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Overview of EU offset provisions

Learn about EU's offset provisions and the need for emission reductions globally through domestic measures, sectoral market mechanisms, and the transition of carbon markets. Explore key strategies and challenges.

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Overview of EU offset provisions

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  1. Overview of EU offset provisions Thomas.Bernheim@ec.europa.eu Unit B3 – International carbon market, aviation and maritime DG Climate Action European Commission

  2. Significant emission reductions need to be made globally EU objective: 80 to 95% reductions largely through domestic measures: • around -80% internal reductions in 2050 compared to 1990 Developed Countries: similar effort Developing Countries: • -5% compared to 1990 • Equivalent to -80% compared to business as usual 2 All sectors need to contribute (or other countries/ sectors do more)

  3. “Offsetting” alone cannot solve climate change threat If EU and other industrialised countries stop all emissions Global emission path fitting 2°C scenario

  4. Move to new (sectoral) market mechanisms • CDM was successful to help countries meet Kyototargets, generate financial flows to DCs, engage private business and for DCs to learn about carbon market and setting up an infrastructure, • But CDM also: • Suffers from methodological problems that complicate the assessment of additionality and the exact quantity of emission reductions • May create disincentive for own action in emerging economies • Cannot generate required scale of international reductions and carbon finance flows to DCs. High Level Group on Climate Change Finance estimated that $30 – $50 Bln annually could be generated through a broader and deeper carbon market. • Sectoral market mechanisms would: • offer a more comprehensive price signal that also stimulates domestic climate policy action in DCs across broad segments of the economy, through a crediting threshold to reflect own action by the country and so net benefits to the atmosphere. • Avoid cumbersone and subjective project-based additionality testing

  5. Bilaterally linked cap and trade Relative share of global emissions Emissions not covered by cap and trade Sectoral crediting applied Reformed CDM TIME A vision: carbon market transition Means • Through UNFCCCsupply-side where possible • Through EU demand-side where necessary • Increasing focus on LDCs • Strengthen governance • Strengthen environmental integrity

  6. Progress at UNFCCC supply-side CDM EB • Many efforts undertaken to improve objectivity and transparency, incl. • furtherclarifications of additionality tool (investment analysis guidelines, FOIK and CP) • development of alternatives to the additionality tool (standardised baselines) • modalities and procedures for direct communication • etc. Cancun outcome and prospects for Durban • Cancun decision to consider establishment of new market mechanisms in Durban • Two lines of action emerging for decision in Durban (agreement that both are needed): • establishment of specific market mechanism (sect crediting and trading) • general framework for Parties to develop and use market mechanisms • African group, China, Ecuador stating explicit conditions for establishing new market mechanisms, e.g. KP2

  7. EU demand-side: More selective use of credits Provisions in EU ETS • CDM projects registered prior to 2013 can continue to generate eligible credits • Credits from CDM projects registered after 2012 can only come from LDCs • No ERUs after 2012 without new QELROs • Exceptions: • Provision to restrict use of specific credits from project types decided in CCC with scrutiny by Council and European Parliament • Provisions for bi- or multilateral agreements for supply of credits (sectoral credits) if no international agreement concluded by Dec 2009 • Provisions for Community projects • If there is an international agreement • only credits from projects in thirdcountries that have ratified agreement • types of credits agreed will be subject to a common EU approach

  8. More selective use of credits:Use restrictions Projects should bring real emission reductions, benefit SD and have no significant adverse social and environmental impacts Ban on HFC23 and adipic N2O motivated by project-type specific economic and environmental concerns together with strategic considerations Only valid for EU ETS operators, but under the Effort Sharing decision Governments should justify use of any banned credits. MS use of credits under ESD is also meant to enhance achievement of international agreement (art 6) No new proposals for restrictions planned at present, but Commission needs to have an instrument available to act when integrity is at stake

  9. More selective use of credits:Bi- or multilateral agreements Intentions Focus on sectoral crediting to help eliminate technical and political barriers to making progress in UNFCCC on the introduction of new mechanisms. Challenges Setting up administrative and procedural frameworks in DCs Make them attractive for DCs i.e provide sufficient demand through higher targets and more selective use of credits. Need for piloting sectoral crediting in order to crystallize the challenges and practicalities of implementation. Participation in theWorld Bank Partnership on Market Readiness Fund is instrumental to facilitate the designing of robust pilots and finding interested partners.

  10. Community projectsProvisions under art 24(a) Allows to issue allowances or credits for projects in reducing non-ETS emissions, for use in ETS or ESD Implementing measures may be adopted via comitology No double counting and no impediment to policy measures (not trivial) MS has to agree to projects (affect ESD compliance) Hierarchy in the Directive 1st best harmonised extension of the scope of the EU ETS 2nd best – unilateral extension of the scope of the EU ETS 3rd best – Community offsets obligation to consider 1st best route for activity with Community projects in the subsequent EU ETS review

  11. Community projectsCritical mass of opportunities? Current cap Due to recession, significantly lower carbon price and a considerable buffer of unused EUAs and CER/ERUs limited potential (double counting, extended coverage in ETS or other binding legislation) Moral hazard problem / inconsistent with move away from project-level crediting internationally Administrative costs Tighter cap Strategic decisions would have to be made should we allow for more credits if yes, which types of credits (Community offsets, JI, CDM, potential REDD credits, new sectoral credits) No immediate action under Community offsets, but Commission welcomes pilot initiatives in order to learn more in which areas the development of rules may be envisaged at a later stage.

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