SUMMARY of recent developments on Emissions Trading. ESTONIA By Tiit Kallaste, SEI-Tallinn Estonia has performed successfully in the preparation phase to European Union Emission Trading Scheme (EU ETS) to be launched 01.01.2005. The Ministry of Environment plays a key role in the process, also The Ministry of Economic Affairs and Communication has significant role to carry out. The national allocation plan (NAP) of Estonia for greenhouse gas emission (GHG) allowances for the years 2005- 2007 pursuant to Article 9 of Directive 2003/87/EC of the European Parliament and of the Council has been prepared by SEI-Tallinn in cooperation with Tallinn University of Technology under general coordination of Climate Expert Commission on Implementation of UN FCCC, it’s Kyoto Protocol and EU ETS established in The Ministry of Environment. Estonia’s NAP is published on the European Commission web-site since 20th of April 2004. Estonia’s proposal on NAP has been accepted by Government and presented to EC in May 2004. The basic principles and allocation plan were presented at Climate Working Group session, also at Climate Committee meeting in June. NAP has been translated into English by EC in June. The national allocation plans of Member States of the European Union must be reviewed and definitively approved by the European Commission before trading commences. EC has requested additional information and explanations on proposed NAP, the package of answers were passed to EC in the beginning of September. At present the process of negotiating the final version of NAP is underway. The Estonia’s NAP includes, at present, a total of 43 installations, two of which are classified in the group of “other activities” (in case – the paper and pulp industry), five in the mineral industry and the remaining 36 in the energy production sector. District heating installations with a capacity exceeding 20 MW, as provided for in the directive, form the largest group on the list, 20 units, while five major power producing installations owned by AS Eesti Energia produce electricity and there is also one combined heat and power station. The pulp plant in Kunda, North-East coast of Estonia, utilising aspen mechanical wood pulp, one of the installations covered by the directive and included in the national allocation plan, will commence operations in the first trading period. No other installations that could be classified on the list of installations provided for by directive 2003/87/EC have submitted applications to date. The grandfathering principle based on historical emissions provided for by the directive, where projections of emissions for the three-year trading period of 2005- 2007 are calculated from previous periods, was taken as the basis for preparation of the national allocation plan. Reference periods of different lengths were used for obtaining primary data on different sectors — a longer, nine-year period of 1995-2003 for installations that produce heat, the four-year period of 2000-2003 for installations that produce electricity and the same four-year period of 2000-2003 for industrial plants as well. Bottom-up approach was used to compile the NAP. The national allocation plan applies the terms provided by the directive to take into account “early action”, i.e. voluntary action by installations to reduce greenhouse gases pending submission of this allocation plan. Early action has been applied for CO2 emission reduction activities undertaken during the reference period 1995 –2003 in subgroup of boiler-houses, and the reference period 2000-2002 in electricity generation subgroup. To compensate for their early action, additional emission allowances have been allocated in the allocation plan to electricity producing installations and to installations in heating sector that have replaced their more polluting fossil fuel (usually heavy fuel oil) to local biomass or natural gas, or installed new technology. The emission allowances have been allocated to the installations free of charge, as provided for by Article 10 of the directive, i.e. without organising bidding. The reserve comprises 3% of overall allocation and is foreseen to allocate for new entrants free of charge. The general principle first come, first served applies. When the reserve is exhausted, new entrants have to buy allowances from market. Unused reserve will be sold. Benchmark approach in industrial processes will be applied – i.e. the lowest specific-emission coefficients of similar technologies in Estonia for the recent 5 years period will be used. The Estonia’s NAP for greenhouse gas emission allowances applies for the right to emit ~ 65 million tonnes of carbon dioxide during 2005-2007. This amount is based on satisfying the continuously increasing electricity consumption in Estonia (growing by up to 10% per year in recent years) as well as increasing the share of electricity exported in the near future. The abovementioned amount also includes a reserve of emissions of 1.9 million tons for new entrants. The reserve will be divided between the three years in proportion to the emission allowances for each year. Any residual emission reserve for new entrants may be carried over to the next trading year. No targeted allocations will be made in the national reserve for potential new installations. Special issues of Estonia’s NAP. No auctioning of allowances during the first trading period, no banking foreseen. It has the comprehensive environmental permit. Equal treatment! Inside sectors the same principles apply. No pooling during the first trading period. Estonian NAP does not allow opt-in and opt-out. Beside of participation in EU ETS Estonia is a counterpart in BASREC Joint Implementation Testing Ground Facility (TGF). Future potential JI projects belong mostly to energy sector, i.e. energy efficiency, energy conservation and fuel switch projects are proposed to JI TGF. Wider deployment of renewable energy sources, in particular wind and biomass is to be prioritised by the government to achieve Estonia’s 5,1% EU target of RES based electricity consumption to 2010. In implementing JI projects Estonia co-operates with several donor countries in Europe; Finland, Denmark, Sweden, The Netherlands, Austria. As for linking the project based GHG emission reductions, ERU-s to ETS, the merging of the Linking Directive with the ET Directive will have good potential for Estonia. Estonia has rather diverse and long experience in JI pilot phase, AIJ.
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