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Emission Trading as an Instrument in European Climate Policy

This presentation provides an overview of emission trading as an instrument in European climate policy. It discusses the political context, international dimension, and community dimension of emission trading, as well as unresolved issues and relevant considerations. The presentation concludes by highlighting the challenges and merits of incorporating emission trading in the European climate policy mix.

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Emission Trading as an Instrument in European Climate Policy

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  1. Emission Trading as an Instrument in European Climate Policy Peter Zapfel, European Commission “Flexible Mechanisms for an Efficient Climate Policy” Stuttgart, July 1999

  2. Overview of presentation • The political context - international climate negotiations • The international dimension of ET • The Community dimension of ET • Conclusions

  3. The political contextWhere do we come from? • Kyoto Protocol of December 1997 - enabling provisions for international emission trading (IET) and two other flexible mechanisms (JI and CDM) • Buenos Aires Plan of Action of November 1998 - work plan for mechanisms and deadline for decisions set for CoP-6

  4. The political contextWhere do we go? • CoP-5 in October 1999 - attempt to work towards a negotiation text for rules on IET, JI and CDM • CoP-6 in late 2000 / early 2001 - decisions on the rules, modalities and guidelines for the mechanisms

  5. The international dimensionThe basics of IET IET market as laid out in Art. 17 could … • … potentially include up to 39 Protocol Parties (countries) • … cover a set of six greenhouse gases • … even include carbon sequestration, in addition to ‘positive’ emissions, all of which appears quite ambitious.

  6. The international dimensionUnresolved issues • Who should participate? • How to secure environmental effectiveness (emissions monitoring, permit accounting, liability and non-compliance)? • How to resolve potential conflicts between economic efficiency and environmental effectiveness (hot air, supplementarity, and transparency)?

  7. The international dimensionA classical trade-off • Cost-effectiveness considerations call for an IET market as broad and comprehensive as possible … • … while institutional and feasibility considerations limit the scope substantially and render such an approach quite challenging.

  8. The Community dimensionWhy look at it? • Emission trading is one of the potential elements of a policy mix for implementing the Community target. • First-hand experience gathered at home - e.g. with a pilot program - could be valuable in preparation of the international debate and decisions.

  9. The Community dimensionThe context The topic is evolving rapidly in and around the Community: • Danish electricity sector program • UK’s intention to run a pilot • upcoming Irish decision whether to pursue domestic trading • private-sector initiatives (BP and others)

  10. The Community dimensionThe response - Commission activities • COM (99) 230 - Preparing for Implementation of the Kyoto Protocol • Green Paper and wide stakeholder consultation on the Community dimension of emission trading in 2000 • supported in the run-up by a study on design options for ET

  11. The Community dimensionIdentifying relevant issues • At which level should the instrument be implemented (Community or Member State)? • At which stage in the (energy) economy (carbon-content or emissions-based)?

  12. The Community dimensionIdentifying relevant issues • Which gases and / or sectors to include? • How to set targets / allocate permits in the outset? • How to monitor (covered) emissions? • How to organise permit accounting?

  13. The Community dimensionIdentifying relevant issues • How to link the instrument with other policies and measures? • How to link the instrument with international flexible mechanisms? • What kind of enforcement measures / sanctions are necessary?

  14. Conclusions • The integration of emission trading as an element of the European climate policy mix constitutes a considerable challenge … • … which is worthwhile facing up to because of some of the inherent merits of emission trading (e.g. quantity certainty).

  15. For COM (99) 230 look at http://europa.eu.int/comm/ dg11/docum/index.htm

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