Apostoli 58, 34100 Chalkida, Greece Tel:+30 22210 25314 info@ippc.gr www.ippc.gr Environmental commodities An expanding market Stathis Kourniotis IPPC Managing Director
What is EU-ETS ? The European Union Emissions Trading Scheme (EU ETS), or EU Emissions Trading System, was the first large greenhouse gas emissions trading scheme in the world, and remains the biggest. It was conceived in Kyoto Protocol, back in 1997. It was introduced in EU in 2005 with the Directive 2004/87/EC. Emission trading scheme began in January 2005. Now into 3nd Period (2013-2020) The EU Emissions Trading Scheme aim : • to reduce emissions of greenhouse gases which are largely responsible for warming the planet and causing climate change. Covers mainly CO 2 emissions from: • industrial activities (power plants, oil refineries, construction materials, fertilizers, etc.) • as well as emissions from aviation o all flights which arrive at or depart from an aerodrome situated in the territory of a country that participates in EU ETS) since 2009. The EU ETS covers more than 11,000 industrial plants in 31 European countries (as well as Iceland, Liechtenstein and Norway). In total, around 45% of total EU emissions are controlled by the EU ETS.
How EU-ETS works ? The EU ETS is based on the so-called "cap-and-trade" approach : • each year the EU establishes a limit (cap) for overall emissions from power plants, energy-intensive industry and commercial airlines covered by the system. This 'cap and trade' system, that is to say it caps the overall level of emissions allowed but, within that limit , allows participants in the system to buy and sell allowances as they require. The scheme operates through the allocation and trade of CO 2 emissions allowances. One allowance gives the holder the right to emit 1 tonne of CO 2 . Long term goal - de-carbonization of EU economy. These allowances are the common trading 'currency' at the heart of the system. The cap on the total number of allowances creates scarcity in the market.
How EU-ETS works? Every year at the end of April installations must surrender allowances equivalent to their emissions. • penalties imposed for surrender less allowances to € 100 per ton of CO 2 From 2013 onwards, Companies that keep their emissions below the level of their the cap on emissions allowances can sell their excess allowances. fixed installations is reduced by 1.74% every Those facing difficulty in keeping their emissions in line year . with their allowances have a choice: • taking measures to reduce their own emissions (such This means that in 2020, as investing in more efficient technology or using less greenhouse gas carbon-intensive energy sources) emissions from these • buying the extra allowances they need on the market, sectors will be 21% lower • a combination of the two. than in 2005. Such choices are likely to be determined by relative costs. A separate cap applies to In this way, emissions are reduced wherever it is most cost- the aviation sector: for the effective to do so. whole 2013-2020 trading period, this is 5% below the average annual level of emissions in the years 2004-2006.
Carbon trading – a 14 years old story 2 nd period starts. All 1 st 3 rd period starts. March 2006: CER/ERU prices fall More than 2 billion sharply as international first emissions reports show period EUAs cancelled. Banking of EUAs ( carry “floating” EUAs. Prices Price at 22,25 € (1/4). negotiations on climate serious overallocation, over from one period to are dropping again. price drops from 30,50 change are at dead end. CER/ERU valid with 5-6 the next) is allowed. Eur. Com. intends to (19/4) to 15,88 (30/6) € spread Prices drop from 6,52 € Since 2015, EU intervene again (2/1) to 2,72 € (17/4) recognizes only CER issued by least developed and island countries. 30,00 China, India, Brazil, S. Korea, etc. CER are out. 25,00 20,00 15,00 10,00 5,00 0,00 Jun-05 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Jan-19 May-19 March 2007: Market Overallocation continues No more free EU intervenes with EU intervenes with MIFID II collapses to 1 € /EUA “ backloading ”. EUAs that “Market Stability despite E.U. assurances. allowances to reduces Reserve” (MSR). (2/4) Price to 7,96 (12/2). electricity producers. should be auctioned in grey spot CER/ERU spread to 0,5 € . 2013 – 2015 are Auctions become From now on, the market reserved for 2019 – 2020 crucial Economic crisis also plays number of floating a role but is offseted by auctions. Prices EUAs will be held gradually climb to 9 € lower fuel prices within a range
Carbon trading in Greece Number of transactions involving the Greek Registry • The EU Registry publishes all data regarding 800 transactions with a time lag of 3 years 700 • Up to 2008, transactions mainly involve sells of small 600 quantities to banks and brokers abroad 500 400 • 16-11-2006: First external transaction for the Greek 300 Registry, n iron & steel company transfers 1.000 200 EUAs to SOCIETE GENERAL 100 • Until 2009 largest volume comes from a single 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 company (more that 50% of total) • For the years 2009 – 2011 a significant number of Volume (EUAs) transactions are under investigation due to suspicions for “carousel” fraud. In 2010 there are 90 50.000.000 suspicious transactions involving about 800.000 45.205.000 EUAs carried out by at least 3 companies a 2 40.000.000 personal accounts 30.000.000 • In 2013, electricity producers start buying all the allowances they need to surrender. 20.000.000 19.667.000 10.000.000 8.929.000 6.234.000 1.350.002 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
International carbon trading schemes • The Korean Emissions Trading System (KETS) was launched on 1 January 2015, becoming East Asia’s first nationwide mandatory ETS and the second -largest carbon market after the EU ETS. The ETS covers 591 emitters and 700 MtCO2 of emissions. The price of an allowance in 2018 was about 20,6 $. • China launched a plan to start an ETS scheme back in 2010. The idea is to start a number of regional ETS that will converge to a national system by 2020. The regional ETS have been working since 2013. The system suffers from low reliability due to lack of strict technical rules for MRV. The expected energy market reforms will be a critical step for the Chinese ETS. • Japan Cap-and Trade program. It currently covers fuels consumption in commercial, residential and industrial sectors. About 1,200 facilities and 65 MtCO2 are covered. Facilities are obliged to buy allowances from the state. The price of an allowance in 2018 was about 5,9 $. • New Zealand has introduces an ETS since 2008. The NZETS was considerably revised in 2015. It covers 221 emitters and 78 MtCO2. NZETS allows for voluntary participation. The price of an allowance in 2018 was about 15,7 $. • Several regional ETS have evolved including USA and Canada areas. The biggest are RGGI (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, Vermont) and the Califoria cap-and-trade system.
The future of EU ETS • In 2021 a new period (the 4 th ) starts. It will last for a decade (2021 – 2030) and is divided into two 5- years sub-periods. • As in previous periods, Eur. Com. will decide the total number of allowances as well as the number of allowances that will be given for free . The procedure ahs already started. The Greek installations that are eligible for free allocation have already verified their baseline scenarios. • A significant reduction of allowances is expected . Nevertheless, MSR will continue to be the driving force. • Prices within the range 22 – 28 € /EUA are most likely within the next 6 months. • Prices up to 30 € /EUA are likely in 2020 4 th period EUAs cannot be used to offset 3 rd period emissions. This detail may cause an increase of • 3 rd period EUAs up to 35 € /EUA (projections up to 42 € /EUA have also been reported). PWC has estimated that a global carbon price of 50 € is required in order to meet the Paris objectives • CORSIA , the ICAO emissions trading scheme for international flights is expected to deliver emission allowances at lower prices (likely to be less than 15 € /allowance). But this remains to be seen. • Eur. Com. would like to see a maritime industry emissions trading scheme. If IMO does not come forward with a CORSIA-like scheme, it is likely that EU will ask ships to fully participate in EU ETS (since 2018 they participate in MRV only) • No interconnection between EU ETS and other emissions trading schemes is expected in the near future. If such an interconnection becomes possible during the next decade, the market may change dramatically.
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