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© ECOFYS | |
Storyline
> The need to improve the current Carbon Leakage framework
> Ways forward:
– Vivid / Ecofys report for DECC 2013
– Leaked ETS impact assessment
– Leaked draft ETS Directive
– “Neelis proposal”
02/07/2015 Bram Borkent2
© ECOFYS | |
Factors affecting Carbon costs and Carbon leakage in
post-2020 ETS
02/07/2015 Bram Borkent3
Post-2020 ETS design
Compensation for
direct emissions
Compensation for
indirect emissions
Benchmarks:
- Stringency of benchmarks/best performers- Amount of product benchmarks
Carbon Leakage list:
- Choice and combination of criteria- Eligibility thresholds
- Design of assistance level (progressive or not)- Separate or integrated treatment of indirect costs?
Activity levels: current or dynamic
Height of industry cap
© ECOFYS | |
The carbon leakage criteria today
Two quantitative criteria used:
> Carbon cost intensity =
> Trade intensity =
In addition, qualitative criteria can be used e.g. abatement potential, market
characteristics, impact on profit margins.
02/07/2015 Bram Borkent4
Export value + Import value
Annual turnover + Import value
(Direct emissions x auctioning factor + Indirect emissions) x CO2 price
Gross Value Added
© ECOFYS | |
Quantitative criteria are used stand alone and in
combination
02/07/2015 Bram Borkent5
Source: Ecofys
© ECOFYS | |
Current criteria put all large sectors on the list
02/07/2015 Bram Borkent6
Source: Ecofys
© ECOFYS | |
Largest sectors below thresholds are added based on
qualitative arguments: bricks & tiles, industrial gases
02/07/2015 Bram Borkent7
Source: Ecofys
© ECOFYS | |
> Top-26 most emitting sectors are all or partially on the carbon leakage list
Consequences:
> High administrative costs to exclude just 3-4% of emissions from CL
compensation
> Best performers suffer from undue carbon costs resulting from cross-
sectoral correction factor
As a result, current Carbon Leakage list is unfocused:
97% of industrial emissions is on the list
02/07/2015 Bram Borkent8
62%18%
15%
1%4%
Eligibility for carbon leakage list
Combined criteria
Carbon intensity only
Trade intensity only
Qualitative
Not on listSource: Ecofys
© ECOFYS | |
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
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Focusing the list may not be easy
8 largest sectors > 80% of industrial emissions
02/07/2015 Bram Borkent9
Source: Ecofys
© ECOFYS | |
Proposals on the table to improve the CL policy
> Ecofys / Vivid recommendations 2013
> Leaked ETS impact assessment
> Leaked ETS Directive (received: 01 July 2015)
> “Neelis proposal”
02/07/2015 Bram Borkent10
© ECOFYS | |
Vivid / Ecofys recommendations from 2013
> Revoke the trade-only intensity; always assess in combination with carbon
cost
> Use carbon price closer to the future carbon price
> Improve sources for carbon cost (NACE identification, indirect emissions)
> Align scope of emissions (ETS) and GVA (ETS & non-ETS) in carbon cost
intensity
> Use market rather than administrative boundaries set by Eurostat
> Include carbon intensity of trading partners
> Use marginal emission factor for indirect cost
02/07/2015 Bram Borkent11
© ECOFYS | |
Leaked ETS impact assessment
> Ten year trading period (2021 – 2030)
> CL list options:
– Same treatment for all (e.g. 90%)
– Two groups (combination of current criteria, slightly adapted thresholds)
– Four groups (based on combination of current criteria:
● Very high = 100%
● High = 80%
● Med = 60%
● Low = 30%
> Critique: Thresholds and level of compensations not clearly justified
02/07/2015 Bram Borkent12
© ECOFYS | |
Leaked ETS Directive shows minor changes
Changes
> Carbon cost intensity criterion emission intensity
> Only assessed in combination: Trade intensity x emission intensity > 0.2
> No qualitative assessment criteria
> No exclusion of trade with countries with comparable efforts
> Compulsory financial compensation for indirect emissions
No changes
> Black-white approach
– 100% for exposed sectors, 30% for non-exposed
> Capped allocation (auctioning share = 57%) and thus need for cross-
sectoral correction factor
> Compensation for indirect via state aid rules
> No cost pass-through taken into account
02/07/2015 Bram Borkent13
© ECOFYS | |
Leaked ETS Directive – other changes
> Updated benchmark levels:
– Default :-1.0% per year
– If proven: +/- 0.5% per year
> NER filled with 250 million from MSR + unallocated allowances ?
> 400 million + 50 million from MSR for industrial innovation
02/07/2015 Bram Borkent14
© ECOFYS | |
Impact of leaked EC Directive on Carbon Leakage list
composition
> Preliminary analysis`:
– Much shorter list (50 sectors vs 152 now),
– with no increased admin costs, but …
– 94% of industrial emissions on the list
> Open questions:
– Impact of cross-sectoral correction factor
– Exclusion of countries with comparable climate action in trade intensity
02/07/2015 Bram Borkent15
© ECOFYS | |
Out of the box proposal (Maarten Neelis)
> High-level concept for a more focused and simpler ETS
1. Focus CL list on emission-intensive, low value added basic materials
2. CL list defined at product rather than sectoral level
3. Extend product benchmarks to all products on the list
4. Get rid of fuel and heat benchmarks
5. Apply a more dynamic allocation methodology
6. Cover compensation for indirect in a similar manner
For more details: http://www.ecofys.com/en/blog/a-simpler-and-more-robust-
free-allocation-in-the-eu-ets-post-2020/
02/07/2015 Bram Borkent16
© ECOFYS | |
Conclusions
> Draft ETS proposal shows minor changes, with some simplifications, but no
structural improvements
– Updated benchmarks
– Obligation to compensate indirect emissions via state aid
– Symmetric NER (give-and-take) possibly based on production changes
instead of capacity changes
– Large coverage CL list > large impact of CSCF
– No regularly updated activity levels
– Current issues associated with definition of CL criteria seem to persist
02/07/2015 Bram Borkent17
© ECOFYS | |
For more information, please contact
> Bram Borkent, Ph.D.
Market-based Mechanisms
Ecofys
Kanaalweg 15-G
3526 KL Utrecht
The Netherlands
www.ecofys.com
02/07/2015 Bram Borkent18