MANAGING POLICY INTERACTION WITH THE EU ETS 27 September Alex Luta

Transcription

1 MANAGING POLICY INTERACTION WITH THE EU ETS 27 September 2017 Alex Luta

2 PÖYRY IN BRIEF CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 2

3 Million EUAs NEED FOR STEADINESS The review of the EU ETS likely has not ensured a Phase 4 price that can reliably guide decarbonisation Troubled European carbon market Ideal mechanism 2,500 2,000 1,500 1, RES EE Other? Targeted Timely Accurate -500 Cumulative stationary surplus Stationary emissions Spot price -7 Predictable Politically feasible CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 3

4 BUILDING BLOCKS An effective mechanism requires a well-thought out structure Scope Coverage All instruments that increase market surplus Quantification Actor Member States with Commission review Frequency Every two years Intervention Nature Cancellation from auctions Frequency Every year Duration For the duration of the ETS Timing Ex ante and ex post Baseline Policy by policy from moment of introduction Timing Ex ante and ex post Burden sharing Policy pays CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 4

5 POLICY COHERENCE MECHANISM OVERVIEW By combining ex ante and ex post quantification, the mechanism withdraws the correct volume of allowances over time Today Let s make a new policy! MS quantifies expected impact ex ante 2 years later COMM cross-checks quantification recommends volumes to be cancelled MS Updates auctions with recommended cancellations How is our policy doing? MS Quantifies actual impact ex post Compares with ex ante results CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 5

6 Commission Projected emissions (Mt) Member States MINIMAL EFFORT The mechanism should fit seamlessly into existing institutional arrangements Pre-existing practices Proposed practices 3,000 Document 2,750 Long-term emission strategy 2,500 2,250 Integrated national energy and climate plans 2,000 Biennial progress report 1,750 State of the Energy Union report 1,500 Assessment of MS submissions ETS: with existing measures ESD: with existing measures ETS: with additional measures ESD: with additional measures Source: European Environmental Agency. Trends and projections in Europe 2016 Tracking progress towards Europe s climate and energy targets. Recommendation to individual MSs Union level action to ensure Energy Union goals CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 6

7 CONCLUSIONS The policy coherence mechanism preserves the environmental integrity of all instruments ETS or otherwise Both Union-level and MS-level policy objectives should be met. The effectiveness of the ETS is sure to suffer if decision-makers ratchet up the objectives of non-ets instruments. The MSR alone is too untargeted and slow to correct for the effects of policy overlap. The policy overlap mechanism allows MSs and the Union to pursue narrower individual objectives without jeopardising the carbon price. CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 7

8 Alex Luta Pöyry Management Consulting Oxford, UK Direct

9 Proposed intervention (M EUAs) Quantified effect (Mt) MS & COMM in discussions Quantified effect (Mt) vs Proposed intervention (M EUAs) ACCURACY Including ex post quantification improves intervention accuracy First quantification (2023): ex ante Second quantification (2025): ex ante & ex post MS & COMM Ex ante quantification from 2023 Ex ante quantification from 2025 Cancellation schedule from 2025 (corrected) Actual cancellation schedule Flexible quantification enables accurate intervention Cancellation schedule from 2023 (already implemented) Cancellation schedule from 2025 onward (corrected) The mechanism intervenes by cancelling 20M EUAs until the quantification is updated The update revises interventions down to 13M EUAs when new evidence is accepted The intervention still matches the actual impact of the overlapping policy: Actual: 7 years x 15 M/year = 105 M. Intervention: (2 years x 20 M/year) + (5 years x 13 M/year) = 40 M + 65 M = 105 M. CARBON FORWARD: ETS POLICY OVERLAP MECHANISM 9