Domestic Offsets under Article 24a of the EU ETS Directive

1. First experience with JIFrance perspectives Domestic Offsets under Article 24a of the EU ETS Directive Dimitar NikovCDM / JI project manager 1 March 2010, Brussels

2. Contents of the presentation • Domestic JI projects in France – current status • LoAs delivery process • Lessons learned • Article 24a of the EU ETS Directive • Questions to be answered 2

3. Overview of JI projects in France • JI announced in 2006, implemented under Track 1 in 2007, operational from 2008 - First ERUs in Europe • 10 methodologies approved (2 in the pipeline) • 2 projects approved and 17 new comers (12 under approval and 5 on their way) • reduction potential of approved projects: 5 to 10 MtCO2e • for new projects > 4 MtCO2e • Portfolio : • biomass energy : • bundled projects, • small amounts of ERUs, • strong potential (1st renewable energy in France with 10 Mtoe). • industrial gases : • bigger quantities of ERUs, • to be included into the EU ETS after 2012. • ongoing experiments : • analysis of methodology project aiming to reduce emissions in households on multiple levels (goes further than the Mexican “Smart use of energy project”, difficult to measure its potential and additionnality), • analysis of PoA PDD on car-sharing concept. 3

4. LoAs delivery process • Methodology approval (up to 3 months) : o baseline choice explained o additionnality demonstration guidelines o GHG reductions monitoring plan o terms of communicating the results of the monitoring plan to the ministry • Project approval (up to 2 months): o PDD: o methodology baseline explained o additionnality demonstration following national legislation “Arrêté du 2 mars 2007 pris pour l’application des articles 3 à 5 du décret n 2006-622 du 29 mai 2006…” (Annex 3) rules o recapitulative sheet with two scenarios (with/without ERUs), NRV, IRR o detailed monitoring plan (if there are doubts about the inclusion of the emissions in the national GHG inventory, the project developer must obtain the analysis of the National Reference Center on GHG emissions – CITEPA) o Preliminary determination report Finance ministry must give his assent to the approval • Delivering ERUs • o the first request of ERU comes along with a foreign LoA • General DNA/DFP missions : Coordination between national stakeholders willing to use Kyoto projects, improving the projects approval process, preparing the legislation for the post-2012 phase

5. Lessons learned from domestic JI • Despite the success of the tool in achieving additionnal emission reductions at less economic cost on a domestic emission restraint level, the JI is still difficult to access for small entities and several sectors as agriculture or transports. Typical problems identified : o still lengthy approval procedures • o domestic JI projects can only generate ERUs when backed by an investor party and a certain fraction of ERUs is being transferred to a registry of a country other than France o expensive determination, verification fees (high fixed costs) o bad post-2012 visibility • Solving the problems : • o improving the knowledge on JI projects by sharing experiences with other states • o evaluating the further potential of the tool by participating in different technical groups on water, energy and transports (example: European “optimodality” cercle). Still a lot place for agriculture • o learning by doing: setting benchmark approaches (ex. Nitrious acid) • There is room for improvement !

6. Article24a of the EU ETS Directive • The post-Kyoto uncertainty and its 3 scenarios : • Continue backing ERUs by AAUs • Create new JI like mechanism based on Article 24a • Do not continue at all • “[Implementing] measures for issuing allowances or credits in respect of projects administered by Member States that reduce greenhouse gas emissions not covered by the Community scheme may be adopted.” • No matter the scenario, if the JI concept is to continue to exist, it would need new, a lot simpler and more harmonized rules regarding additionnality determination and credits delivery Let’s consider the potential of Article 24a on an early stage of reflection o The Effort Sharing Decision of the EU Parliament and Council makes explicit reference to Article 24a offsetting tool o Such tool will tap into the emission reduction potential beyond the sectoral borders of cap and trade scope o When ERUs are always backed by real emission reductions, an AAU may be not. A new JI based tool may give confidence to the market.

7. Questions to be answered o Scope: Which type of projects should be put forward? o Governance: Until now decentralized decision making process. What about tomorrow? What place for the EU in the regulation? o Eligibility: Should project eligibility be harmonized on EU level or should each MS define its own rules? Harmonized Track 1 like approach may be implemented of JI continues o Timing: Implementing a tool depends on political appetite of all 27 EU MS during the Kyoto 2008-2012 phase o Additionnality: How to redefine it without losing it ? Is there still room for carbon price signals outside the ETS given plenty of incentives (feed in tariffs, energy taxation, renewable heat fund). How should JI be combined with existing policies and measures? Still too much uncertainties, need for further technical work

8. Thank you for your attention dimitar.nikov@developpement-durable.gouv.fr