European LD Opportunity for CDM in Thailand Eise BKK

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					European Linking Directive: Opportunity for
             CDM in Thailand

                     Joint Implementation Network
                              The Netherlands



                     Eise Spijker



                               Bangkok, Thailand
                               13 December 2006


                              jin@jiqweb.org - www.jiqweb.org
             Presentation overview

       The EU Emissions Trading Scheme (ETS)

       The Linking Directive

       International Transaction Log

       EU ETS developments 2005-06

       Prospects

2
            EU ETS - Objective



       Kyoto Protocol compliance

       Environmental friendly production

       Induce innovation

       Instrument for a post-2012 climate strategy



3
                  EU ETS - Introduction

       Allocation phases:
        –   Learning or pilot phase during 2005-07
        –   Second phase that coincides with the Kyoto
            Protocol first commitment period (2008-12)
        –   The third phase of the EU emissions trading scheme (ETS) could
            see a single cap on CO2 emissions instead of 27 national caps, said
            Peter Zapfel, EU ETS co-ordinator at the European Commission (EC)
            last week.



       Cap and trade system
        –   EU emission allowances (EUAs)


       Operational since January 2005

4
            EU Emissions Trading Scheme – Phase I

       25 EU Member States
       ~12,000 installations or energy intensive
        plants
       Account for almost half of EU-wide CO2
        emissions (Δ country)
       Government issues allowances to
        installations as per its national allocation
        plan (NAP)
       Subject to scrutiny/approval by the EC
       Fine: €40/EUA and compliance (phase I)
       Fine: €100/EUA and compliance (phase II)
5
             Linking project-based transactions with
             the EU ETS


       As per the Linking Directive (2004/101/EC),
        companies covered by the Scheme can use
        emission credits from CDM projects to offset
        their emissions

       This allows installations covered to cost-
        effectively reduce emissions

       Encouraging investments in CDM projects in
        addition to demand from governments

6
             Restrictions on Linking



       Nuclear energy projects
       Forestry type of projects
       Hydropower with capacity >20 MW need to
        comply with the criteria laid down in the
        report of the World Commission on Dams.
       Possible caps (6%?) for CERs from 2008
        onwards
       Supplementarity (to domestic goals)


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               International Transaction Log

       Tracking system that enables the trade of all
        types of GHG emission reduction titles
        tradable/transferable under the Kyoto
        Protocol.

       Absence ITL prevents CER – ETS fungibility

       Planned to be operational by April 2007
        –   Contract for building ITL awarded in August of
            this year


8
             ITL and the role of CERs

       Ensures delivery of CERs in project
        participants accounts

       Ensures tradability of CERs, for example,
        into the EU ETS

       Ensures that CERs can be used for
        compliance with the EU ETS (first phase as
        well)

       Enhance liquidity on the market

9
       ITL and the role of CERs




     Source: Climate Focus (March, 2006)
10
               LoA – the Netherlands approach


        1 EU Member State must approve a project
        The Netherlands approves projects from non-Annex
         countries project participants as well and is thus
         ideally suited for unilateral CDM
        €350
        2 week decision time frame
        The UK DNA follows the Netherlands and now
         approves projects submitted by non-British
         companies



11
     EU ETS Price developments




12
13




     Source: Joint Implementation Quarterly, July 2006)
                                                          EU ETS 2005 Verified Emission Data
     Volumes traded – 2005/2006




14
            Significance of the EU ETS




     Shares of Volume




                                            Value Share
15      Source: IETA/World Bank (October, 2006)
            Price spread

     EU ETS prices
      2006 – €7.60 (8 Dec. ‘06  Dec. ‘07)
      Post-2008 - €18.25 (8 Dec. ‘06  Dec. ‘08)


     CER prices
      €8.30 on average (Q1-3 2006)


     CER price range
      €4.96 - €18.90


16
               EUAs and CERs – Fundamentally different


        Conversion factor – 1 : 1
        Issuance
        Risk
        Cap on CER import
        Every CER is different (i.e. from a different project,
         context specific)
        Bankability of CERs from Phase I to Phase II
         (2008-12)

     Only guaranteed supply of CERs are quite similar to
                          EUAs

17
                EU ETS Phase II



        Second phase NAPs currently under
         evaluation by EC
         –   How will the European Commission (EC) assess
             the Phase II NAPs?


        Final NAP decision 31 December 2006
         –   More stringent caps expected


        Build on first phase experience

18
                 EU ETS Phase II - Member States’
                 perspectives


        Might involve other emission sources (e.g.
         N2O in the case of the Netherlands) and
         sectors
        Limit on linking for the Member States to
         decide on
        Different proposals
         –   8% proposed by the Netherlands
         –   12% proposed by Germany
         –   50% proposed by Ireland
        Difference in application
         –   Per installation (most countries)
         –   First come, first served (Slovakia)


19
                 EU-ETS installations perspectives

        Research among Netherlands’ EU-ETS installations
         –   Questionnaire (excl. Intermediaries)
               Compliance strategy (76%)
               Hedging strategy (14%)
               Trading strategy (8%)
               Investment strategy (3%)



        Knowledge level of EU-LD and use CERs Ph.II
         –   Knowledge level: +70%/-30%
         –   CER use expectations:
               60% no CERs
               27% under 6% CERs
               14% 6-8% CERs


20
              Conclusion

        Linking Directive is not yet technical reality
        EU ETS capped companies are active on
         the CDM market, most notably utilities
        Brokers are active on the CDM market
        Arbitrage opportunities for Phase II (price
         differential)
        However, some experts do expect a
         shortage towards the end of the first phase




21
              Prospects

        As the market is getting ever more
         transparent and second phase NAPs will be
         approved based on 2005 emissions data
         (and thus likely become tighter), trading
         opportunities might improve for the second
         phase period (€20-25/EUA)

        EU ETS might trigger CDM demand post-
         2012

        EU ETS Review

22
      Contact Information


     Joint Implementation Network
            The Netherlands

         tel.: +31 50 309 6815
          fax: +31 50 3096814
      Internet: www.jiqweb.org
        E-mail: jin@jiqweb.org




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