The Commission’s proposal for a revised ETS Looking backward and forward

Jørgen Wettestad

IEEP seminarBrussels, february 28 2008

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

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!

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?

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?..

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)

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?

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’?

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?

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’...

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.?