1

ETS Phase III. 2013-2020 overview

2

1. Directive overview

Based on the internal text no. P6_TC1-COD(2008)0013

approved for first reading in Triloge

(the Comission, the Parliament and the Council)

2. Benchmark overview

3. APPE Board 16 March Telcon draft supporting documents and detailed agenda not available yet

3

The rules for determination

of the quantity of emission allowances • Community-wide quantity of emission allowances in 2013 will be

calculated:

E 2008 - community wide quantity of allowances issued in 2008 on the bases of NAPs approved by the Commission;

Enew – independently verified data of new sectors in ETS (to be published in 2010)

• Community-wide quantity of allowances will be reduced by 1,74%/an. from 2013:

E2014= E2013 x 0,9826

4

Emission allowances for companies• Community-wide quantity of allowances will be split into 2

categories:– For free allocation: for companies in sectors eligible for some

quantity of free allowances;– For auctioning: these will be split between Member States (MS)

according to a rule specified by the directive proposal.

• The Commission will adopt Community-wide and fully harmonised measures for allocating all allowances using benchmarks .This means that formulas to calculate the quantity of allowances for companies in different sectors will be elaborated (sectoral caps).

• Sectors will be split into 3 category:Power sector: 100% auctioning – no free allocation;Energy Intensive Industries (EII) exposed to international competition: 100%

of the allowances calculated on the bases of the “formula” of the Commission (point 4) will be allocated free;

Others: 80% of the allowances calculated on the bases of the “formula” of the Commission (point 4) will be allocated free in 2013, 20% should be obtained by auctioning, free allocation will linearly decreased to 30% by 2020.

5

Energy Intensive Industries exposed sector criteria At the latest by 31 December 2009 and every 5 years thereafter

the Commission shall determine the sectors or sub-sectors Products deserving free allocation of emission rights should

demonstrate the Carbon Leakage ratio: • CO2 footprint (kg) / per € of gross value added (GVA) exceeds a given threshold

(1 to 4) or that the ratio• CO2 costs (€)/ production costs or alternatively /gross value added exceeds 5%• Exposure cost criteria were determined assuming a CO2 cost of 30 €/ton

And meet the criteria:

Increase of costs

Non EU trade intensity

direct+indirect additional costs GVA

≥5%

and non EU Export+import

Total market size

≥10%

direct+indirect additional costs GVA

≥30%

or non EU Export+import

Total market size

≥30%

or

6

2006 2007 2008 2006 2007 2008Net product Sales 307 344 336 413 322 655 308 052 337 237 323 036Changes in own produced stocks -1 022 3 237 -4 165 -897 3 198 -4 205Cost of raw materials 202 082 228 794 234 594 202 082 229 188 234 594COGS 17 192 9 689 5 935 17 405 9 803 5 977

Gross product Margin (HUF bn) 87 048 101 167 77 960 87 668 101 443 78 259

Gross product Margin (000 €) 329 550 402 552 310 019 331 895 403 651 311 209

direct CO2 emission (with TVK Erőmű) (t) 1 328 695 1 376 962 1 311 883 1 328 695 1 376 962 1 311 883direct CO2 emission (w/o TVK Erőmű) (t) 1 157 483 1 203 751 1 132 731 1 157 483 1 203 751 1 132 731

CO2 cost w TVK Erőmű (000 €) 39 861 41 309 39 356 39 861 41 309 39 356CO2 cost w/o TVK Erőmű (000 €) 34 724 36 113 33 982 34 724 36 113 33 982CO2 cost w TVK Erőmű (%) 12,1% 10,3% 12,7% 12,0% 10,2% 12,6%CO2 cost w/o TVK Erőmű (%) 10,5% 9,0% 11,0% 10,5% 8,9% 10,9%

CO2 price (€/t) 30 30 30 30 30 30EUR/HUF 264 251 251 264 251 251

TVK Plc TVK Group

Carbon Leakage Ratio

7

Distribution of allowances for AUCTIONING between Member States

• 88 % according to the relative share of emission scheme of 2005

• 10% for solidarity and growth:states where income per capita is still significantly below the Community average and whose economies are in the process

• 2% the GHG emission in 2005 was min. 20% below Kioto Protokoll

• It shall be for Member States to determine the use of revenues generated from the auctioning of allowances. At least 50% of the revenues generated from the auctioning of allowances should be

used for given purposes.

