FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20021 EU Directive on Emission Allowance Trading.

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1 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20021 EU Directive on Emission Allowance Trading State of play Peter Wittoeck FOD Volksgezondheid, Veiligheid voedselketen en Leefmilieu DG Leefmilieu – Eenheid klimaatverandering

2 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20022 Timeline (past) Cion Green Paper 8.03.2000 + stakeholder consultations Proposal for a Directive 29.10.2001 EU (Env.) Council orientation debate on major issues 12.12.2001 Progress reports to all EU (Env.) Council meetings in 2002 EP amendments 10.10.2002 Political agreement Council 9.12.2002

3 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20023 Time line (future) Adoption of preambular paragraphs 2 nd reading in EP 2 nd reading in Council Conciliation procedure? In time for implementation by MS by dec. 2003?

4 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20024 General characteristics Cap and trade 2 trading periods:  2005-2007 (pre-Kyoto)  2008-2012 (Kyoto 1 st c.p.) Entity trading Focus on energy intensive industries Focus on CO 2 emissions

5 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20025 Main crunch issues Mandatory or voluntary? Participating sectors/gases Allocation Compliance Banking Links with other systems

6 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20026 Participation/coverage Mandatory for all EU Member States  BUT: Possibility to link to other DET (e.g. new MS) Mandatory for sectors covered by annex I (energy intensive, above threshold):  Combustion installations  Oil refineries  Coke ovens  Ferrous metals  Cement  Glass  Ceramic products  Pulp and paper

7 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20027 Participation/coverage BUT:  Possibility to OPT OUT in 1 st period  Possibility to OPT IN: smaller installations in Annex I from 2005 additionnal activities and gases from 2008  Review by 31.12.2004 proposal to include other activities and gases AND:  All ‘persons’ may participate in trading

8 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20028 Initial allocation methodology 1 st period (2005-2007)  free allocation (grandfath./benchmark.)  based on criteria contained in annex III (not very specific)  BUT: further (facultative) guidance to be developed by Cion.  ! NAP to be submitted to Cion by 31.12.2003 2 nd period (2008-2012)  maximum 10 % auctioning  2004 review will consider further harmonisation

9 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.20029 Pooling (German proposal) Aim = shield entire sectors from rules on:  Allocation  Monitoring, reporting and verification  Liability/compliance Main risk for other MS:  Market power (Germany has ½ of installations) Result:  confirmation that pooling allowances is permitted (which it was already)  +/- same rules  need for Cion approval

10 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.200210 Compliance Emissions report not satisfactory:  suspension of eligibility to transfer Insufficient allowances:  ‘Name and shame’  Penalty: 2005-2007: € 40/ton CO 2 eq 2008-2012: € 100

11 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.200211 Banking Between 1 st and 2 nd period:  MS may allow banking  Kyoto does not recognise 1 st period allowances Between 2 nd and subsequent:  Allowed  Necessary to mirror Kyoto banking

12 FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 16.12.200212 Links with other schemes Other ET schemes:  Only with Kyoto Annex B Parties  Through ‘agreements’, art. 300 EC  Risk: flooding EU market with ‘hot air’  MS may trade individually Project-based mechanisms, incl. JI & CDM:  Credits will be recognised in future  Modalities to be decided in separate Directive in 2003  Is Cion preparing an EU credit-based instrument?