Addressing competitiveness concerns in ETS design an intertemporal perspective, Constanze Haug - ICAP
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Session 3 presentation from the 3rd Strategic Dialogue of the Carbon Market, 21-22 September 2018
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Addressing competitiveness concerns in ETS design an intertemporal perspective, Constanze Haug - ICAP
- 1. Addressing competitiveness concerns in ETS design – an intertemporal perspective Constanze Haug ICAP Secretariat
- 2. At system inception • Primary goal: compensate for stranded assets, ease the transition • Free allocation likely to dominate, but auction at least some allowances: market liquidity, price discovery, public revenue • Prepare for (or start with a simpler approach to) benchmarking
- 3. System consolidation • Free allocation becomes more targeted -> focus – prevent carbon leakage risks in internationally competitive industries - > does not mean there is no carbon price signal • Benchmarking now main method of free allocation • Clear signal needed that free allocation will go down over time • Use ETS revenue to build long-term political support for the system / address impacts on vulnerable groups International Carbon Action Partnership 3
- 4. Mature systems – carbon leakage protection over the long run • Continuing high levels of free allocation make decarbonisation more costly/difficult to achieve in the long term • Indicators for diminishing need for free allocation? • Align approaches internationally • Consider other options: border-tax adjustments, consumption charges, complementary policies International Carbon Action Partnership 4
- 5. In summary… International Carbon Action Partnership 5 Emissions Emissions Time INCEPTIO N THE LONG RUN CONSOLIDATIO N
- 6. International Carbon Action Partnership 6 Thank you for your attention! www.icapcarbonaction.com info@icapcarbonaction.com @ICAPSecretariat B A
- 7. International Carbon Action Partnership 7 Balancing policy objectives Competitiveness & avoid carbon leakage Cost-effective emission reductions € $ Raise public revenue, e.g. for low-carbon innovation Manage the transition to an ETS
- 8. BACK UP SLIDES International Carbon Action Partnership 8
- 9. Comparing allocation approaches among key ETSs Free allocatio n share Sectors receiving free allocation Benchmarking introduced Primary Allocation method EU ~43% Industrial activities, aviation 2008, expanded from 2013 Fixed baseline period Californi a (WCI) ~50% Industrial activities, electric distribution utilities and natural gas suppliers* 2013, expanded from 2014 Output-based benchmarking Quebec (WCI) ~30% Industrial activities; electricity production*; electricity imports from RGGI States. 2013 Output-based benchmarking RGGI ~0% -- -- -- New Zealand ~23% Industrial activities exposed to transoceanic trade 2010 Output-based benchmarking Korea ~ 97% All covered sectors 2015? Grandparenting International Carbon Action Partnership 9
- 10. ETS revenues: potential for compensation and for sizeable co-benefits International Carbon Action Partnership 10
- 11. International Carbon Action Partnership 11 Mt CO2 -40% … while maintaining climate ambition!
- 12. Looking to the future • Regularly review and align cap trajectories with raised NDC ambition • Gradual phase-down of free allocation key to setting timely incentives for long-term decarbonization -> Dialogue amongst major ETSs to compare and potentially align approaches over time International Carbon Action Partnership 12
- 13. International Carbon Action Partnership 13 Thank you for your attention! www.icapcarbonaction.com info@icapcarbonaction.com @ICAPSecretariat