8

Allowances ratio (national level)

Non exposed sectors

Exposed sectors:

Free allowances based on benchmark and emission reduction from 2013 -1,74% /year to 2020.

From 2027 no free allowances.

9

Legislative timeline

• Dec 2009 : Comission determines exposed sectors

• 2H2009-2010 Comitology procedure

Implementation questions debate with sectors and experts

CEFIC Advocacy

• June 2010 Rules of Auctioning

• December 2010 adoptation of implementing measures for allocating free allowances (i.e. benchmark methodology)

• 2011 Codession

10

Back stairs/uncertainity in legislation

• „Given that it anticipates a positive outcome to the COP 15 negotiations to be held in Copenhagen in 2009, the European Union should begin to prepare tougher emission reduction targets for 2020 and beyond and should seek to ensure that, after 2013, the Community scheme allows, if necessary, for more stringent emission caps, as part of the Union's contribution to a new international agreement.”

Increasing reduction target to 30% by 2020Revision of exposed sectors and free allocation

• Member States may also adopt financial measures in favour of sectors or sub-

sectors determined to be exposed to a significant risk of carbon leakage due to costs relating to greenhouse gas emissions passed on in electricity prices, in order to compensate for those costs and where this is in accordance with state aid rules applicable and to be adopted in this area.

• The list of exposed sectors may be supplemented after completion of a qualitative assessment, taking into account, the following criteria:

– the extent to which it is possible for individual installations in the sector and/or subsector concerned to reduce emission levels or electricity consumption,

– market characteristics (current and projected),– profit margins as potential indicator of long-run investment and/or relocation

decisions;

11

Benchmark principles

• In defining the principles for setting ex-ante benchmarks in individual sectors or sub-sectors, the starting point shall be the average performance of the 10% most efficient installations in a sector or sub-sector in the Community in the years 2007-2008. The Commission shall consult the relevant stakeholders, including the

sectors concerned • It is the base of calculating free allowances both for

sector and company

12

Energy Study Team benchmark work

• Cefic Energy Study Team created a CO2 benchmark questionnaire for olefin plants

• The benchmark analysis made by Solomon• Average of TOP4 olefin = free allocation choosing the best curve

for us• Review the questionnaire - especially the TOP4 (so good data) • endorse as the final method at the Board meeting of April 23• send out (a new) questionnaire – May 2009• It is necessary to develop a specific work plan to review the

questionnaire and run the official performance curve then verify data and results by third party. This should be finalized before end of 2009. The benchmark curve will be based on ALL installations presenting each train independently

• Benchmark must be made based on 2007-2008 data• Find common agreement on coverage of petrochemicals• EST discussed and proposed to broaden HVC to include raffinates,

isobutylene, cyclopentadiene, acetylene etc. The list should be developed (Europia and IEA)

13

Assumptions

CO2 Benchmark perimeters:• Cracker only:

– Furnace(s)– Separation– Other facilities– WHB (Waste Heat Boiler)

• Boiler / CHP (all heat producers): – Boilers – CHP (Combined Heat & Power) – only heating– Other heat sources

14

Benchmark analysis

• Based on 2007-2008 data• TOP4 2008 data is missing• Selected HVC (High Value Chemicals) as divisor• Selected direct emissions & direct + indirect

steam• CO2 cost is 30 Euro/ton (calculated with 300

HUF/EUR)

• Cracker exposed• Boiler not exposed

15

Perimeter

A1B1

A2B2

Cracker+Boiler+CHPDirekt kibocsátásDirekt +indirekt gőz

Cracker onlyDirekt kibocsátásDirekt +indirekt gőz

16

SPCSPC

TVK-1

TVK-1

TVK-2

TVK-2

17

TVK-1

TVK-2

TVK-1

TVK-2SPC

SPC

18

Petchem CO2 benchmark 2007(teljes site-ra vásárolt kvóta)

