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The Commission’s proposal for a revised ETS

The Commission’s proposal for a revised ETS . Looking backward and forward. Jørgen Wettestad IEEP seminar Brussels, february 28 2008. Approach. Mainly based on Jon B.Skjærseth and Jørgen Wettestad, EU Emissions Trading – Initiation, Decision-making and Implementation , Ashgate 2008

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The Commission’s proposal for a revised ETS

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  1. The Commission’s proposal for a revised ETS Looking backward and forward Jørgen Wettestad IEEP seminar Brussels, february 28 2008

  2. Approach • Mainly based on Jon B.Skjærseth and Jørgen Wettestad, EU Emissions Trading – Initiation, Decision-making and Implementation, Ashgate 2008 • Focus on four key ETS design characteristics • Centralization • Sectoral coverage • Method of allocation • Links to Kyoto CDM/JI

  3. Approach • What did the Commission initially want? • Preferences expressed in e.g. 2000 Green Paper and 2001 ETS proposal • The present proposal for ETS post-2012 • Will the Commission prevail - and why? • Main expectation is smooth process? But things may happen..Cf. US Kyoto exit in 2001... • Very probing and tentative. Comments very welcome!

  4. Centralization • What did the Commission initially want? • Green Paper 2000: implicit plea for centralized setting of caps • The present proposal • Centralized setting of caps • Will the Commission prevail? • Probably.Quite amazing really, given the strong initial decentralization drive... • Pilot phase experiences; ’climate craze’ ... • Opponents: Italy, Spain, Poland?

  5. Sectoral coverage • What did the Commission initially want? • IPPC and LCP ’population’, focus on ’energy activities’ • Inclusion of chemical industry • Current proposal • Airlines already in 2012 • Inclusion of some chemical industry emissions (petrochemicals, production of ammonia..) • Aluminium and CCS • Will the Commission prevail? • Probably? Exclusion of most chemical industry still important to comfort Germany?? • Will the EP this time around seek and succeed in a further broadening? Or content with the contentious airline issue?..

  6. Method of allocation • What did the Commission want? • Green Paper 2000: auctioning ’technically preferable .. Free allocation no easy option • Current proposal • Full auctioning from 2013 for power sector • In other sectors, gradual decrease of free allocation • Except sectors particularly exposed to global competition (clarified 2010/11)

  7. Method of allocation • Will the Commission prevail? • Probably? • Power industry weakened due to windfall profits debate? • Energy-intensive industries succeeded in lobbying of Commission? • Parliament satisfied with the power sector approach?

  8. Links to Kyoto CDM/JI • What did the Commission want? • Initially ambiguous/split here? • Linking could enhance cost-effectiveness, but reduce incentives for EU-internal abatement • Current proposal • .A bit complex, and contingent on international developments • If no ’satisfactory global agreement’, then no new CDM/JI credits and stronger incentive to EU-internal abatement • But what constitutes a ’satisfactory agreement’?

  9. Links to Kyoto CDM/JI • Will the Commission prevail? • Possibly? • Although tight CDM limits will hurt for climate policy struggling states such as Spain, Italy.. • And the Commission cut majority of proposed CDM/JI limits in NAP II process • So potential for a ’rebellion’ here?

  10. Concluding comments • Main impression: the Commission seems now set to achieve the centralised and auction-based ETS it initially sought • Is this then a grand tactical victory for the Commission? • Or is it sheer luck? • ’The climate craze’...

  11. Concluding comments • Will this ’method/tactic’ be applied in the case of renewables trading? • Or decentralised pilot phase and NAPs necessary due to data uncertainty etc.?

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