The document summarizes key aspects of the future of the EU Emissions Trading System (ETS) in Phase 3 from 2013-2020 and beyond. It outlines that the ETS will have a predictable, linear cap on emissions that declines each year. It will also expand to cover more industrial sectors and greenhouse gases. Auctioning will be the default method to allocate allowances, and free allocation will phase out for most industrial sectors by 2027. A common auction platform and oversight measures will help ensure integrity and prevent market abuse. International credits will be restricted to increase incentives for more ambitious domestic emissions reductions. The long term vision is for the ETS and other carbon markets to incentivize more countries and sectors to adopt cap and trade

1. 1
The future of the EU ETS
-
What to expect in Phase 3
Mary Veronica Tovsak Pleterski
Director B – European and
International Carbon Markets
DG Climate Action
European Commission

2. 2
-20%
2083 Mt/yr
Gradient: -1.74%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
A predictable EU-wide cap
until 2020 and beyond
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

3. 3
A wider scope
• New sectors
 Aluminium
 Basic chemical production
• New gases (nitrous oxide, PFCs)
• Aviation as from 2012
 internal, inbound and outbound aviation,
unless equivalent measures in 3rd
countries

4. 4
Harmonised Allocation Rules
• Auctioning is default allocation method – for
power sector as from 2013
• Phasing out free allocation for industrial
sectors (80% in 2013 – 30% in 2020 – 0% in
2027), unless…
• …deemed exposed to significant risk of carbon
leakage, then free allocation at 100% of
benchmark
• Aviation: 15% auctioning

5. 5
Auctioning
• Regulation unanimously agreed by Member States and
to be formally adopted end of October
• A common auction platform for 20+ Member States
 option for Member States to set up own auction platform
• Simple auction format
• Predictable auction calendar
• Adequate oversight:
 a single auction monitor,
 solid know-your-customer checks and
 provisions to mitigate risk of market abuse
• Next steps: procurement of common auction platform
and single auction monitor

6. 6
Benchmarking
• Commission internal discussions in the final
phase
• Draft decision on harmonised allocation rules
to be sent to Member States in view of vote in
Climate Change Committee
• Then 3 months scrutiny in EP and Council
• Implementation of an agreed Directive – hence
a technical rather than political task
• Thanks to all stakeholders who have
contributed constructively to this process!

7. 7
Market oversight
• Com to examine level of carbon market
oversight
 Preparing stock-taking Communication to EP and
Council (main gap is spot market)
 Major study in 2011, incl. open web-based
stakeholder consultation, impact assessment
 Legislative proposal as appropriate end 2011
• In the meantime – Auctioning Regulation
ensures integrity of auctions, even if allowances
are auctioned spot

8. 8
Maritime transport
emissions
• Commission invited to come forward with a proposal if
there is no agreement in IMO/UNFCCC by the end of
2011 – act should enter into force in 2013
• Very difficult to progress in IMO/UNFCCC
• No decision yet on policy or timing (other policies
could work)
• Design issues:
 Scope/coverage - like aviation (310 Mt/year) or different?
 Full auctioning?
 Competitiveness/leakage?
 Monitoring & enforcement issues
• ETS being actively discussed in IMO (IMO Expert
Group report MEPC 61 INF. 2)

9. 99
Providing the right
incentives through use of
international credits
• Credits from projects to reduce industrial gases
 Reports that they are poor value for money + of low
environmental integrity
 Concern that they reduce incentive for more
ambitious, appropriate own action in developing
countries
 COM is preparing a proposal to restrict their use as
allowed by revised ETS Directive
• Coordination of use restrictions important:
 To avoid arbitrage opportunities between markets
 To increase incentive for more ambitious action, including sectoral
crediting, in host countries

10. 10
Differences between
sectoral crediting and CDM
• Higher developing country government
involvement
 Gathering sectoral data
 Setting crediting thresholds
 Facilitation reductions throughout the sector
• Different incentive structure
 Aggregate for all installations within the sector
 Individual installation gains depend on performance of
other installations
 Threshold below BaU

11. 11
Global carbon market:
EC vision for the future
• Size of market
• Incentives to move towards cap and trade
Reformed CDM
Sectoral crediting
applied
Emissions not covered
by cap and trade
Bilaterally linked
cap and trade
TIME
Totalglobalemissions

12. 12
Info on the Climate Action and Renewable Energy Package at
http://ec.europa.eu/environment/climat/emission/index_en.htm