CO2 kibocsátás

(kton)TOP4 eredeti

fajlagosai alapján (kton)

TOP4 fajlagosainak

lineáris kivetítése (kton)

TOP4 eredeti fajlagosai

alapján (M Ft)

TOP4 fajlagosainak

lineáris kivetítése (M Ft)

A1 1 485 835 1 059 6484 4469B1 1 538 868 1 093 6548 4526

A2 1 715 893 1 143 7513 5261B2 1 768 783 1 127 8869 5773

Cracker+Boiler+CHPDirekt kibocsátásDirekt +indirekt gőz

Cracker onlyDirekt kibocsátásDirekt +indirekt gőz

2007 Petchem Ingyenes kvótaTényleges vásárolandó

kvótamennyiség

CO2 kibocsátás

(kton)TOP4 eredeti

fajlagosai alapján (kton)

TOP4 fajlagosainak

lineáris kivetítése (kton)

TOP4 eredeti fajlagosai

alapján (M Ft)

TOP4 fajlagosainak

lineáris kivetítése (M Ft)

A1 319 222 281 991 456B1 318 230 290 903 367

0 0 0A2 371 237 303 1206 608B2 370 208 299 1461 640

Cracker+Boiler+CHPDirekt kibocsátásDirekt +indirekt gőz

Cracker onlyDirekt kibocsátásDirekt +indirekt gőz

2007 SPC Olefin Ingyenes kvótaTényleges vásárolandó

kvótamennyiség

CO2 kibocsátás

(kton)TOP4 eredeti

fajlagosai alapján (kton)

TOP4 fajlagosainak

lineáris kivetítése (kton)

TOP4 eredeti fajlagosai

alapján (M Ft)

TOP4 fajlagosainak

lineáris kivetítése (M Ft)

A1 1 166 614 778 5494 4013B1 1 221 638 803 5645 4159

0 0 0A2 1 343 656 840 6307 4653B2 1 398 575 828 7408 5133

Cracker+Boiler+CHPDirekt kibocsátásDirekt +indirekt gőz

Cracker onlyDirekt kibocsátásDirekt +indirekt gőz

2007 TVK Olefin 1 + Olefin 2 Ingyenes kvótaTényleges vásárolandó

kvótamennyiség

19

Open issues of benchmark

• Perimeter

• The volume ( although fixed for 2013 – 2020 ) based on which period

• Decide of the reference year for HVC: – 3 best years of 2004-2008 – 1 best year of 2004-2008– Rolling average

20

Comitology timeline for benchmark settingPublication of the study (Ecofys) on benchmarking principles February 2009

Informal technical working group, 1st meeting 13 February 2009

Data collection and further work of consultants spring 2009

Stakeholder consultation 30 March 2009

Informal technical working group, 2nd meeting 17 April 2009

Stakeholder consultation (tbc) 27 April 2009

Stakeholder consultations (both "bilateral" and "multilateral" consultations with industry sectors and NGOs) Informal technical working groups

autumn 2009, spring 2010

Draft benchmarks spring 2010

Draft decision to Member States September 2010

Adoption December 2010

21

APPE Board Teleconference 16 Marchdraft agenda

• Object: to review the results of the benchmark analysisand the outcome of the ETS impact assessment (this lead to measurement of the risk of carbon leakage) – both above

• Aspects:• A) Scope of products covered by ETS and selection of products

eligible for free allocation of emissions with a benchmark and without benchmark

• B) Strategy to promote our method and to ensure the largest coverage of substances deemed to receive free allocation of emissions

• C) Adjustments needed in the benchmark methodology to cover the range of substances decided under A

• D) Main positions to advocate during comitology procedure• E) Next steps - timing - resources.

