The Climate & Energy Package

-an introduction

Green Week

24 June 2009Mr. Stefaan Vergote

Ms. Yvon Slingenberg

Directorate C

Climate Change & Air

DG Environment

European Commission

Political context

Overall objective: limit temperature increase to 2°C above pre-industrial level

European Council March 2007: 20/20/20 by 2020

Climate & Energy Package: agreed Dec 2008

Environment Council March 2009:Global GHG emissions: peak by 2020 - halved by 2050 (from

1990)

Reductions by 25 – 40% by 2020 and 80 – 95% by 2050 for developed countries, compared to 1990 levels

The Package at a glance

Carbon capture and

storage Directive

CO2 & cars

Renewable

Energy Directive

Fuel Quality Directive

-20% / 30%

technology specific &

product policies

cross-sectoral

targets & instrumentslarge industrial

installations &

aviation

“small

emitters”

EU ETS

Effort

Sharing

Decision

GHG Target:

-20% compared to 1990

-14% compared to 2005

EU ETS

-21% compared

to 2005

Non ETS sectors

-10% compared to 2005

27 Member State targets, stretching from -20% to +20%

A shared effort between sectors and MS

Effort Sharing Decision

Introduction

ESD covers about 60% of the EU’s GHG emissions

Very diverse sectors: transport, heating in buildings, services, agriculture, waste and possibly forestry

Mostly “small emitters” as a result of our daily activities

Major differences in cost-effective emission reduction potential (high for some non-CO2 emissions and buildings, low in transport)

National measures, regional and local action important

Complementary support to MS through community-wide measures (energy efficiency standards, CO2 & cars, energy labelling of equipment and appliances…)

Key points

Binding annual targets in 2013-2020

Strict reporting obligations for Member States

Annual compliance check for period 2013-2020

Member States subject to corrective action if non-compliance

Commission reporting requirements

Further Commission action requirements

Effort Sharing targets for 2020 compared to 2005 emissions

-20

-15

-10

-5

0

5

10

15

20

LU DK IE SE AT FI NL UK BE DE FR IT ES CY EL PT SI MT CZ HU EE SK PL LT LV RO BU EU

2020 emissions compared to 2005

Flexibility

Member States are allowed certain flexibility for

meeting their targets:

Within a Member State – flexibility between years

Between Member States – flexibility through trading

No KP AAU’s in the system

JI/CDM

for the first time, absolute constraint on use of JI/CDM credits in non-

trading sectors

stronger requirements for reporting on quality

International agreement:

Next steps

Land Use, Land use Change and Forestry

International maritime shipping

If 30% or more than 20% for the EU:

Split between trading and non-trading sectors

Use of CDM credits

Sharing of deeper target among Member States

Carbon Capture and Storage

CCS Directive:

Main structure

Enabling approach

Draft directive on geological storage sets environmental rules and liability requirements

Member States determine whether and where CCS will happen on their territory

Emissions captured and stored are recognised as not emitted under the Emissions Trading Scheme

Companies decide whether to use CCS on the basis of conditions in the carbon market

Capture-ready assessment required to avoid lock-in of high-emissions technology

No mandatory CCS at this stage

Implementation

CCS Directive implementationExchange of information with Member States

Guidance on key issues (some requested by Council and EP)

Checking transposition

Commission review of draft permit and transfer decisions Establishment of Scientific Panel by Commission Decision

CCS under the ETSFinalisation of Monitoring and Reporting Guidelines

Ratification of changes to international conventions (OSPAR) COM proposed ratifying Decision beginning June.

Demonstration of CCS and

innovative renewables

300m allowances in New Entrant’s Reserve of ETS for co-funding demonstration of CCS and innovative renewables

Detailed modalities to be established by Commission working with the Member States, and with EP and Council scrutiny of proposals

Aim for adoption of the modalities through comitology by end 2009

The Renewable Energy Directive

Key points

1. Sets 20% EU target and mandatory national targets for renewable energy shares in 2020, including 10% of renewable energy in transport

2. Requires national action plans

3. Creates flexibility by facilitating “joint projects” with Member States or third countries and “statistical transfers” between Member States to help reach targets cost effectively

4. Requires reduction of administrative and regulatory barriers, improvements in provision of information and training and improves renewables’ access to the electricity grid

