Issue: 4 8 January 2015
Happy New Year to all our ICAP newsletter subscribers!
To kick off a big year for climate change action we are pleased to share with you the first ICAP newsletter for 2015, a quarterly summary of the latest developments in emissions trading around the world and activities here at ICAP.
Also keep your eyes out for the 2015 edition of the ICAP Status Report coming out next month! The report combines up-to-date factsheets on existing and planned ETS worldwide with contributions from policy-makers and carbon market experts. It also includes a compact visual summary of key trends in ETS worldwide.
For more information on emission trading systems in force and in the works around the world, please visit the regularly updated ICAP Interactive ETS Map on the ICAP website.
The ICAP Secretariat
Asia’s first national ETS entered into force on 1 January. The Korean ETS covers 525 business entities from 23 sectors and now forms the second largest carbon market worldwide after the EU ETS, with a three-year cap of 1.687 billion tCO2e (read more here on individual allocations to the liable entities). The Korean Exchange will start carbon trading, including derivative market operations, on 12 January. Participating entities must submit their emissions reports by March 2016 and surrender their allowances and offset credits by the end of June 2016. The Korean ETS has faced intense opposition from industry and the government has taken measures to address their concerns. It has decided to waive the originally planned VAT on emissions allowances, with formal legislation expected to be passed in February (news article). Read more…
California and Québec took two important steps for the future of their linked cap-and-trade programs: their first joint auction was held on 25 November 2014 and as of 1 January 2015 they expanded their system coverage to include fuel distributors. Although California and Québec allowances and offsets have been valid in each other’s systems since 1 January 2014, the joint auction demonstrates the close cooperation between the two jurisdictions and is an important milestone in creating a fully linked ETS. 23 million units for 2014 were sold at USD 12.10 / CAD 13.69 each and 10 million units for 2017 were sold for USD 11.86 / CAD 13.41 each. More information, including auction notices and results (from 3 December 2014), can be found here (ARB in English) and here (MDDELCC in French). On 1 January 2015, California and Québec took the further step of expanding their systems to include fuel distribution. As a result, 85% of their economies are now covered by their linked trading systems. The phased expansion of coverage in the second compliance period was stipulated in their respective regulations. Suppliers of natural gas, gasoline, distillate fuel oils, liquefied petroleum gas, and liquefied natural gas will now have to submit allowances corresponding to the carbon content of their supplied fuels. To account for the upstream shift of the carbon accounting, emission resulting from the combustion of these fuels in California and Québec will no longer be included in an entities’ compliance obligation.
On 10 December, the Department of Climate Change of the National Development and Reform Commission (NDRC) published the “Interim Measures for Carbon Emissions Trading” (Chinese) that provide the basic rules for the national ETS that is scheduled to start in 2016. The document mainly focuses on the division of responsibilities between national and provincial authorities, and also contains some core principles for the future ETS. The NDRC will act as the national competent authority in the name of the State Council and will determine the caps at the national and provincial levels, as well as the definition of national standards for scope and coverage, allocation methods and monitoring, reporting and verification (MRV) requirements. On the provincial level, the Development and Reform Commissions (DRCs) are responsible for the implementation of the ETS in their region. They will have a certain degree of flexibility regarding the inclusion of additional sectors and are also allowed to increase the stringency of the allocation rules. Interim measures on allowances and allocation are also outlined. Initially, two types of certificates will be recognized by the scheme: emission allowances and China Certified Emissions Reductions (CCERs). The latter constitutes a domestic offset program that is already being used by the pilot ETS. Initially, most allowances will be given out for free, with the aim of becoming more stringent over time. The regulation also includes provisions for an annual MRV cycle and an option for non-covered entities and individuals to participate in trading.
At the European Council meeting in October, EU leaders agreed on 2030 targets for emissions reductions, renewable energy and energy efficiency, reserving the right to review them after the UN climate change summit in Paris 2015. The target for emission reductions is set at at least 40% by 2030, compared to 1990 levels. In order to reach this goal, sectors covered by the EU ETS will have to reduce their emissions by 43% compared to 2005 levels, whereas non-ETS sectors will have to cut them by 30%. EU leaders also agreed on the need for a reformed EU ETS in line with the European Commission’s proposal published earlier this year. Negotiations on EU ETS reform are ongoing and will continue through 2015. The meeting further confirmed that the annual linear reduction factor for the EU ETS cap is to increase to 2.2% after 2020, up from 1.7% previously. The conclusions of the European Council also contain some prescriptions for the EU ETS post-2020 allocation, carbon leakage concerns, and promoting low-carbon innovation through the New Entrants Reserve (NER 400). Read more…
On 17 December, Washington Governor Jay Inslee proposed a cap-and-trade program to help meet the state’s 2020 goal of reducing its greenhouse gases (GHG) to 1990 levels. The legislative proposal follows the publication of the Governor’s Emission Reduction Taskforce, which was created by Executive Order 14-04 to develop recommendations on the design and implementation of a market-based carbon pollution program. According to the proposal, which also draws on work done with other states through the Western Climate Initiative (WCI), the Washington Department of Ecology would have the authority to enforce the program requirements and to establish an annual allowance budget for the program. The system would cover facilities with emissions of 25,000 mtCOe, as well as electricity and fuel importers, which could amount to as much as 85% of the state’s emissions. Allowances would be distributed through auctions, which could raise up to USD 1 billion annually for the state, which faces a current budget shortfall. The Governor’s bill faces tough opposition in the legislature where Democrats lack a majority in the State Senate.
Mexico has established a mandatory reporting system for direct and indirect GHG emissions for all facilities with annual emissions over 25,000 tCO2e. As of October 2014, emitters in the energy, industrial, transport, agricultural, commercial services, and waste sectors are required to report on various GHG emissions, including carbon dioxide, methane, nitrous oxide, black carbon or soot, fluorinated gases, halogenated ethers, halocarbons, mixtures of these GHGs and any additional GHGs identified by the IPCC and designated by the Secretariat of Environment and Natural Resources (Regulation - Spanish). Every three years, an accredited third party must verify companies’ emission reports. The new regulation is a key step forward in implementing Mexico’s General Law on Climate Change of 2012.
Following the ICAP meeting in Montreal in September 2014, ICAP members have convened a working group on linking ETS. The group’s goal is to facilitate an ongoing dialog among the jurisdictions active in ICAP on the benefits and ways forward to create larger carbon markets. A study on options for ETS to interact and link without fully harmonizing key ETS design elements will be a first focus of the group. Members will also work on a checklist of issues to consider when initiating consultations.
From 26 to 30 January 2015, ICAP and GIZ Mexico will jointly hold a training course to support Mexico's transition to a clean economy. In 2014, Mexico reached key milestones including the launch of the second Special Climate Change Program and of the National Emissions Registry, as well as the energy reform which includes provisions on trading clean energy certificates. The government is now considering complementing these efforts with the introduction of an ETS for the electricity sector. More information on Mexico can be found on the ICAP ETS Map.
ICAP will release the second edition of the ICAP Status Report on ETS worldwide in February 2015. The report will present key trends and figures on emissions trading at the start of 2015, feature articles from policy-makers and experts on ETS trends in their jurisdictions as well as concise, up-to-date factsheets on all jurisdictions currently implementing or considering an ETS. Once released, the report will be made available on the ICAP website.
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