22

Scope of products covered by ETS

Base principles of the extension to Petrochemicals•Want to cover 100% of the petrochemicals emissions

•Avoid auctioning or non-ETS classification•Want to keep it simple

•Minimize benchmarks (like steamcrackers)•Use reference values where appropriate

•Trade simplicity/less accuracy versus auctioning cost alternative

•The definition of petrochemicals in the ETS directive :Production of bulk organic chemicals by cracking,reforming, partial or full oxidation or by similar process, with a production capacity exceeding 100 t/day

•What is the APPE definition (proposal to be made to the APPE board )APPE Petrochemicals are defined by the production of all products of steamcracker/PDH units and the associated chemicals and polymers based on those products which use a significant amount on a mole basis of one or more of the steamcracker/PHD products.•This means that the APPE petrochemicals are defined around the steamcracker/PDH units. (See next slide) •Currently 24 products have been identified under APPE Petrochemicals.

23

APPE definition of Petrochemicals

Ethylene(kT) 21.600

GVA:?CO2: Trade:

Polyethylene (kT) : 12.200

Ethylene-oxide (kT) : 2.800

EDC (kT) : 10.200 VCM (kT) : 10.200 PVC

MEG (kT) : 10.200

Propylene(kT) 10.900 (1)

Polypropylene (kT) : 9.400

Cumene (kT) : 3.000

Propylene-oxide (kT) : 2.300

Phenol (kT) : 2.300

Acetone (kT) : 1.500

Raw C4butadiene (kT) : 2.200

Butadiene-polymers

Benzene (kT) : 5.100Toluene (kt) : 2.100

Mix-xylene (kt) : 4.250P-xylene (kt) : 2.210

Cyclohexane (kT) : 1.050

EB/SM (kT) : 5.500 (2) PS

PTA/DMT(kT) : 2.800

Nitrobenzene/Aniline (kT) : 1.200

Polyesters

(1) Excluding propylene from refinery : 4.600 kTExcluding benzene ex-refinery ( 2.100 kT )

APPE PetrochemicalsChemicals

MDI PUR

TDI PUR

Caprolactam

Acrylonitrile

EPDM

Butanols ?Plastizers ?Melamine ?

2-ethylhexanol

1. Crackers/PDH2. Aromatics from

crackers3. Cyclohexane4. Aniline ( including

nitrobenzene)5. Para-Xylenes6. PTA/DMT7. Butadiene8. PE (LD,LL,HD)9. PP10. PS11. PVC12. EO13. MEG14. VCM ( including

EDC)15. Styrene (including

EB)16. Acrylonitrile17. Cumene18. Phenol19. Acetone20. Propylene oxide21. 2- Ethyl hexanol 22. PET23. Caprolactam24. EPDM

• Petrochemicals list

24

APPE Petrochemicals and Exposure (Nace codes link)Link of APPE petrochemicals with Nace code 3 & 4 level

Sector exposure needs to be proven at Nace code level 3 or 4 Scope of both is very broad and they cover a very high number of products

Estimate that more than 1000 products fall under Nace code 3 About 210 products fall under the petrochemicals Nace code 4 combination

It is understood that is is not needed that for all products falling under the chosen Nace codes, performance/reference values will need to be determined.

The Nace code 3 (= 241) is very well suitable for Chemicals. Only 3 out of 7 Nace code 4 subdivisions of “241” are needed for APPE petrochemicals coverage 2411 Industrial gases 2412 Dyes & pigments 2413 Other inorganic basic chemicals 2414 Other organic basic chemicals (200 products) 2415 Fertilizers and nitrogen compounds 2416 Plastics in primary forms (11 products) 2417 Synthetic rubber in primary forms (2 products)

APPE intended to determine the exposure criteria on Nace code 3 level only. It is understood that exposure and performance/reference value determination need to not be aligned. EST requests to perform exposure validation also at the 2414+2416+2417 level

APPEPETROCHEMICALS

25

Exposure perimeter is broader than performance perimeter No issue anticipated due to limited performance/reference value perimeter versus exposure

perimeter

Petrochemicals exposure determination perimeter

a. Code 3 = 241b. Code 4 = 2414+2416+2417

1. 2414 (203 subcodes present)1. 24.14.11.302. 24.14.11.403. 24.14.11.504. 24.14.11.655. 24.14.12.136. 24.24.12.237. 24.14.12.258. 24.14.13.439. 24.14.12.4510. 24.14.12.4711. 24.14.12.5012. 24.14.12.6013. 24.14.12.7014. 24.14.13.7115. 24.14.23.1016. 24.14.23.2017. 24.14.24.1518. 24.14.73.50

