The benefits of a tiered
free allocation system
ENVI shadow rapporteurs meeting
Damien Morris, Special Adviser
26 April 2016
Tiering offers three main benefits
1. Avoids windfall profits and makes polluters pay.
2. Protects acutely exposed best performers from undue costs.
3. Tightens supply, supports the carbon price, and enables higher
ambition.
1
October 2014 Council Conclusions
¶2.4 […] The consideration to […] avoid windfall profits will be taken
into account.
¶2.4 […] In order to maintain international competitiveness, the most
efficient installations in these sectors should not face undue costs
leading to carbon leakage.
¶2. The European Council endorsed a binding EU target of an at least
40% domestic reduction in greenhouse gas emissions by 2030
compared to 1990.
2
Current rules have led to overallocation and windfall profits
Years' worth of spare EUAs
3.0
Phase 3
2.5
Lime and plaster
2.0
Iron and steel (EUTL)
1.5
Refineries
1.0
Organic chemicals
0.5
Inorganic chemicals
Paper
0.0
Cement
Source: EUTL (Sandbag calculations). Note: Future emissions flat at 2014 levels.
3
The Commission’s tiered option vs.
the Commission’s published proposal
60%
Trade intensity
50%
40%
100%
30%
80%
20%
60%
10%
30%
0%
0
5
10
15
20
25
Emission intensity
30
35
40
Source: European Commission (unmarked document, Sandbag calculations).
4
A binary carbon leakage system is
likely to trigger a correction factor
60%
Binary system, +1% growth
1,100
100%
0
10
20
30
Emission intensity
Source: European Commission (unmarked document, Sandbag calculations).
40
Application
Saved up EUAs
CSCF (right axis)
2028
2027
2026
2025
2024
30%
2023
0%
2021
10%
-282.5
-400
2022
20%
100
Remainder
30%
100%
75%
50%
25%
0%
-25%
-50%
600
2030
40%
2029
Millions of EUAs
Trade intensity
50%
Ceiling
Redistributed EUAs
Source: EUTL (Sandbag calculations).
5
A tiered system avoids the correction
factor by a significant margin
10
20
30
Emission intensity
40
Application
Saved up EUAs
CSCF (right axis)
2030
2029
100%
80%
60%
40%
20%
0%
Remainder
0
60%
2028
0%
30%
2027
10%
0
2021
80%
200
2026
20%
400
2025
100%
600
2024
30%
800
2023
40%
Tiered system, +1% growth 653.6
2022
50%
Millions of EUAs
Trade intensity
60%
Ceiling
Redistributed EUAs
Source: European Commission (unmarked document, Sandbag calculations).
6
The UK/French tiering approach is
over-optimized against the CSCF
Various non-ferrous metal sectors
Sectors losing a lot
Every sector not leakage exposed during the 2015-19 period.
-500
Application
Saved up EUAs
Remainder
Various glass sectors
2030
Lime and plaster
25%
0
2029
Sugar
50%
2028
Ceramics
500
2027
Pulp and paper
2026
Inorganic chemicals
75%
2025
Petroleum extraction
2024
Organic chemicals
100%
2023
Cement
1,000
2022
Refineries
UK/French tiering, +1% growth
2021
Sectors losing slightly
Millions of EUAs
Sectors bumped up
0%
-25%
-130.2
Ceiling
Redistributed EUAs
Source: EUTL (Sandbag calculations).
7
Tiered system, +1% growth, strong cap
400
200
2029
2028
2027
2026
2025
2024
2023
0
Remainder
600
2030
100%
80%
60%
40%
114.9
20%
0%
2022
-34%
-38%
800
2021
2,200
2,000
1,800
1,600
1,400
1,200
1,000
Millions of EUAs
Millions of tonnes
Tiering enables the EU to be more
environmentally ambitious
Current cap
Commission proposal
Application
Ceiling
Emissions
Adjusted cap
Saved up EUAs
Redistributed EUAs
Source: Directive 2003/87/EC, European Commission SWD (2015) 135 final.
(Sandbag calculations).
Source: EUTL (Sandbag calculations).
8
Comparison of different options
Millions of EUAs
Are there enough allowances to give everybody as much as they need
(+1% growth)?
1,000
669
654
500
115
0
-500
-283
Binary (same
ambition)
-130
Tiered (same
ambition)
Tiered (new
ambition)
Tiered (new
ambition, risk
factors)
UK-French
proposal
Source: EUTL (Sandbag calculations).
9
Thank you.
[email protected]
+44 (0) 207 148 6377
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