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Proposal to amend the EU Emissions Trading Directive

Commission proposals would also impact on CDM/JI market

January 2008 - The European Commission presented its draft climate change and energy package on 23 January. Many of the proposals it contains would have a severe impact on the CDM/JI market.

The existing system whereby member states’ national allocation plans set maximum thresholds for industrial emissions to be counted in the emissions trading scheme is to be abolished. Caps in the EU Emissions Trading Scheme (ETS) will now be set at EU level.

Under the new proposal, emissions covered by the ETS will be cut by 21 percent by 2020 based on levels in 2005. This means an average annual emissions cap of 1.8 Gt CO2-equivalent for the period 2013 to 2020. In sectors not covered by the ETS, the proposal calls for greenhouse gas reductions of 10 percent compared with 2005 levels. Both these targets will be raised if a more stringent target than 20 percent is agreed by the international climate change regime.

The number of free allowances is also to be cut: by 2020 free issuance will be stopped and replaced by auctions. The energy sector will switch to auctions only from 2013. With certificates priced at €30 each, auctioning stands to bring in some €50 billion in 2020. Until the system has gone completely over to auctioning, standardised rules will be introduced to govern the issuance of free allowances. However, the final decision for or against issuing free certificates will not be made until 2011.

New Counting Methodology for CDM/JI Certificates

The proposal contains two scenarios for use of CDM/JI certificates

If no new international climate change agreement is reached, then from 2013 facility operators will be able to use excess CDM/JI certificates from the period 2008–2012. To do so, they must request permission from their respective governments to exchange 2008–2012 certificates for ones that are valid from 2013. Certificates from new energy efficiency and renewables projects may also be used if memorandums of understanding (MoUs) are entered into with the host countries involved and the hosts do not increase the overall quantity of available certificates. Certificates from projects in least developed countries can be used without the need for MoUs.

If a new international climate change agreement is signed and sets the EU a stricter target that 20 percent, the number of eligible CDM/JI certificates will automatically be increased by half of the additional effort needed. Certificates will, however, only be accepted from projects conducted in countries that have ratified the new agreement.

Certificates from sink projects would still not be eligible for use beyond 2012.

In addition to CDM and JI, certificates may be generated from national offset projects conducted within the EU in sectors not covered by the ETS. These could then be used in emissions trading. The national offset projects must be managed in accordance with a standardised process prescribed by the Commission.

The entire package has still to be debated and approved by the Council of Ministers and the European Parliament.

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