EU ETS and German Climate Action Plan Flashcards
Carbon leakage and carbon lock in
Carbon leakage: production (and therefore emission) shift to regions without comparable climate protection measures
Carbon lock-in: Inertia of carbon emissions due to such mutually reinforcing physical, economic, and social constraints
EU Emission trade scheme (EU ETS)
- Central policy instrument to meet the EU commitments on GHG reduction
*“Economic” system for carbon emission reduction -> creates a financial incentive to reduce emissions - Biggest ETS system worldwide; operates in the 27 EU countries and the 3 EU Free Trade Association (EFTA) states: Iceland, Liechtenstein & Norway
- Covers ~ 40% of EU’s GHG emissions (3.18% of global emissions
- Implementation takes place in phases, with periodic reviews
- Limits emissions from:
– Heavy energy using installations in power generation & manufact . industry
– Aircraft operators - Goal set: 21% lower emissions from sectors covered by the EU ETS than in 2005 by 2020
EU ETS “Cap and trade” system
- A cap is set on the total amount of certain greenhouse gases that can be emitted by the installations covered by the system
- The cap is reduced over time so that total emissions fall
- Within the cap, installations buy or receive emissions allowances, which they can trade with one another as needed
- The limit on the total number of allowances available ensures that they have a value
- After each year, an installation must surrender enough allowances to cover fully its emissions, otherwise heavy fines are imposed
- If an installation reduces its emissions, it can keep the spare allowances to cover its future needs or else sell them to another installation that is short of allowances
- Trading brings flexibility that ensures emissions are cut where it costs least to do so
- A robust carbon price also promotes investment in innovative, low carbon technologies
Sectors and gases
Carbon dioxide (CO 2 ) from: companies, electricity & heat generation, energy-intensive industy, civil aciation
Nitrous oxide (N 2 O) from:
− Nitric, adipic, and glyoxylic acids and glyoxal
Perfluorocarbons (PFCs) from:
− Aluminum production
EU ETS Directive: implementation Phases
EU countries have amended the original legislation several times leading to four different trading periods
Phase 1: 2005-2007
– Pilot Phase with 27 EU countries
– Goals:
* establish a price for EUAs
* Establish infrastructure for monitoring, reporting and verifying (MRV) emissions
– Covers large industrial emitters and focuses initially on CO2 only
– Caps were set based on historic emissions
– Allowance were given based on National Allocation Plans
(NAPs)
* More allowance than emissions
* Almost all allowances were given for free
– 2007 the price of allowances fell to zero
Phase 2: 2008-2012
– Inclusion of other GHG (N 2 O)
– New sector: aviation: flights within the borders of the EU ETS countries
– Cap was decreased: ~ 6.5% lower compared to 2005
– Decrease in free allocation to around 90% (10% were auctioned off)
– CDM/JI credits could be used
* credits on the market: equivalent to 1.4 billion tons of CO2
Economic crisis of 2008 led to high emissions reductions
* large surplus of allowances and credits
Decrease of price from 30 Euro to less than 7 Euro & then to zero during the peak of the crisis
Phase 3: 2013-2020
with s everal structural changes, e.g.
