Dear reader,

We are pleased to share the ICAP newsletter, a quarterly summary of the latest trends in emissions trading around the world and activities here at the International Carbon Action Partnership.

For more information on cap-and-trade programs in force and in the works around the world, please visit the ICAP Interactive ETS Map on the ICAP website. It is updated regularly as new information becomes available.

New on the website, we have also added a short introduction to the key ETS design elements with links to relevant websites and studies.

Kind regards,

The ICAP Secretariat

In this issue:

ETS around the world

• Chinese regions and cities experiment with ETS design

• EU ETS reform: EU approves back-loading and the Commission proposes a market stability reserve

• ETS link between California and Québec operational

• US Regional Greenhouse Gas Initiative updates program

• In focus: Comparison of key design features of Chinese ETS pilots

News from ICAP

• ICAP ETS Status Report 2014 released; relaunch of the interactive ICAP ETS Map

• ICAP Training Courses on emissions trading

Emissions Trading Schemes (ETS) around the world

Chinese regions and cities experiment with ETS design

When it comes to climate policy and carbon market developments, all eyes are currently on Asia and especially on China. The world’s largest greenhouse gas emitter first laid out its ambition to gradually build a carbon market in its 12th Five Year Plan in 2011. Seven cities and provinces were designated to develop regional pilot schemes before trading may be eventually rolled out on the national level. After Shenzhen launched its pilot emissions trading scheme in June 2013, four other cities and provinces followed suit: Shanghai and Beijing in November, Guangdong (with an annual cap of about 390 Mt CO2 the second biggest system in the world after the European Emissions Trading Scheme) and Tianjin in December. Hubei and Chongqing are expected to start trading in the next few months. Together, the seven pilots´ coverage exceeds 700 Mt CO2, equivalent to more than UK´s total greenhouse gas emissions.

The various pilots have certain features in common, but differ in others. All systems cover indirect and direct emissions of carbon dioxide, but not currently other greenhouse gases. Further, they allow for price stabilization measures by the competent authority and the use of “Chinese Certified Emission Reductions” (CCERs) as offsets. The pilots had flexibility in designing other aspects of their systems, for instance the kinds of installations (sectors) covered and their allowance allocation method. Trading activity has varied among the pilots so far, resulting in a variety of price levels across schemes. Currently, prices range from CNY 27 to 75 (ca. EUR 3 to 9). Further details on the design of each system can be found in the table below.

In addition to the seven pilot regions designated by the central government, other cities have started with their own plans in anticipation of a potential national scheme. In late February, the city of Qingdao in Shandong Province made headlines when it was reported that it would establish an ETS next year. Other cities such as Jining and Shenyang made similar statements. Hangzhou in Zhejiang Province passed ETS legislation in June of last year.

EU ETS reform: EU approves back-loading and the Commission proposes a market stability reserve 

On 24 February 2014, Ministers in the European Council gave the final green light for the ‘back-loading’ of allowances in the European Emissions Trading Scheme (EU ETS). Back-loading refers to the temporary withholding of 900 million emission permits from auction, in order to address the surplus build-up in allowances in the EU carbon market. 400 million allowances will be withheld from the market in 2014, another 300 million in 2015 and 200 million in 2016. In January, the draft amendment to the EU ETS Auctioning Regulation was endorsed by the EU Climate Change Committee and the European Parliament. The EU Parliament also agreed to shortening the scrutiny period so that the measure could be implemented sooner. The Ministers’ approval on 24 February was the last step required for final adoption. 

As part of the proposed 2030 framework for climate and energy policies, the European Commission also published a proposal for a longer-term, structural reform of the EU ETS on 22 January 2014. The proposed GHG reduction target of 40% by 2030 for the EU as a whole, which excludes international credits, would result in a tightening of the ETS cap by 2.2% annually, compared to 1.74% between 2012 and 2020. To address the imbalance between demand and supply of allowances, the Commission proposes the establishment of a market stability reserve. Auction volumes would be automatically adjusted by placing allowances into the reserve or releasing them, based on pre-defined thresholds relating to the total number of allowances in circulation (Commission proposal and Q&A). The Council, the European Parliament, the Committee of the Regions, and the Economic and Social Committee will now consider the proposal.

