EU ETS and the International Climate Regime Andrei

EU ETS and the International Climate Regime Andrei Marcu Sr VP, Head of Policy and Regulatory Affairs 1

Global GHG Market Kyoto Party-Level Entity-Level Japan Non-Kyoto Party Russia EU 25+X Projects, CDM/JI EU ETS Canada Voluntary targets

EU ETS & the International Climate Regime • EU ETS is a Domestic Emissions Trading Scheme • EU ETS was conceived to assist the EU to meet its international /Kyoto Protocol commitments • Impact of International targets and progress on international negotiations • EU ETS - its existence is connected but not dependent on Kyoto Protocol • EUAs and AAUs shadow each other • EU ETS makes use of the Kyoto Protocol flexibility mechanisms(CDM&JI) • EU ETS makes use of the Kyoto Protocol and its infrastructure – or has to use it – CITL/ITL connection 3

EU ETS & International Regime – Some Issues • ITL is sitting on the transfer path for EUAs/EU ETS as they need to be shadowed by AAUs • Art 17 eligibility is creating disturbances in market functioning • UNFCCC regulatory problems reflect in EU ETS functioning • Dual regulation without coordination – AAUs – “Hot Air” is not a word that should be acceptable – Qualitative Restrictions in the EU ETS for CERs – Recycled CERs 4

EU ETS & International Regime – What is the Future • For EU ETS international connection has two dimensions – Multilateral (UNFCCC) – Domestic Emissions Trading Systems • EU ETS & UNFCCC increasingly disconnected • Reversal of CIT/ITL role • Appearance of domestic offsets under Art 24 of EU ETS • CDM/JI much smaller and uncertain role in the EU ETS. Role depending of international negotiations • Target 20%-30% depending on international negotiations 5

EU ETS & International Regime – What is the Future • New mechanisms are emerging in the international regime for EU ETS to use – REDD+ – Sectoral crediting and trading – Etc • Linking with other Domestic Trading Schemes – when will they come ? – China is moving with 6 pilots – Partnership for Market Action • Ukraine • Colombia • China • Turkey • Mexico • Etc 6

EU ETS & International Regime – Conclusions • EU ETS is here to stay • EU ETS is an regulatory issue not a scientific debate • EU ETS is an instrument and not the issue – issue id CC and EU climate change policy • Phase 3 has significant changes for EU and Poland • EU ETS relationship with the international regimes MAY change but will stay strong • ETS is an instrument to engage in an efficient way in the green race 7

Global GHG Market Post-2012 Canada Japan Norway Full Global GHG Trading EU ETS CO 2 Only Large Sources of CO 2, CH 4, N 2 O HFC, PFC, SF 6 Norway EU ETS CO 2 only, Power focus Transport(? ) All Major Emitting Countries EU JI: CH 4, N 2 O CDM: Any gas, any sector Non-EU JI: Any gas, any sector Pre-’ 08 8 8 2008 -12 Beyond 2012

Eligibility of Project-Based Instruments Post 2012 China India Brazil ? NIS Emissions High Emissions Low Wealth ? Ukraine High Emissions High Wealth Korea, Mexico, South Africa OPEC Latin America Small Island States ? 9 Kyoto Protocol Annex B Low Emissions High Wealth Israel Singapore ? LDC Africa CDM/JI Credits Allowances Asian Tigers Low Emissions Low Wealth 9 OECD Russia Wealth Post 2012 Agreement?