Introduction of Emissions Trading to Ireland

1. Introduction of Emissions Trading to Ireland Dr. Ken Macken Programme Manager Emissions Trading Unit Joint Committee CMNR 29 June 2005

2. Kyoto Protocol • The Kyoto Protocol is an international agreement reached under the auspices of the UN (The UNFCCC – United Nations Framework Convention on Climate Change). The Protocol entered into force in February 2005. • There are currently six Greenhouse Gases recognised by the UNFCCC: • Carbon dioxide (CO2) - 66% as CO2 equivalents in 2003 • Methane (CH4 ) - 19% as CO2 equivalents in 2003 • Nitrous oxide (N2O) - 14% as CO2 equivalents in 2003 • Hydrofluorocarbons (HFCs) • Perfluorocarbons (PFCs) • Sulphur hexafluoride (SF6) • Under this Protocol, the EU has committed itself to reducing its greenhouse gases emissions by 8% from 1990 levels during the first Kyoto commitment period from 2008 to 2012. • Under a “Burden Sharing Agreement” in the EU, Ireland was permitted an increase of 13% on 1990 levels of emission.

3. Current position • Current position: Total emissions of GHG are around 67.5 Mt/a (2003) • Target (1990 +13%): Our target for total emissions is 61 Mt/a (average for 2008-12) • Reduction required: Around 6.5 Mt/a reduction on our current position

4. Mechanisms for Cost Effective Reductions • Project Mechanisms • Joint Implementation (JI) – from 2008 • Clean Developoment Mechanism (CDM) – from 2005 • Emissions Trading • Emissions trading started on 1st. January 2005 and covers the 25 Member States of the enlarged European Union. • The EU scheme is the first multi-national emissions trading scheme in the world • Phase one is the pilot period running from 1January 2005 to 1 January 2008. • Phase two is the first Kyoto period (2008-2012) when the EU scheme becomes part of the world wide UNFCCC scheme and extends to all Annex 1 countries. • Applies to CO2 only!!! (and not to any of the other five greenhouse gases). • Standard “Cap and Trade” scheme (though it will be the largest one in the world!). • Allowances are to be based on a NationalAllocation Plan. • At least 95% of allowances must be issued free of charge in Phase 1 (at least 90% in Phase 2). • Penalties have been set at €40/t for the Pilot Phase (€100/t for Phase 2) plus a roll-overpenalty in the following year.

5. Ireland • Structure • National Allocation Advisory Group to advise EPA • It comprises the Chief Executives (or senior nominees) from Forfas, CER, SEI and NTMA under an independent chairman. • The Director General of EPA is also a member. • Government decides total amount for Emissions Trading • EPA allocates this amount to sectors and installations • Method • Following extensive consultation, and on the advice of NAAG, EPA draws up a National Allocation Plan describing the basis for, and the actual allocations of, Greenhouse Gas Allowances (equivalent to an emission of 1 tonne of carbon dioxide) to each site coming within the scheme • The National Allocation Plan must receive approval from the EU Commission • Each site must obtain a GHG Permit from EPA in order to continue to operate • The Permit requires operators to record emissions and to submit allowances to cover each year’s operation

6. Process for First National Allocation Plan • July 2003 • Government assigned responsibilities to EPA – retained overall amount • Established National Allocation Advisory Group • Autumn 2003 • Consultants appointed by DEHLG and also by EPA • Two consultation workshops held • February 2004 • First public consultation on draft NAP • 31 March 2004 • Submit NAP to Commission • 7 July 2004 • Commission approval for Ireland’s NAP • Summer 2004 • Baseline verification underway • September 2004 • Second public consultation on NAP

7. Route to Final Allocations (Oct ‘04 – Mar ‘05) • Submissions reviewed by EPA and NAAG • Changes proposed to annual division of New Entrant set-aside • Non-EPA issues forwarded to Government • Finalised National Allocation Methodology forwarded to Commission – approval received dated 20/01/05. • Employed external consultant to advise on capacity issues in Cement&Lime sector • Sent National Allocation Methodology and Provisional Allocation Decision to all participants on 22/02/05 – one week to respond • EPA Board gives final consideration to remaining matters – Final Allocation Decision agreed 8 March 2005 and notified to participants and Commission.

8. Summary of Allocation Methodology • Pilot Phase allocation 66.96 Mt/3years (22.32 Mt/a) • This represents an estimated 97% of expected emissions (BAU). • At least 97% to be initially allocated free to installations permitted by 31/03/04. • Allocations at sector level first • Based on average historic emissions in 2002 and 2003 adjusted for National Energy Policy • Subsequently allocations to installations within each sector. • Based on average historic emissions in 2002 and 2003 or, where this is < 90% of the average of the emissions in the highest three years of 2000-2003, the average of the highest three years of 2000-2003 will be used. • Different basis for recently commenced installations. • Allocations for Known Planned Developments (KPDs) come from the relevant sector allocation • New Entrants to get 1 Mt free allocation for the three year period. • Also a CHP set aside (taken from the powergen sector) of nearly 0.5 Mt. • Auction of ~0.5 Mt to cover costs of operating the scheme. • No further allocations to installations deemed to have closed.

9. Final Allocation Decision – 8 March 2005

10. National Emissions & Target

11. Second National Allocation Plan (2008-12) • Deadline for Submission to EU 30th June 2006 • Final allocation decision to be taken by 31 December 2006 • Legal differences between NAP1 and NAP2 • Auction can be up to 10% of total allowances • No opt-outs • MS can (subject to Commission approval) opt-in any sectors and any of the other five GHGs • Limit to be set on use of JI/CDM under transposition of Linking Directive • Government to decide “Total” assigned to Emissions Trading • EPA to decide allocations to individual installations (and sectors) • Government may or may not give direction on set asides, closures etc. as before.

12. National Registry • Create allowances and Kyoto units • Track ownership • Track compliance with obligation to surrender • Track Member State’s obligations under the Protocol • The Registry is not a trading platform

13. National Registry (cont’d) • Software: • Built by DEFRA • 10 other countries using this system • State of art hosting environment • CITL is live: Denmark, Sweden, Finland, Netherlands, UK, Germany, France • Ireland passed all testing with CITL • Testing internal procedures and conducting audit • “Go-Live” in the coming weeks • All queries on registry to: etradmin@epa.ie