Issue: 9Wednesday, 16 March 2016
The first quarter of 2016 was a productive one for ICAP: we are pleased to present the 'ICAP Status Report on Emissions Trading Worldwide 2016'. Moreover, in cooperation with the World Bank's Partnership for Market Readiness (PMR), we just published 'Emissions Trading in Practice: A Handbook on Design and Implementation'. More on both outputs below in the 'News from ICAP' section.
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On 25 February, Ontario released a draft regulation for its cap-and-trade program scheduled to start in 2017. The program largely mirrors the provisions of the California-Québec carbon market with which it intends to link from 2020. It will cover CO2 emissions from the power sector, industry and petroleum product suppliers. The inclusion threshold is set at 25,000 tCO2e per year, with a voluntary opt-in for entities emitting more than 10,000 tCO2e per year. The government will issue 142.3 million allowances in 2017, with the total number of issued allowances declining 4.2% annually until the end of the first compliance period in 2020. Covered entities can use offsets and credits to meet 8% of their compliance obligation. Manufacturers, electricity generation from biomass, and opt-in emitters are likely to receive free allocation. The remaining allowances will be auctioned quarterly. The 2017 minimum auction price will be based on the California-Québec minimum auction price and will similarly increase 5% annually in addition to inflation. The draft proposal is open for comments from stakeholders and the wider public.
On 9 February, the United States Supreme Court issued a stay on the Environmental Protection Agency’s (EPA) Clean Power Plan (CPP), which imposes state-wide mitigation targets on CO2 emissions from existing power plants. The decision delays the enforcement of the CPP until an appeals court can rule. The CPP represents a key part of President Obama’s strategy to reach his administration’s goal of reducing greenhouse gas emissions (GHG) by 26% below 2005 levels by 2025. The Washington DC Circuit Court of Appeals will hear oral arguments starting on 2 June 2016. Some states intend to introduce measures to comply with the targets regardless of the outcome of the court hearing.
On 25 January, the European Commission and Switzerland initialed an agreement to link their ETSs, concluding five years of negotiations (press release). For the treaty to enter into force, it must be signed and ratified by both sides. The timetable for this is open and dependent on broader Swiss-EU political relations. Once the link is operational, carbon prices should converge resulting in a level playing field for Swiss and EU based industry. Swiss ETS emissions make up 0.3% of emissions covered by the EU ETS. While many elements of the Swiss system were designed to match provisions in the EU ETS (e.g. allocation benchmarks), the scope of the Swiss ETS will expand to include aviation once linked to the EU ETS. Switzerland has cited lower cost emission reductions, enhanced liquidity, clearer price formation and price stability as expected benefits from the link.
The Tokyo Metropolitan Government reported that its cap-and-trade program has reduced emissions by 25% compared to base-year emissions in its fifth year of operation. This amounts to a total emissions reduction of 14 million tons in the program’s first compliance period (FY2010-FY2014). The reduction was achieved through entities continuing the energy-saving measures implemented after the power crises following the Great East Japan Earthquake in 2012. As of February 2016, over 90% of targeted facilities have surpassed their reduction targets for the first compliance period and 76% of entities have already surpassed their target for the second compliance period, which started in April 2015 and lasts until FY2019. The program will help Tokyo achieve its new GHG reduction plan to reduce emissions 30% by 2030 compared to 2000 levels.
On 11 January, the National Development and Reform Commission (NDRC) published a Notice on Key Works in Preparation for the Launch of the National ETS (Chinese). The notice lays down the sector coverage for China’s ETS, reaffirms the planned 2017 start date of the system and outlines priorities for ETS preparation in 2016. The notice lists eight sectors to be included in the ETS from 2017: petrochemicals, chemicals, building materials, iron and steel, non-ferrous metals, paper making, power generation and aviation. All entities from these sectors whose energy consumption exceed 10,000 tons of standard coal equivalent in any year between 2013 and 2015 are considered for inclusion in the ETS from the start date. Preparation activities in 2016 include compiling the list of entities to be covered by the national ETS and collecting their verified historic emissions data, developing and selecting third-party verification organizations, and finally, capacity building for key public and private stakeholders.
