The Commission’s proposal for a revised ETS

Looking backward and forward

Jørgen Wettestad

IEEP seminar

Brussels, february 28 2008

Approach Mainly based on Jon B.Skjærseth and

Jørgen Wettestad, EU Emissions Trading – Initiation, Decision-making and Implementation, Ashgate 2008

Focus on four key ETS design characteristics– Centralization

– Sectoral coverage

– Method of allocation

– Links to Kyoto CDM/JI

Approach

What did the Commission initially want?– Preferences expressed in e.g. 2000 Green

Paper and 2001 ETS proposal

The present proposal for ETS post-2012 Will the Commission prevail - and why?

– Main expectation is smooth process? But things may happen..Cf. US Kyoto exit in 2001...

– Very probing and tentative. Comments very welcome!

Centralization What did the Commission initially want?

– Green Paper 2000: implicit plea for centralized setting of caps

The present proposal– Centralized setting of caps

Will the Commission prevail?– Probably.Quite amazing really, given the

strong initial decentralization drive...

– Pilot phase experiences; ’climate craze’ ...

– Opponents: Italy, Spain, Poland?

Sectoral coverage What did the Commission initially want?

– IPPC and LCP ’population’, focus on ’energy activities’

– Inclusion of chemical industry

Current proposal– Airlines already in 2012

– Inclusion of some chemical industry emissions (petrochemicals, production of ammonia..)

– Aluminium and CCS

Will the Commission prevail?– Probably? Exclusion of most chemical industry still

important to comfort Germany??

– Will the EP this time around seek and succeed in a further broadening? Or content with the contentious airline issue?..

Method of allocation

What did the Commission want?– Green Paper 2000: auctioning ’technically

preferable .. Free allocation no easy option

Current proposal– Full auctioning from 2013 for power sector

– In other sectors, gradual decrease of free allocation

– Except sectors particularly exposed to global competition (clarified 2010/11)

Method of allocation

Will the Commission prevail?– Probably?

– Power industry weakened due to windfall profits debate?

– Energy-intensive industries succeeded in lobbying of Commission?

– Parliament satisfied with the power sector approach?

Links to Kyoto CDM/JI What did the Commission want?

– Initially ambiguous/split here?

– Linking could enhance cost-effectiveness, but reduce incentives for EU-internal abatement

Current proposal– .A bit complex, and contingent on international

developments

– If no ’satisfactory global agreement’, then no new CDM/JI credits and stronger incentive to EU-internal abatement

– But what constitutes a ’satisfactory agreement’?

Links to Kyoto CDM/JI

Will the Commission prevail?– Possibly?

– Although tight CDM limits will hurt for climate policy struggling states such as Spain, Italy..

– And the Commission cut majority of proposed CDM/JI limits in NAP II process

– So potential for a ’rebellion’ here?

Concluding comments

Main impression: the Commission seems now set to achieve the centralised and auction-based ETS it initially sought

Is this then a grand tactical victory for the Commission?

Or is it sheer luck?– ’The climate craze’...

Concluding comments

Will this ’method/tactic’ be applied in the case of renewables trading?

Or decentralised pilot phase and NAPs necessary due to data uncertainty etc.?