future outlook for domestic offsetting in europe
DESCRIPTION
This presentation informs on key elements and drivers for Domestic Offsetting in Europe as well as its potential role in view of current EU policy and global trends. Dr.ir. Bram Borkent, Consultant for Market based Mechanisms at Ecofys, gave this presentation during the International Workshop on Domestic Offset Schemes „Towards scattered ambitions?“ in Zurich, Switzerland, on 26 September 2013.TRANSCRIPT
Bram Borkent
26/09/2013
Future outlook for Domestic Offsetting in Europe
International Workshop on Domestic Offset
Schemes „Towards scattered ambitions?“
Zürich, 26 September 2013
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Domestic offsetting: what is it?
Definition
> The generation of emission reduction credits in sectors not
covered by an emissions trading scheme, that can be purchased
to offset emissions by other entities (within the host country or
sometimes abroad).
26/09/2013 Bram Borkent
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Why does it matter?
> Carbon price incentive for emission reductions in non-ETS sectors
> Attracts domestic investments, innovation, safeguarding jobs
> Search engine
> Flexibility for regulated sectors (e.g. ETS)
> Marketing
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Trend: increased focus on domestic offset projects
Source:
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Key elements and drivers for Domestic Offsetting
in Europe
1. EU policy context
2. Demand
3. Supply
4. Cost efficient design
26/09/2013 Bram Borkent
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1. Domestic offsets in EU are embedded in an
overarching regulatory frame
GHG reduction target:
-20% compared to 1990
Non-ETS
-10% compared to 2005
27 national targets
Ranging from +20% to -20%
EU ETS
-21% compared to 2005
-14% compared to 2005
Power sector
Energy-intensive industry and
other selected industrial sectors
Aviation (since 2012)
CCS installations (since 2013)
Martijn Overgaag, Jan-Martin Rhiemeier
26/09/2013 Bram Borkent
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1. Both ETS and non-ETS are capped and
allowances can be traded
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2. The lost decade: current GHG targets limit
appetite for additional climate policies
> EU-ETS
– Oversupplied by >2 billion allowances
– Low carbon prices until at least 2023 (Reuters PointCarbon)
26/09/2013 Bram Borkent
*) Source: EEA (2012), Greenhouse gas emission trends and projections in Europe
> Non-ETS
– 21 Member States on track to
reach 2020 target*
– With existing or currently
planned measures
> Next decade
– Low demand for AEAs / EUAs
– Little incentive to reduce
emissions beyond targets
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3. Sufficient supply? An example from The Netherlands
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3. Most reduction options are not suitable for
Domestic Offsetting leaving limited supply
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Transaction costs,
implementation barriers,
specific issues
24
12
7
5
Supply (MtCO2)
~1 MtCO2
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4. How can you design domestic offsetting cost
efficiently?
> Three options to be discussed:
a. Coupling with the EU ETS (“Article 24a”)
b. Government buyer option
c. Adoption of a voluntary framework
26/09/2013 Bram Borkent
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Option a: “Article 24a”
Emissions
National level
ETS
Non- ETS
Emissions Compliance
AEA budget
Finance for domestic projects
by (EU ETS) market
© ECOFYS | | 26/09/2013 Bram Borkent
Option a: “Article 24a”
Emissions
National level
ETS
Non- ETS
Emissions Compliance
AEA budget
DOC
Credits are generated which
can be used in EU-ETS EUA
Government cancels AEAs
© ECOFYS | | 26/09/2013 Bram Borkent
Option b: Government buyer option
Emissions
National level
ETS
Non- ETS
Emissions Compliance
AEA budget
Finance for domestic projects
by government
© ECOFYS | | 26/09/2013 Bram Borkent
Option b: Government buyer option
Emissions
National level
ETS
Non- ETS
Emissions Compliance
AEA budget
AEAs
Other
MS
Government sells surplus AEAs
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Option c: Adoption of the voluntary market
Emissions
National level
ETS
Non- ETS
Emissions Compliance
AEA budget
Finance by market
(project developers)
© ECOFYS | | 26/09/2013 Bram Borkent
Option c: Adoption of the voluntary market
Emissions Compliance
Project
developers Private sector
€
• Market receives voluntary credits
which can be further sold on
• Government cancels AEAs
Emissions
National level
ETS
Non- ETS
AEA budget
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Evaluation of pros and cons: the voluntary market
option preferred
26/09/2013 Bram Borkent
“Article 24a” Government buyer
Voluntary market
Demand
Administrative
costs
Independent
Global net
mitigation
Increases
flexibility
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Conclusion
> Global trend towards domestic project-based crediting
> Domestic Offsetting is an opportunity to reduce emissions and
attract domestic investments, but…
> …current European GHG targets provide little environmental
incentive for Domestic Offsetting in the next decade
> … if considered, it should be designed with care, e.g. :
– Embedding in EU policy context
– Supply and demand sources
– Cost efficient design
– Impact of implementation barriers
> The voluntary market is a “no lose” option; it’s benefits need
more attention
26/09/2013 Bram Borkent
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Thank you for your attention!
> Contact details
Dr. ir. Bram Borkent - Consultant
Market Based Mechanisms
T: +31 (0)30 662 3822
M: +31 (0)6 5463 5575
I: www.ecofys.com