Brewer - Stockholm - 12.12.2006 1

Uncertainty about Emission Rights and Energy Prices

- and Impact on Economic Growth

Thomas L. BrewerAssociate Professor, Georgetown University,

Washington DCand

Associate Fellow, Centre for European Policy Studies, Brussels

Brewer - Stockholm - 12.12.2006 2

Outline of Comments

Uncertainty and Transparency Issues about the Emissions Trading Scheme

Three Episodes

Current Situation

Offsetting Border Measures to Address Energy Price and Competitiveness Issues

Brewer - Stockholm - 12.12.2006 3

Three Episodes of Regulatory Uncertainty and Their Effects

on EUA Prices

• Spring 2004

• Spring 2006

• Autumn 2006

Brewer - Stockholm - 12.12.2006 4

EUA Prices:February 2003-June 2004

(From Point Carbon – used with permission)

Brewer - Stockholm - 12.12.2006 6

Price developments on the EU market: Nov. 05 – Oct. 06

29.20

30,40

9.25

8.95

12.50

21.65

15.05

32.85

17.9020,25

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

01/1

1/20

05

14/1

1/20

05

25/1

1/20

05

08/1

2/20

05

21/1

2/20

05

04/0

1/20

06

17/0

1/20

06

30/0

1/20

06

10/0

2/20

06

23/0

2/20

06

08/0

3/20

06

21/0

3/20

06

03/0

4/20

06

18/0

4/20

06

02/0

5/20

06

15/0

5/20

06

26/0

5/20

06

08/0

6/20

06

21/0

6/20

06

04/0

7/20

06

17/0

7/20

06

28/0

7/20

06

10/0

8/20

06

23/0

8/20

06

05/0

9/20

06

18/0

9/20

06

29/0

9/20

06

12/1

0/20

06

Pri

ce [

€/to

n]

Spot 2006 2007 2008

Brewer - Stockholm - 12.12.2006 8

Current Situation:Commission Decision of 29 November

• 10 proposed NAPs rejected by the Commission (including Sweden, Germany and UK)

• 6 not yet submitted (Austria, Czech Rep., Denmark, Hungary, Italy, Spain)

• 9 pending

Brewer - Stockholm - 12.12.2006 9

Specifics of Rejections

Germany: Reduce total from 482 mmt to 453.1 mmtInclude new power plants

UK: Inadequate list of plantsTotal allocations okay (246.2 mmt)

Sweden: Next slide

Brewer - Stockholm - 12.12.2006 10

Criteria Contravened by Swedish Plan

2. Allowances consistent with actual and projected progress toward fulfilling contribution to Community’s commitments in Decision 93/389/EEC

3. Allowances consistent with potential to reduce emissions

10. List of installations covered with quantities of allowances to be allocated to each one

12. JI/CDM limit: maximum percentage of total allowances to be CERs and ERUs

Brewer - Stockholm - 12.12.2006 13

Uncertainty

and/or

Transparency

Brewer - Stockholm - 12.12.2006 14

Transparency

Uncertainty

Brewer - Stockholm - 12.12.2006 15

Inevitable Uncertainty

and

Controllable Transparency

Brewer - Stockholm - 12.12.2006 16

Uncertainty Issues More Generally

Four Levels

1. Terms and implementation of members’ National Allocation Plans (NAPs)

2. Future EU allocation and other rules

3. Industry coverage

4. International interactions of ETS with other climate regulatory regimes …

and the trade regime

Brewer - Stockholm - 12.12.2006 17

International Competitiveness

Off-setting border measures on imports from ‘cheap energy’ non-Kyoto countries?

• EU Parliament resolution

• Commission position

• French government recent statement

Brewer - Stockholm - 12.12.2006 18

For further information…

“Business Perspectives on the EU Emissions Trading Scheme,” Climate Policy, 5 (2005): 137-144

“The WTO and the Kyoto Protocol: Interaction Issues,” Climate Policy, 4 (2004): 3-12

www.usclimatechange.com

brewert@georgetown.edu