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EU-ETS

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Chenying Zhou

on 15 October 2014

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Transcript of EU-ETS

launched in 2005 as the world’s first international company-level ‘cap-and trade’ system for reducing emissions of carbon dioxide (CO2) cost-effectively.
EU-ETS has run two phases and now is in phase three.
Factors of Price Trends
European Emissions Trading System(EU ETS): an european cap and trade system which is built to control the emission of greenhouse gases among Europe countries by a trade scheme.
What is EU ETS?
The price of allowances is determined by supply and demand.
40 million allowances have been traded per day.
In 2012, 7.9 billion allowances were traded with a total value of €56 billion.( see the graph below) The average price of allowance is about €7/EUA emission.
only 15% of aviation allowance will be trade during phase three.
Ways to trade
Historical development
Historical development
Pollution sources
The market
Trade mechanism
Ways to trade
Trade volumes
Auction
Quantity units
Futures
Factors of trends
Link
Future
My opinions
References
Outline
EU ETS
European Union Emission Trading Scheme

Historical development
Phase one(2005-2007):
‘learning by doing’ to prepare for phase two .

Phase two(2008-2012):

EU and Member States met their Kyoto Protocol emission targets.
The three EEA-EFTA states joined: Iceland, Liechtenstein and Norway.
Add nitrous oxide emissions from the production of nitric acid by a number of Member States.
Pollution sources
pollution sources
Phase three(2013-2020) has significant changes:
A single, EU-wide cap on emissions applies in place of the previous system of national caps;
Auctioning is now the default method for allocating allowances.
For those allowances still given
away for free, harmonised allocation rules apply
Some more sectors and gases are included;
300 million allowances set aside in the New Entrants Reserve.
Historical development
EU-ETS TRADING SYSTEM
It's a compulsory system
Give allowance to companies in member countries.
Any business that emitted more than the given emission has to buy cap from other companies as well as paying fine, which was 100 Euro per tonne of CO2 in 2013.
Two parts of allowance and caps:
Power plants, factories and other fixed installations
This part decreases annually by 38,264,246 allowance during phase three.
2013: 2,084,301,856 allowances in 28 EU Member States and the three EEA-EFTA states
2020 emissions will be 21% lower than in 2005.
Aviation allowance
210 million allowance per year for 2013-2020

Ways to trade
2005-2010, there are two ways of trade: OTC(over the counter) and exchange.

2010-2013: Auctions became an alternative way to trade.
How does the auction work?
The auction format is a single-round, sealed bid, uniform price auction, which facilitates participation, including by SMEs (small medium enterprises).
As the bidding closed, a clear price will show up and any one who offers higher prices than it can buy the emissions at the clear price.
Auctions in different platform occur on certain days and the amount of auctions differs from month to month.
Where does the auction work?
Common auction platform: for Member States and the commission to auction allowance.

Opt-out platform.
Germany: EEX
UK: Ice Futures Europe(ICE)
Poland: has contracted EEX
Futures in EU ETS
In 2007, trade of futures for the free allowance in phase two began.
During Phase two, the price has the identical path with that of future price of 2009
(sources:http://1.bp.blogspot.com/-zaj7y16q_Ys/UVMXGi8sK0I/AAAAAAAABhs/Wh6oBWzBEWA/s1600/2008+Dellero+EU+ETS+CO2+price)
ton and EUA(EU Allowance) are common quantity units of price.
2006: far too many EUA for the actual emission. The price collapsed in 2007
2008: EU climate and energy package 2020 strengthened the markets.
2009-2013: financial and economic crisis and debt crisis. Low demands of allowance.
link to other ETS
Australia:
In August 2012, agreement on a pathway for linking the EU ETS and the Australian emissions trading scheme announced.
A full two-way link will start no later than 1 July 2018.
The cap and trade in two ETS will be recognized mutually.
Switzerland
the European Commission is also negotiating with Switzerland on linking the EU ETS with the Swiss ETS.
Other developing countries
Introducing new market mechanism.
Future of EU ETS
The European Cement Association: Needs remedy.
Two main perils
Carbon leakage( can be solved by requiring importers to reach EU ETS)
applying ETS to aviation( need more subtle diplomacy)
Fundamental problem: low CO2 price.
needs 70 EUR/EUA to support mechanism, while forcasts 20 EUR/EUA until 2025.
Future of EU ETS
Department of Energy & Climate Change of UK:
Key elements of future design:
Cap setting
Allocation methodology and carbon leakage
Role of potential price or allowance supply control mechanisms.
My opinions
The low price is the core problem for building a strong carbon market in EU ETS.
As Europe gradually goes through the economic and debt crisis, the price will show a upward trend, but when it will come depends.
With the effort of linking to other ETS, an international carbon market network will establish and Europe has the advantage of making the rules for their first and largest international carbon market of the world.
References

Trends and projections in Europe 2013: Tracking progress towards Europe's climate and energy targets until 2020

http://ec.europa.eu/clima/policies/ets/cap/auctioning/docs/cap_report_201407_en.pdf

http://1.bp.blogspot.com/-zaj7y16q_Ys/UVMXGi8sK0I/AAAAAAAABhs/Wh6oBWzBEWA/s1600/2008+Dellero+EU+ETS+CO2+price

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/191803/12_April_EU_ETS_event_presentation.pdf

http://ec.europa.eu/clima/policies/ets/index_en.htm

http://ec.europa.eu/clima/publications/docs/factsheet_ets_en.pdf

http://ec.europa.eu/clima/policies/ets/cap/index_en.htm

http://www.energyroyd.org.uk/archives/9899

http://ec.europa.eu/clima/policies/ets/cap/auctioning/faq_en.htm

http://ec.europa.eu/clima/policies/ets/cap/auctioning/docs/cap_report_201407_en.pdf

http://ec.europa.eu/clima/policies/ets/linking/index_en.htm

http://www.cembureau.eu/newsroom/article/eu-ets-does-it-have-future

(Sources:Bloomberg New Energy Finance. Figures taken from Bloomberg, ICE, Bluenext, EEX, GreenX, Climex, CCX, Greenmarket, Nordpool. )
by Chenying Zhou
Thank you for listening!
(sources: http://ec.europa.eu/clima/policies/ets/cap/auctioning/faq_en.htm)
(sources:http://ec.europa.eu/clima/policies/ets/cap/auctioning/docs/cap_report_201407_en.pdf)
(sources:Trends and projections in Europe 2013
Tracking progress towards Europe's climate and energy targets until 2020)
Full transcript