Norwegian emissions trading proposal 2005-2007 and onwards

Peer Stiansen

Norwegian Ministry of Environment

Emissions distributed by sectors in 1999Other

mobile sources 5%

waste manage-

ment 7%

Road traffic 18%

Coastal traffic and

fisheries 8%

agriculture 9%

Combustion 15%

Industrial processes

21%

Oil- and gas production

19%

Norway’s challenge: emissions/industry/energy profile• No emissions from electricity (EU: >30 %)

• 20 % of emissions from offshore (EU countries : =< 2 %)

• 30 % of emissions from heavy industries (EUcountries:<5)

• High proportion small/medium sized enterprises/entities

• Conclusion: a trading scheme based on EU averages does not necessarily fit Norway well

• EU relevance of trading directive ? – if so, adjustments for Norway ?

Level of ambition and allocation

• - 20 % compared to same sources in 1990 • adjustment for closure and increased production

capacity/new entries• Grandfathering:

– Established entities: based on historical data– New entities: based on norms

• Restrictions on sale of a portion of the quotas• Industry invited to a dialogue on details of the

system, given level of ambition and EEA regulations

Considerations

• White paper focus: Reduce emissions domestically prior to 2008– realize presumed cheapest measures– need stronger incentives in some sectors– wider coverage could have reduced incentives since

prices are likely to be below present tax– revenue

• ”Clean” allocation system (grandfathering or auction) could be easiest vis a vis EEA (EU) state aid regulations

Compliance system

• Penalty (fine - level to be decided):– level will depend on with how many and which

countries Norway cooperates

• Response regarding violation of requirements to– report emissions – use appropriate methodology

• Facilitative functions

Effects 2005-2007• SFT: Potential for 1,6 Mt cheap reductions (3 %

of Norwegian emissions)• If price = 100 NOK and emissions stable:

Industry’s cost is about 160 mill NOK/year• Macroeconomic effects: Marginal• Employment: Don’t expect significant effects• New entries and closures: Nothing particular • Early experience with trading and Kyoto

mechanisms - establish trading institutions

Safety valves

• Opening for Kyoto’s AAUs and CERs• Possible cooperation with other countries

and EU (require negotiations and political will to adjust the system if needed)

• Limited joint implementation domestically• Penalty (balance cost and environmental

ambition)• Taylor made allocation

System linked to the Kyoto Protocol from 2008

• Compatible with the Protocol, target and registry

• Broad coverage – >80 % of sources• Full use of Kyoto mechanisms• Allocation not finally decided – could be

auction for some and grandfathering for others

• Strong penalty

Coverage 2005-2007

• Activities not subject to the CO2 tax:– metal production (light metals and ferro alloys)– fertilizers– petrochemical industry, methanol– refineries– production of carbides– cement, leca and limestone– [gas-fired power plants – the Storting: as in EEA ]

Fisheries and other activities exempted or getting the CO2 tax refunded will be consided in the legal proposal

Some implications for the affected industries

• Report emissions for the previous year• Surrender quotas for the previous year • Open account in the domestic registry• Subject to grandfathering• Need to purchase quotas if allocated ”too few” - can

sell if allocated more than needed• Subject to penalty (a fine) in case of not

surrendering a sufficient amount of quotas, other responses for other violations of the system (reporting, use of methodologies)

Further process

• Consideration by the Storting (Parliament) – discussion scheduled 18 June

• Legal framework, including detailed regulations, needs to be in place well before 2005.

• Legal proposal to the Storting - timing to be decided. Relevant aspects:– Comments/requirements from the Storting

– Progress with the EU directive

Registry

• Legal entities mandated to participate need account

• Others may open account and trade

• Compatability with the Kyoto Protocol for ”Kyoto quotas”

• Compatible with registries in cooperating countries

Registry, continued

• Responsible: SFT, Nat’l Securities Depositary or other ? Legal foundation ?

• Develop or buy from other country ?• Funding: Fees for opening accounts and transfers?• Safety issues ?

Observation: The trading simulations carried out so far required simple registries. UK, DK and US have registries for emissions trading. Marketable ?

Commitment Period ReserveProblem: If all AAUs are allocated to industry, it could choose to transfer

them temporarily abroad for tax or other reasons. Possibilities:

• Restrict transfers until enough quotas are surrendered to the government. (Annual surrender delivers the whole CPR by 2010-2011 due to underlying growth.):

– A-quotas: transferable between companies and across borders

– B-quotas: transferable domestically

• Restrictions on sales of some grandfathered quotas keep these in nat’l registry (half of process industry emissions = 15% of domestic).

• Slow allocation – AAUs stay in state account until they are allocated

• AAUs to cover non-trading sectors (agriculture etc.) 20 % stay in state account