2020
2120
1120
17
2180MtCO2pa
2083 actual in
2005 1964
Gradient – 1.74%
Phase II Phase IIIPhase I Start up Phase
1620-20%
-30%
Trend line continues
aiding predictability
Not to scale!
