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

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

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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?

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

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

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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 proposal to include other activities and gases AND:  All ‘persons’ may participate in trading

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – Initial allocation methodology 1 st period ( )  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 nd period ( )  maximum 10 % auctioning  2004 review will consider further harmonisation

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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

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

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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

FEDERALE DIENSTEN VOOR HET LEEFMILIEu DIENST STUDIE EN COÖRDINATIE Peter Wittoeck – CLIMNEG 2 – 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?