FEAD Conference Budapest, 30 September 2005 Waste and CO2 emissions trading

1. GhG and Waste FEAD Conference Budapest, 30 September 2005 Waste and CO2 emissions trading Ghislaine Hierso, FNADE

2. Greenhouse Gas Preamble Greenhouse effect: definition and challenges • The global warming phenomenon • The greenhouse effect is a natural phenomenon essential to life on earth • Human activity leads to increases in “greenhouse gas” emissions • This change in the atmosphere has an impact on climate control The risks for the coming decades are many • What can be done? • Containing the greenhouse effect should lead to halving global anthropogenic emissions • This means a fourfold reduction in emissions from the industrialized nations Revision of our development and energy consumption patterns

3. Greenhouse Gas Kyoto / Europe • Context and key dates – International and European • 1992: United Nations Framework Convention on Climate Change (March 1994) • 1997: Kyoto Protocol (effective: February 2005) • 2003: Directive 2003/87/EC concerning the GHG emission quota exchange system in the European Union or “Quota Directive” • 26.02.04 : Decision 2004/156/EC adoption of guidelines for the surveillance and declaration of GHG emissions • 1.01.05 : EU ETS opened for businesses. First trading period (2005-2007) • 16.02.05: The Kyoto Protocol goes into effect • 2006: Mid-term report on the EU ETS Directive • 2008-2012: 2nd trading period and 1st Kyoto commitment period • 2013-…: Post Kyoto? – Toward a 75% reduction in GHG

4. GhG Kyoto Protocol Objective on average in the period 2008-2012: globally – 5% compared with the 1990 emissions (COP3) Scope: Activities concerned : manufacturing industries (incl. energy), transport, service sector, agriculture and forestation 6 gases CO2, CH4, N2O, HFCs, PFCs and SF6 Scheme: A “trading market” facilitated by flexibility mechanisms fed by credits from “domestic” project actions, between countries having ratified the Protocol (122) • Clean Development Mechanism (CDM): projects that can be hosted by developing countries, which under the Protocol have no targets • Joint Implementation (JI): projects that can be undertaken in other industrialised countries with Kyoto targets

5. GhG Kyoto Protocol Europe The Union and its Member States ratified the Protocol in May 2002 2012/2008 objectives in %: Russia Decision to ratify taken in Nov. 2004, USA Refused to ratify but objective to reduce the country’s energy intensity by 18% Notable absentees: Australia. Important countries not in Annex 1 do not have any objective of emission reduction during the first period 2008-2012 : China, India, Indonesia. However, they have to prepare a national inventory of anthropogenic emission and to elaborate programs aiming at an attenuation of climatic changes

6. GhG Europe / Emission Trading System (ETS) The European Directive 2003/87allocates emission authorization in tCO2 • Establishes a system for the exchange of emission quotas effective January 1, 2005 • Sets the objectives per operator for the period 2005-2007, on the basis of the operator’s emissions in 2000/2001 (- 8%) • Passes down the country (Party) objectives to the level of operators • Reconciles the Kyoto objectives for each country and the European Community objectives

7. GhG Europe / ETS Scope: 12 000 industrial plants (representing half of EU emissions of CO2) Included sectors: electricity, iron, steel, glass, cement, pottery, bricks + Possible opt-in (article 24) • From 2008, MS can allow the inclusion of a sector/installation not listed in annex I • From 2005, MS can allow the inclusion of installations listed in annex I Excluded sectors: transport, waste management The installations concerned: Annex I of Directive L 275/42 of 10/25/03 Extensive interpretation by the Commission and Netherlands: All flame apparatus Interpretation by the UK, Germany and by most Member States: All boilers except equipment integrated in a process Initial restrictive interpretation by France abandoned in August 2004: “Limited field”: activities listed in Annex 1 and merchant production of energy Interpretation finally adopted by France in February 2005: “Extended field” to include combustion installations

8. GhG Europe / ETS Scheme: The “Quota” Directive is translated into NAPs in each European country.   The quotas are distributed by each Member State to the various eligible sectors of activity for the periods 2005-2007 (in accordance with their past emissions between 1997 and 2002), and then 2008-2012. The NAP defines the quotas allocated each year to the operators for a compliance period: - The allocations defined for the Parties (the Kyoto signatory countries) take into account the reduction targets. - The Parties must retain a reserve for new installations

9. GhG Europe / ETS Allocation of quotas to operators The quotas are assets exclusively shown in the form of a listing in the bearer’s account held in the national register • The opening of an account is a prerequisite to listing quotas allocated to an installation • For the first 3-year (“learning”) period: free allocation on the basis of an annual allocation of 1/3 of the quotas • The operator is required to return a quantity of quotas each year = real emissions checked. According to the Directive, those quotas still available after returns in 2008 can be cancelled and then converted into quotas for the period 2008-2012. Only France has opted for this carry-forward option. The carry-forward option will be open under the Directive to all Member States after 2012. • Non-compliance penalties: non-discharging financial penalties: 40 euros/ton in the first period (2005-2008) and 100 euros/ton in the second period 2008-2012

