Issue: 7 Tuesday, 22 September 2015
We are pleased to present the International Carbon Action Partnership (ICAP) newsletter, a quarterly summary of the latest developments in emissions trading around the world and activities here at ICAP.
For more information on operating cap-and-trade systems and those under development / consideration around the world, please visit the ICAP Interactive ETS Map on our website. It is updated regularly as new information becomes available.
The ICAP Secretariat
On 3 August 2015, United States (US) President Barack Obama announced the final rules for the Clean Power Plan (CPP). The rules set individual standards for each state to reduce carbon emissions from existing power plants by 2030. States have until 2018 to submit a compliance plan. In developing their plans, they have the option of converting their emission-rate targets to mass-based targets, and they can also link up with other states through cap-and-trade systems such as the Regional Greenhouse Gas Initiative (RGGI).
The US Environmental Protection Agency (EPA) has proposed a Federal Implementation Plan (FIP) for states that do not submit their own plans, as well as model trading rules. States that use the FIP or that base their plans on the model trading rules would be able to trade credits without an additional interstate agreement. The FIP is open for comments for 90 days, and the EPA intends to have it finalized by summer 2016.
On 30 June, China submitted its Intended Nationally Determined Contribution (INDC) to the UNFCCC. It contains China’s goal to peak emissions around 2030, as well as increasing the share of non-fossil fuels in its primary energy consumption by 20% by 2030. Domestic emissions trading is prominently mentioned in the INDC (Chapter II Section L). The INDC states that a nationwide ETS is to be established based on the existing pilot systems. It also commits to improving its Monitoring, Reporting and Verification (MRV) system and the relevant rules of the market. The inclusion of ETS in China’s INDC is not only a high level political endorsement of emissions trading, but also confirms the government's intention to pursue ETS as an important tool in achieving its climate targets.
In July, the second compliance period ended in all seven Chinese pilot ETS. Participants generally fulfilled their obligations. However, as in the previous year, some pilots extended their deadlines to give participants more time to surrender allowances.
On 15 July, the European Commission published its legislative proposal to revise the European Union Emissions Trading System (EU ETS) for its fourth phase starting in 2021. The suggested revisions will be in addition to the establishment of the Market Stability Reserve that received final approval on 18 September 2015. The proposed amended directive is to implement the ETS portion of the 2030 Climate and Energy Framework endorsed by European heads of state in October 2014. The framework stipulates that ETS sectors will have to reduce their greenhouse gas (GHG) emissions by 43% below 2005 levels by 2030. As a result, the annual reduction factor for the ETS will increase from 1.74% to 2.2%. The proposal also includes a revision of the carbon leakage list, updates of the benchmarking standards that govern free allocation and the establishment of two funds to help member states mitigate their emissions.
The Commission’s proposal must be agreed upon by the Council of the European Union, as well as the European Parliament, in a process that is likely to take at least two years.
The Republic of Korea submitted its INDC on 30 June, outlining a mitigation target of 37% below business-as-usual emissions by 2030. This means that a maximum of 536 MtCO2e should be emitted in 2030 (22% below 2012 levels, excluding land use, land-use change and forestry). About a third of the mitigation effort (roughly 100 MtCO2e) would rely on international market mechanisms, leaving the remaining two thirds to be achieved on the domestic level. The Korean ETS, introduced in 2015, covers about two thirds of the country’s GHG emissions. For now, companies may cover 10% of their liability using domestic offsets. This includes domestic CDM credits (that must first be cancelled and swapped for domestic units), as well as other domestic credits from activities fulfilling international offset standards or from carbon capture and storage (CCS). All offset activities must have been implemented after 14 April 2010 in order to be eligible. Starting from 2021 international offsets can also contribute up to half of the total offsets allowance.
New Zealand submitted its INDC to the UNFCCC on 7 July, outlining a 30% reduction in GHG emissions by 2030 below 2005 levels. This is the equivalent of an 11% decrease in emissions compared to 1990 levels. The INDC relies on the use of international market mechanisms, assuming such mechanisms will be allowed under a new climate agreement. As Climate Change Minister Tim Groser explained, given the high share of renewable electricity in New Zealand’s electricity mix and the lack of cost-effective mitigation options for food production (accounting for half of national emissions), there are currently fewer opportunities for New Zealand to limit its emissions.
The Californian Air Resources Board (CARB) has voted to adopt an offset protocol for rice farming as an eligible project category to generate credits for use in the California-Québec cap-and-trade system. Covered entities may use these credits to meet 8% of their compliance obligation. Farmers throughout the US who engage in approved methane reduction practices can receive carbon credits for each ton of CO2 reduced. Offsets from forestry, livestock, ozone depleting substances and mine methane capture projects may also be used. The CARB predicts that the rice protocol will generate an additional offset supply of 0.5-3.0 MtCO2e until 2020. It also expanded the forestry protocol to include projects in Alaska. Previously, the protocol had been limited to the 48 contiguous states.
On 18 August, the joint California-Québec carbon market held its fourth quarterly auction of 2015 and 2018 vintage allowances. All 73.4 million 2015 vintage allowances were sold at USD 12.52 (above the USD 12.10 price floor). The 10.4 million 2018 vintage allowances also sold out at auction, clearing at USD 12.30.
ICAP is delighted to welcome Switzerland as its 31st member. Dr. Bruno Oberle, Director of the Federal Office for the Environment of Switzerland, signed the ICAP Political Declaration on 22 June 2015. Switzerland has been operating an ETS since 2008. It was designed to be highly compatible with the EU ETS in order to facilitate future linking between the two systems. Negotiations on this issue are currently ongoing.
ICAP convened its inaugural Masterclass on Emissions Trading in London, United Kingdom (UK), from 12 to 17 July, 2015. The Masterclass brought together 30 highly qualified participants with substantive experience and expertise on ETS from 14 countries. Speakers included policymakers from ICAP members (representatives from the European Commission, France, Germany, and RGGI), international ETS experts, as well as representatives from the financial and academic sectors. The ICAP Masterclass was hosted by the UK Department of Energy and Climate Change and took place at Imperial College London. The course was funded by the European Commission.
Policymakers from a wide range of ICAP jurisdictions, ICAP co-chairs and the ICAP Secretariat will convene in The Hague in October for the ICAP Annual Meeting. The meeting will kindly be hosted by the Government of the Netherlands, which currently co-chairs the partnership together with the province of Québec. Aside from the second ICAP technical workshop on linking ETS, the meeting agenda includes updates on recent ETS trends and plans in ICAP jurisdictions, as well as discussions on ICAP activities in the realms of capacity building and knowledge sharing on ETS.
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