Stakeholder meeting Friday 3 rd April 2009

1. Assessment of the possible development of an EU-wide NOx and SO2 emission trading scheme for IPPC installations Stakeholder meeting Friday 3rd April 2009

2. Agenda • Aims and objectives • Approach • Deliverables and timescales

3. Aims & Objectives • To assess environmental, economic & social impacts of various possible designs of an ETS for SO2 and/or NOx under certain EU rules for land-based industrial sources in order to potentially replace individual BAT-based permitting of IPPCD / IED for those pollutants • Environmental constraints • impacts on ecosystems & human health should not exceed those under current policies, incl IED Proposal • Air Quality limit values • constraints on scheme's potential due to the NECs to be assessed  incl. option to have more flexible ceilings • Outcome: provide insight on whether a trading mechanism for SO2 & NOx in the EU would be an appropriate MBI If so: under which rules, safeguarding environmental objectives & ensuring practicability & enforceability

4. Approach • Overview • Evaluation criteria • Scope of sectors for modelling • IPPC installation database • Beyond BAU measures • Environmental constraints • Options for trading scenarios • Simulation and modelling impacts • Impact Assessment

5. Overview • Impacts to cover: • 2016 • 2020 • 2025 • 2030

6. Evaluation criteria for impact assessment Impacts relative to reference (IE Directive) scenario: • Economic Impacts • Competitiveness, trade and investment • Competition on the internal market • Operating costs and conduct of business • Administrative costs on business • Innovation and research • Consumers and households • Specific regions or sectors • Third countries and international relations • Public authorities • Macroeconomic impacts • Environmental Impacts • Air emissions • Air quality • Ecosystems • Climate • Social Impacts • Employment and labour markets • Public health

7. Scope of sectors for modelling (1) • Purpose • To identify sectors / activities to be included in emissions trading simulation model  not necessarily proposed scope of scheme • Criteria for inclusion in modelling • average emissions per installation within sector > 50% of the average emissions per installation across all installations / sectors in EPER 2004 • total emissions of sector > 1% of total emissions of all installations / sectors in EPER 2004

8. Scope of sectors for modelling (2) Assessment

9. IPPC installation database (1) • Why is installation specific data required? • to assess potential responses to emissions trading scenarios in more detail than achieved in previous studies • to assess air quality, health and environmental impacts of these responses in detail • to assess cost impacts in detail

10. IPPC installation database (2) • How is installation specific data used? EMEP Source- Receptor modelling IPPC installation database Inform geographic / sector aspects Beyond BAU measures Options for emissions trading scenarios Specialist input Revise trading rules if necessary Emissions trading simulation model EMEP + Entec health, env & AQ modelling Costs & emissions health & env impacts Impact Assessment

11. IPPC installation database (3) • Scope of installation data: • Source location & stack characteristics • Current emissions • Current fuel type and quantity • BAU abatement installed / planned • Beyond BAU abatement options • Approach • Development of database with installation specific data • Data gathering to populate database • Installation specific data • General information • Assumptions

12. IPPC installation database (4) • Data sources: • Consultation with MS and sector specialists • MS policy / regulatory contacts • EU industry associations • BREF review lead authors • Databases & studies • Key: LCPD emission inventories; EPER / E-PRTR; CoalPower • Supporting: other Entec / partner studies, in-house data & contacts; GAINS (activity rate trends) • Expert knowledge of project team • Entec, Okopol, Garrigues, IHE • We welcome any outstanding requested information! – by end April 09

13. Beyond BAU measures • Identification and selection of data sources • Development of database of abatement measures • Description • Abatement efficiency • Lifetime • Applicability / feasible combinations • Capital / operating costs • For every installation identify relevant measures (& costs & effectiveness) • MRV costs

14. Environmental constraints • NECD • 2010 ceilings • potential 2020 ceilings • option to make ceilings more flexible, applying to groups of MSs • BAT equivalence • Same environmental ambition level compared to IED proposal • Should not lead to increased overall emissions compared to IED proposal • Targets should be equivalent to applying BAT-based permit conditions • Air quality limit values • NO2 • SO2