10. GhG Europe / ETS European Registers Poland(*) Spain(*) Germany Belgium France Luxembourg Portugal Czech Republic Slovakia TOTAL Seringas Total Greta system (UK) Other or undecided Total EU

11. GhG Kyoto system / ETS Project actions : There are 2 types of Kyoto projects and 1 type of European project • Kyoto projects : Objective of CDM/JI projects: Enable the transfer of the BAT and generate credits (CER, ERU) that can be used to meet the objectives of the countries in Annex 1. Contracts for sharing these credits will have to be drawn up The „linking“ European directive allows for the use of CDM credits for 2005 and JI credits for 2008 (possibly limit for use of these credits extended to the 2nd period (2008-2012) • European projects : Domestic projects are not considered for the moment. Undergoing amendment for 2008

12. GhG Kyoto system / ETS Quota market : - Early 2005 – trading around 8-10 €/t of CO2 ; 19 september 05 ≈ 22 euros/t - Europe should rein in the quantities allocated in the 2nd period (2008-2012) - Low importance of Clean Development Mechanism (CDP) in 1st period (2005-2007) – more important in 2nd period (2008-2012) - Transactions should pick up around 2007 (but factor in energy price trends which could boost the market) At least initially, the quota market should have very few takers. The potential buyers at present are mainly States, but the market is expected to develop. CDM price around 3 euros to 6 – 8 euros middle 2004 – middle 2005 Prices are discount compared to european prices (NAPs)

13. GhG Kyoto system / ETS Next european steps: Stakeholder consultation for the revision of the Directive: Survey untill sept. 15th 2005 Automn 05 : Strategy for climate change May 2006 : Projects of NAP 2008 – 2012 at the Commission Necessity to prepare 2nd NAP during the fourth quarter Commission report mid-2006: - Extension of scheme to other sectors (would require co-decision- hardly possible before 2012) - Effect of the scheme on competitiveness - Impact on electricity prices - Harmonisation of NAPs Wide review of the Directive difficult for 2008 (co-decision) Dec., 1st 2006 : NAP approbation by Commission January, 1st 2008 : begining of second period

14. GhG Kyoto system / ETS International context: July 28th, 05 : Asia Pacific Partnership on Clean Development and Climate between USA, Australia, China, India has been initiated in collaboration between six developed and developing countries to promote development and transfert of prectices and technologies. Nov. 28th, dec. 2nd 05 : COP11 at Montreal

15. GhG/EU/Quotas/Registers Kyoto First period Second period ? 2005 2007 2008 2012 2013 CER/MDP tCER/ CDM (re/deforestation) CREDITS Kyoto ? lCER/CDM long-term ERU/ JI “Domestic Projects” (?) (For sectors not covered by the quotas) Europe RMU/Parties (sequestration) Kyoto Linking EUA/CER/CDM QUOTAS ? Linking EAU/ERU/JI EUA/ Installations Learning phase EUA/AAU/Parties (basis 90)(Installations? Activity sectors?) Europe EUA Force majeure Source : ONYX / Veolia Environnement Kyoto

16. GhG Conclusion Current discussions: • Lack of definitions‘ clarity Ex : Combustion installations must be defined to harmonize european legislation • Extension of the scope for gases ( the 5 others gases of Kyoto protocol : CH4, N2O, HFCs, PFCs and SF6) • Should Small installations be covered ? • Inclusion of others sectors ? (waste, transport,...)

17. GhG Conclusion 5. Necessity to promote domestic project amendment Domestic projects provide the necessary incentive to implement greenhouse gas emission projects within Europe. It will give the necessary framework to achieve even greater emission reductions beyond any legal requirement The “domestic project” approach for sectors not covered by the quotas How to leverage a “good CDM or JI project in terms of its “climate” impact? Demonstrate that the project will reduce GHG emissions compared against a reference situation (New and Renewable Eenergy, energy efficiency, reforestation, etc.)

18. GhG Conclusions for waste sector Questions for waste sector : 1. Waste sector will not enter in the ETS before 2013 : but the decision for 2013 will be taken in 2006 Specificity of waste sector - Small GHG contributor - Our sector is very regulated - It consists mainly of small sites - We manage waste produced by other company or by the collectivity - Part of our emissions are diffuse - problem of historical Commission primary argument for not covering the waste industry was the difficulty to measure the emissions

19. GhG Conclusions for waste sector 2. Extension of the scope for CH4 CH4 is much more harmful for GhG emission. Waste sector can‘t be include without accounting CH4 • Who owns CO2 quotas associated to waste activities? 4. Cement work : If there is no „waste quotas“, why should another sector be in position to lay claim to trading the quotas derived from energy recovery or materials recovery ? 5. How will the avoided emissions be entered ? 6. Which marging of reduction technical approvement allow ?