5. Creates a sustainability criteria for biofuels

49%

13%

16%

13%

30%

18%

25%

16%

18%

20%

23%

17%

13%

40%

23%

11%

13%

14%

34%

15%

31%

24%

25%

14%

38%

15%

10%

RES share in 2020

BE

BG

CZ

DK

DE

EE

IE

EL

ES

FR

IT

CY

LV

LT

LU

HU

MT

NL

AT

PL

PT

RO

SI

SK

FI

SE

UK

Member States’ targets

2.2%

9.4%

6.1%

17.0%

5.8%

18.0%

3.1%

6.9%

8.7%

10.3%

5.2%

2.9%

32.6%

15%

0.9%

4.3%

2.4%

23.3%

7.2%

20.5%

17.8%

16%

6.7%

28.5%

1.3%

39.8%

0%

RES share in 2005

Based on 2005 starting point, recent progress and a balanced sharing of the effort, weighted by GDP/capita

The revised EU ETS –

improved and extended

Some ETS basics

Started in 2005

World‟s largest „cap-and-trade system‟

Large industrial emitters and power plants

Cap = environmental outcome – trade -> lowest cost

Reduce on site or buy allowances?

Trading periods: 2005-7, 2008-12, 2013-20, …

Annual compliance cycle with monitoring, reporting, verification, surrender of allowances

Penalties for non-compliance

Extended scope

Scope 2005-2012:

Sectors: Power generation and industrial sectors (steel and iron,

cement, lime, ceramics, paper, glass)

Gases: CO2, opt-in of N2O

Extended scope as from 2013:

New sectors: Aluminium, basic chemicals production and aviation

(from 2012)

New gases: PFC from aluminium production, N2O from certain

chemicals production

Possible inclusion of maritime transport if no agreement in the

International Maritime Organisation

-20%

2083 Mt/yr

Gradient: -1.74%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Primary feature of the new ETS: A robust EU-wide cap

Starting point:

1974 Mt in 2013

1720 Mt

Linear factor to be reviewed by 2025

Aviation to be included; will change figures correspondingly, but cap not reduced

Disclaimer: all figures are provisional and do not account for new sectors in third period

Harmonised Allocation Rules

Auctioning is default allocation methodFor the power sector as from 2013

Ltd derogation available for 10 new MS

Transitional free allocationBenchmarks (average of 10% most efficient installations)

Benchmark = X allowances per unit of production output

Phasing out free allocation for sectors not exposed to risk of carbon leakage 80% in 2013 – 30% in 2020 – 0% in 2027

Addressing “carbon leakage”

Carbon leakage: When production is moved out of

the EU to places with less ambitious climate

policies

List of exposed (sub-)sectors to be determined by

December 2009

“100%” free allocation

Review every five years, but first …

… a review after Copenhagen – may adjust percentage of

free allocation and/or introduce other measures

Use of auction revenues

Member States decide on use of all auction

revenues

50% of revenues “should” be used for climate

related purposes including among others

Global Energy Efficiency and Renewable Energy

Fund, Adaptation Fund

Developing renewable energies

Avoided deforestation

Carbon Capture and Storage (CCS)

Low emission and public forms of transport

Market oversight provisions

Ensure the good functioning of the market and thereby emission reductions at least cost

Monitor carbon market, report annually on auctions, liquidity and volumes, propose measures if needed

If needed, propose measures to protect from insider dealing and market manipulation

Measures to deal with excessive price fluctuations

International offsets from CDM/JI:

a stepping stone towards wider use of cap-and-trade

Role of offset credits Build capacity for cap-and-trade in less developed countries –

but at least 50 % of reduction effort needs to be within the EU

Provide additional means to comply with targets within the EU

Quality Projects should bring real emission reductions and benefits to

sustainable development

The Commission and the Member States can decide that credits from certain types of projects are not to be accepted for compliance purposes in the EU ETS

Take account of international agreement and reform of CDM

Linking

EU ETS can be linked to any mandatory and compatible GHG emission trading system with absolute emission caps, in any country or in sub-federal or regional entities

A link to the future US federal trading system would create a transatlantic market

Further emission trading systems under development/ consideration in Australia, New Zealand, Japan, Canada could lead to an OECD-wide market by 2015

What happens after Copenhagen agreement?

Three months following Community signature,

Commission will submit a report

If appropriate, proposal will be made covering

among others

A tightening of the phase 3 cap -> contr. to 30%

reduction target

Increased access to credits, but: restricted to

ratifying countries, supplementarity maintained

Review of rules on free allocation

Summary

The climate and energy package

Covers all sectors of the economy

Gives EU industry first mover advantages

Makes the EU ETS ready to go global

Gives an important impetus to the

international negotiations

For more information

Listen to our prominent panelists!

Attend further GW sessions

Visit

http://ec.europa.eu/environment/clima

t/climate_action.htm