15. Options for trading scenarios (1) • General approach • Generate long-list of options • Assess performance against evaluation criteriato develop short-list • Obtain feedback from stakeholders • Main aspects to cover • Type of scheme • Allocation method • Emission rate • Trading zones • Coverage • Opt-in and opt-out • MRV

16. Options for trading scenarios (2) Type of Scheme Cap & Trade: Design Risks Higher cost/ unit of product than projected • Cap and Trade Allocation = Emission rate * Production (historical / projected) • Baseline and Credit Allocation =Emission rate * Production (actual) • Hybrid Allocation = Emission rate * Production * Adjustment Factor (to achieve emissions target) Windfall profit (under free allocation) Baseline & Credit: Design Risks Lower emission reductions than anticipated

17. Options for trading scenarios (3) Allocation Method • All allocation methods apply to all types of trading schemes

18. Options for trading scenarios (4) Emission Rate • Upper BREF BAT AEL • Intermediate BREF BAT AEL • Lower BREF BAT AEL • Notes: • No distinction between Cap & Trade and Baseline & Credit • Expect to apply to allocation to individual installations and overall cap

19. Options for trading scenarios (5)Trading zones • Geographic scope of trading zones for IPPC installations • MS level • Different groups of MSs • EU 27

20. Options for trading scenarios (6)Coverage • All IPPC installations covered by the EU ETS (revised) • All IPPC installations covered by the EU ETS >=50 MW capacity • Installations that meet specific coverage criteria

21. Options for trading scenarios (7) Opt-in and opt-out • Depends on coverage: full mandatory coverage is not compatible with individual installation opt-ins and opt-outs • Depends on type of scheme: under Cap & Trade opting in entails gaming risks • Depends on MRV provisions and treatment of small emitters • May entail opt-out provisions for MS, depending on MRV provisions

22. Options for trading scenarios (8) Monitoring, reporting and verification (MRV) • Collate and review MRV requirements for SO2 and NOx for IPPC installations • Review practices in SO2 and NOx trading schemes • Assess EU ETS MRG for CO2 • Determine desirable features of MRV of SO2 and NOx in an emissions trading scheme • Identify preferred options

23. Simulation & modelling impacts (1)Trading simulation model • For each installation a list of beyond BAU measures will be assigned together with % abatement and costs • For various scenarios and constraints (caps, NECs, etc), model will minimise costs for each zone covered by trading system, selecting least cost methods first • Outputs: • emissions • allowance deficit / excess levels • compliance responses • abatement costs / cash flow impact • allowance price

24. Simulation & modelling impacts (2)General structure of trading simulation model

25. Simulation and modelling impacts (3) Environmental modelling • EMEP model (Met.no) • Applications • Source–receptor analysis to inform initial geographic / sector aspects of trading scenarios • Detailed AQ, health and env impact modelling of trading scenarios to inform potential refinement of scenarios and Impact Assessment • Outputs: • 50x50km2 for source–receptor analysis • 10x10km2 for impact modelling • Ecosystem damage: exceedences of critical loads • Health damage: YOLL from PM; O3; AQ impacts of SO2, NO2, PM2.5, PM10 • Identification of areas with exceedences of AQ LVs & contributors • Emissions data • IPPC installations – from database mentioned earlier • Non-IPPC sources – EMEP / TNO estimates • Finer resolution AQ modelling where exceedences • ADMS 4 dispersion model • Monetary valuation • Health, crops, materials

26. Impact Assessment • Impact Assessment drawn up following Commission Guidelines • Identify the problem • Define the objectives • Develop main policy options • Analyse their impacts • Compare the options • Outline policy monitoring and evaluation • Significant data from emissions trading simulation model and previous tasks • Supplemented by additional analysis to meet full requirements of specification

27. Request for stakeholder inputs • Any outstanding requested IPPC installation data • Cost data for beyond BAU measures – or signposting to such data • Comments on options for emissions trading scenarios, especially: • Coverage • Opt-in / opt-out • MRV • Trading zones By 30 April 2009 To: Alistair Ritchie at alistair.ritchie@entecuk.co.uk Thank you for your co-operation!