On 26 January, the Beijing Municipal Commission of Development and Reform (BJ DRC) published a notice (Chinese) stating that its ETS will continue operation beyond the end of June 2016, the original compliance deadline for the pilot. The notice does not give an indication of an end date for the system. The BJ DRC has said it will propose to the NDRC to allow Beijing ETS entities that will be covered by the national system to carry over allowances into the national ETS.
In February 2016, the Shanghai Development and Reform Commission (SH DRC) published an updated list of participants (Chinese) for its pilot ETS. A lower threshold for the industry sector and the inclusion of local shipping from 2016 onwards significantly increase the number of participants in the system, from 191 entities in the first three years of operation to 312 in 2016. The majority of new participants are from the industry sector (156 out of 171 new participants), which is now subject to a threshold of 10,000 tCO2e per year, compared to 20,000 tCO2e per year in previous years. While ports were already covered from the start of the pilot ETS, local shipping will be included from 2016 onwards. Correspondingly, the SH DRC also published an interim guideline for monitoring and reporting of GHG emissions from the shipping industry (Chinese). Shanghai became the second Chinese pilot after Beijing to officially confirm the extension of its ETS for the year 2016.
On 26 February, the Korean government announced that responsibility for the Korean Emissions Trading Scheme (KETS) would move from the Ministry of Environment to the Ministry of Strategy and Finance. Additionally, the Prime Minister’s Office would take a more active role in the operation of the KETS (press release - Korean).
CNY 51.00 (USD 7.85)**CNY 13.00 (USD 2.00)**CNY 15.20 (USD 2.34)**CNY 8.30 (USD 1.28)**CNY 21.88 (USD 3.37)**CNY 45.00 (USD 6.93)**CNY 23.06 (USD 3.55)**
Tanjiaoyi News Service (Chinese)
Carbon News New Zealand
1 Reported in short tons; one short ton = 0.907185 metric tonWhere available, prices reported are the clearing price at the latest auction (denoted with *).Where no auction prices are available, secondary market prices are reported (denoted as **).For conversion into USD, the exchange rate of 14.03.2016 was used.
ICAP and the World Bank's Partnership for Market Readiness (PMR) released their 'Emissions Trading in Practice: A Handbook on Design and Implementation'. The handbook synthesizes input from over 100 practitioners and experts from four continents, reflecting both the latest theory and best practices from existing ETS. The handbook was presented at a joint workshop hosted by the PMR and ICAP in Zurich, Switzerland on 10 March. Both initiatives will use the handbook as part of their ongoing capacity building efforts on emissions trading.
On 23 February, ICAP launched the Status Report 2016 with two public webinars on key policy developments in emissions trading worldwide. This year’s report provides insights into the latest in emissions trading: SinoCarbon assess China’s rapid transition to a national carbon market, while the Korean Ministry of Environment discusses the first year of its national system. The Tokyo Metropolitan Government looks at recent innovations within their unique city-wide program. Across the Atlantic, experts from the Regional Greenhouse Gas Initiative outline how their system could provide a role model for compliance with the CPP. The California Air Resources Board also looks back on its first phase of operation and the potential for expanding its carbon market. The European Commission lays out its preparations for reforming the EU ETS, while the Dutch Emissions Authority reflects on how the EU ETS could be made simpler.
From 3 to 12 May, ICAP will convene an ICAP Training Course on Emissions Trading for Emerging Economies and Developing Countries in São Paulo, Brazil, targeting the Latin American region. The application period has now closed. Applicants will be informed in due course.
In July, ICAP will convene the second ICAP Training Course on Emissions Trading for Emerging Economies and Developing Countries for 2016 in Brussels, Belgium. It is open to all developing countries. Application will be open soon on the ICAP website.
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