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 โ an intertemporal perspective Constanze Haug ICAP Secretariat
- 2. At system inception โข Primary goal: compensate for stranded assets, ease the transition โข Free allocation likely to dominate, but auction at least some allowances: market liquidity, price discovery, public revenue โข Prepare for (or start with a simpler approach to) benchmarking
- 3. System consolidation โข Free allocation becomes more targeted -> focus โ prevent carbon leakage risks in internationally competitive industries - > does not mean there is no carbon price signal โข Benchmarking now main method of free allocation โข Clear signal needed that free allocation will go down over time โข 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 โ carbon leakage protection over the long run โข Continuing high levels of free allocation make decarbonisation more costly/difficult to achieve in the long term โข Indicators for diminishing need for free allocation? โข Align approaches internationally โข Consider other options: border-tax adjustments, consumption charges, complementary policies International Carbon Action Partnership 4
- 5. In summaryโฆ 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 โฌ $ 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% โฆ while maintaining climate ambition!
- 12. Looking to the future โข Regularly review and align cap trajectories with raised NDC ambition โข 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