ETS link between California and Québec operational 

California and Québec announced in October 2013 that they would link their cap-and-trade systems as of 1 January 2014. Both systems’ first compliance periods started at the beginning of 2013. In setting up their systems, regulators benefited from the common basis of discussions within the framework of the Western Climate Initiative (WCI), a grouping of North American jurisdictions working on emissions trading. In preparing for the link, California and Québec cooperated closely to amend and harmonize their respective regulations over the course of 2013. The first international link of two discrete trading systems, the link is even more significant because it is also an example of subnational jurisdictions taking the initiative before their respective national governments. The agreement provides for the mutual acceptance of emission allowances for compliance obligations. Joint allowance auctions will start later in 2014 (Fact sheet Linking - California Air Resources Board; Agreement Ratification - Québec). With the scheduled expansion of the scope of both programs in 2015, the linked market will amount to about 460 Mt CO₂e, the second largest worldwide.

US Regional Greenhouse Gas Initiative updates program 

States participating in the Regional Green House Gas Initiative (RGGI), a cap-and-trade system for electricity producers in the Northeastern US, conducted a review of their system in 2012. The program review came at a time when emissions had dropped significantly and emissions allowance prices hovered around the price floor with limited trading activity. In 2013, the states developed an updated model rule that guided each of the participating states in revising its regulations. The new rule is being implemented starting this year (RGGI press release). The reform reduces the cap from 165 million short tons CO₂ in 2013 to 91 million short tons CO₂ in 2014 (a 45% cut) and endorses a cancellation of previously unsold allowances. The new rule maintains the program’s original 2.5% annual cap reduction from 2015 through 2020. The first auction to take place under the new cap will be held on 5 March 2014, but the change provided an immediate positive signal to the market even before going into effect. 

News from ICAP

ICAP ETS Status Report 2014 released; relaunch of the interactive ICAP ETS Map

ICAP just released a new report, ‘Emissions Trading Worldwide: ICAP Status Report 2014’. The report offers detailed factsheets on all existing and planned ETS around the world. Infographics allow for easy comparison of different systems, and contributions by policy-makers and carbon market experts from three continents provide insight into key milestones in setting up and running an ETS. This publication complements ICAP’s monitoring work on ETS developments worldwide presented on the ICAP ETS Map. Relaunched in December 2013, the map serves as an interactive tool to help visualize the status of ETS around the world. Users are able to access detailed and up-to-date information on schemes both in force and in planning, and compare their key design elements. 

ICAP Training Courses on emissions trading

ICAP will convene two training courses in 2014, targeting outstanding policy makers and representatives from NGOs, academia and the private sector to build capacity on emissions trading. The first course will take place in Chile in May and is aimed at climate change professionals from Latin America and the Caribbean. The second course will be held in Paris from 25 August to 5 September; participation will be open to all nationals from developing countries and emerging economies. Application documents and further information will be posted on the ICAP website in mid-April. 

Courses on emissions trading have been a core activity of ICAP for a number of years. The courses provide an advanced introduction to key elements in developing an ETS, such as scope and coverage, allocation methods, stakeholder engagement, data collection and inventory generation, market analysis and drivers. In addition, policy and carbon market practitioners share insights into existing programs and reflect on challenges in their implementation and lessons learned. Group exercises complement presentations and promote the creation of an active network. The teaching faculty is composed of policy-makers from ICAP member jurisdictions, international ETS experts, carbon market analysts and other market players. Including the three courses in 2013 and previous years, the ICAP alumni network has now grown to 236 members from 34 countries. 

In focus: Comparison of key design features of Chinese ETS pilots 

DISCLAIMER: The information contained in this newsletter has been carefully researched and compiled by the ICAP Secretariat. It does not necessarily represent the views of ICAP or its members. The ICAP Secretariat does not assume any liability for the accuracy, completeness, or timeliness of the content of this newsletter or the websites that it links to.  

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