– Auctioning is the default method for allocating allowances
* businesses buy their emission allowances on an auctioning platform
* single round, uniform price procedure and a closed order book
– EU wide emission cap
– No NAPs anymore, allocation is determined through common rules agreed directly at EU level
* National Implementation Measures (NIMs) were prepared by all member states
* Harmonized across the EU
– Inclusion of other GHG (CH4, SF6, HFCs, PFCs)
– Free allocation still exists, but decreased a lot
* Main challenge: surplus (Überschuss) of EUAs from the second trading period
* Backloading : auctioning of 900 millions EUAs was postponed
Phase 4: 2021-2030
– Legislation was revised in early 2018
* To achieve the EU’s 2030 emission reduction targets in line with the 2030 climate and energy policy framework
* To be part of the EU’s contribution to the 2015 Paris Agreement
– Decrease of annual allowance to 2.2% from 2021 onwards
– Continuing the free allocation
– Low carbon funding mechanisms
* Innovation fund
* Modernisation fund
- Reinforcing the Marekt stbility reserce (2020-2031)
Market Stability Reserve (MSR)
– Surplus exceeds 833 million allowances:
24% withheld from auctions and added to
the reserve from 2019 2023; then 12%
from 2024 onwards
– Surplus drops below 400 million
allowances: up to 100 million allowances
added to the market
– Price is three times higher than the
average price during two years: up to 100
million allowances are added to the
market
Excurse 1: Green Deal & Fit for 55
- Europe = climate neutral by 2050
– Mid term goal of 55% by 2030, compared to 1990 levels
Fit for 55 would reform the EU ETS
* More ambitious reduction goals
* Faster reduction of the cap/fewer allowances on the market
* Cover new sectors extension to maritime transport
* Establish a new, separate ETS for buildings and road
transport
* Gradual phasing out of free allowances for certain
sectors + carbon border adjustment mechanism
* Increased funding for decarbonizing ETS sectors
* New fund for addressing the carbon pricing impact of the
proposed ETS for buildings and road transport
NON ETS Sectors
e.g. Waste ,Transport, Industry, BUldings, Agriculture
CORSIA
- International Civil Aviation Organization
- Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)
– For additional emissions only
– For international routes
*
Implementation in 3 phases:
– Pilot phase (voluntary): 2021 2023
– 1. Phase (voluntary): 2024 2026
– 2. Phase (mandatory): 2027 2035 min. 90% of emissions are covered - In pilot and 1. phase, only routes are considered when countries (start end) are participating in CORSIA
- All EU countries take part since 2021
- Offset of emissions by buying certificates at CO2 market
Climate Action Plan 2050
- Adopted in 2016 by the German
government as an answer to the Paris
Agreement - Presents a long term low greenhouse gas
emission development strategy by setting
definite targets in five main sectors
– Greenhouse neutrality by 2050
– GHG emission reduction of at least 55
percent by 2030 compared to 1990 - Revised in Climate Action Act in 2021
– Climate neutrality by 2045
– 65% reduction compared to 1990 by 2030 - Provides strategic measures in all areas
of action
Climate Action Plan 2050 measures
Energy sector
Increasing the use of renewable energy
Strengthening the Emissions Trading System
Industry
Extending lives of products and avoiding waste
High efficiency technologies
Building
Developing and refining existing instruments to support sustainable building
Enhance sector coupling and district heating in neighborhoods
Transport
Electric mobility: expansion of effective charging and fueling infrastructure
Developing a concept for rail transport
Agriculture
Increasing the percentage of land used for organic farming to 20%
Reducing emissions from livestock farming
Climate Action Program 2030
- Adopted June 2021 together with Immediate Climate Action Programme for 2022
- Individual measures contained in these two programmes are being implemented step by step in the form of legislation and funding programmes
- 4 key elements:
– Major investments in measures to mitigate climate change, plus large scale funding programmes
– Clear legal requirements for climate action
– Socially equitable carbon pricing
– Sector specific system to monitor compliance with climate targets - Climate and Transformation Fund
- Partially funded from EU ETS revenue + Germany national emissions trading scheme
Measures: CO2 tax for the sectors mobility and thermal energy (National ETS)
- CO 2 price, started January 2021
– For the sectors mobility and thermal energy 32% of all GHG emissions in Germany,
~ 4.000 companies - Fuels such as petrol, diesel, heating oil, natural gas and coal
- For all transport emissions except for air transport
– National ETS ––“cap and trade” system, including biding on price starting from 2026
– In the starting phase 2021-2025 fixed prices (25-55), allowances are sold to companies
–> UBA recommends 2016: 180 Euro/t Co2eq, 2030: 205 Euro/t Co2eq; 2050: 240 Euro/t Co2eq
–> general secretary of MCC recommends: now: 50 Euro/t Co2eq and 2030: 130 Euro/t Co2eq
Measures
Measures
* CO 2 price
– For the sectors mobility and thermal energy (coal-phase out)
– National ETS ( nEHS
– Minimum price
* Relief of citizens and economy: Reimburse carbon pricing revenues in form of:
– Decreasing electricity prices
– Distance charge for commuters
– Housing allowance of 10% for vulnerable households