2. 2416 (11 subgroups present )1. 24.16.102. 24.16.203. 24.16.304. 24.16.405. 24.16.51

3. 2417 (2 subgroups present)1. 24.17.10.502. 24.17.10.90

Petrochemicals performance/reference values determination will related to following Nace codes

ESTPreferred exposure criteria

Since exposure and performance/reference perimeter are more aligned

26

APPENDIXES

27

Open/unclear issues for CEFIC 1.Art. Juristes-linguistes - Open/Unclear issue Comitology planned Codecision planned 3 Definition ‘new entrant': what is basis for ‘10% capacity

increase’? Definition ‘Combustion'? Definition ‘Electricity generator‘… produced electricity for sale to third parties?

Harmonised rules for the application of the definition of « new entrant ». By 31 Dec 2010 regulatory procedure with scrutiny.

4-7 IPPC permits are equivalent to requirement for ETS permits in some MS only Seek clarification for what is ‘significant change’.

9 What is ‘mid point’ (time or average of allowances)? As from 2020, where appropriate, review of the linear factor

9a The competent authority may notify a lower amount of emissions according to their emission reduction potential to Installations emitting greenhouse gases other than CO2. Why?

10a Principles for setting ex-ante benchmarks: the starting point shall be the average performance of the 10% most efficient installations in a sector or sub-sector in the Community in the years 2007-2008. Unclear interpretation. Free allocation for high efficiency cogeneration Unclear: free allocation for heating/cooling would start with 80% based on BM to go down to 30% in 2020 plus -1.74% reduction? - Plus possibly on top a correction factor? Perimeters of installations need definition (to include CHP)! ‘Exposed’ Indirect emitters Need to define: EU power mix (better: based on ‘marginal’ mix) Eligible due to only indirect ETS costs? Or also direct? What about new electricity from (chemical industry) waste gases?! ‘Exposed sectors’ criteria Trade intensity: National formula was used for EU: wrongfully includes double counting! What is ‘average carbon price’ in EC’s impact

Transitional Community-wide rules for harmonised free allocation (art. 10a.1). By 31 Dec 2010 regulatory procedure with scrutiny. Definition of exposed sectors on the basis of criteria (art. 10a.8). By 31 Dec 2009 and every 5 years, after discussion in the European Council, Regulatory procedure with scrutiny. Criteria for the selection of CCS projects (art. 10a.8). Regulatory procedure with scrutiny. Every year the Commission may add (sub)sectors to the list of exposed sectors (art. 10a.13). Regulatory procedure with scrutiny.

10a

28

Open/unclear issues for CEFIC 2.

Art. Juristes-linguistes - Open/Unclear issue Comitology planned Codecision planned 14 Regulation for the monitoring and reporting of emissions

(art. 14.1) By 31 Dec 2011 Regulatory procedure with scrutiny.

15 Regulation for the verification of emission reports, for accreditation and supervision of verifiers. By 31 Dec 2011 Regulatory procedure with scrutiny.

22 Amendments to Annexes with the exception of Annexes I, IIa and IIb. Regulatory procedure with scrutiny.

24 Approval of unilateral inclusion by a Member State of additional activities and gases on Annex I. Regulatory procedure with scrutiny. If needed Regulation on the monitoring of gases and activities not included in Annex I. Regulatory procedure with scrutiny.

24a Measures for issuing allowances for projects outside the Community Scheme. Regulatory procedure with scrutiny

28

Adjustments applicable upon the approval of a future international agreement on climate change (expected by June 2010). The Commission shall submit a legislative proposal to the European Parliament and to the Council amending the present directive.

29a Measures in the event of excessive price fluctuations (art. 29a). Management procedure.

Annex I

Accumulation rule Is this about installations also outside annex I? How can BM for small units or their accumulation be established (better grandfathering?)?