Elementos paisajísticos utilizados

There exists a large variety of options for international and (internal) EU burden sharing of GHG mitigation commitments beyond 2012, including continuing the present regime. The latter consists of the Kyoto Protocol for the international differentiation of abatement efforts and the EU Burden Sharing Agreement (BSA) for EU internal differentiation of emission reductions. This regime, however, is characterised by a number of drawbacks such as limited international participation, economic inefficiencies, lack of long-run certainties, and unequal burden sharing. Alternative options for international differentiation of GHG mitigation commitments in general and internal EU burden sharing in particular include:

• Grandfathering, i.e. applying a flat reduction rate for all EU countries to their historic

emissions in a certain reference period.

• Per capita convergence, i.e. differentiation of emission reductions based on equal per capita

emissions in a certain convergence year.

• Multi-criteria convergence, i.e. differentiation of emission reductions based on a mix of (i)

GDP per capita, (ii) emissions per capita, and (iii) emissions per unit GDP.

• Ability to pay, i.e. differentiation of emission reductions based on GDP per capita.

• The (extended) Triptych approach, i.e. differentiation of emission reductions based on a

variety of sector and technology criteria.

• Equal mitigation costs, i.e. differentiation of emission reductions based on equal mitigation

costs per country (e.g. a certain percentage of GDP).

These options score differently with regard to a selection of policy evaluation criteria, but no option scores highest or lowest in all respects. Nevertheless, depending on the interpretation, weighing and adding of the criteria, some options seem to have a better overall score than other options. For instance, the overall score of the grandfathering approach seems to be lower than the other options, while the overall performance of the multi-criteria convergence option and the Triptych regime seem to be relatively higher.

Options for EU ETS allocation post-2012

The major characteristic of the EU ETS allocation system up to 2012 is that it is basically a

national-oriented system based on free allocations on emission allowances, i.e. grandfathering

for incumbents and, generally, fuel- or technology specific benchmarking for new entrants. The major advantages of such an approach are:

• National-oriented allocation can be fine-tuned to the socioeconomic circumstances of a country, including data availability and existing cultural or policy conditions, thereby enhancing the socio-political feasibility and acceptability of the ETS among the Member States.

• Free allocation comes to meet those emitters who are not able to pass through the costs of emissions trading into their outlet prices and, hence, it reduces the resistance of these emitters to accept the EU ETS (and, therefore, facilitates its implementation).

On the other hand, some major disadvantages of the present allocation system are:

• It leads to significant differences between countries in allocation at the installation level, which may distort the Internal Market by affecting the competitiveness and/or the profitability of installations throughout the EU.

• It leads to an imbalanced or unequal distribution of the total national emission cap (including the use of JI/CDM credits) between the ETS sectors and the other sectors of a country, particularly to a relative - or even absolute - over-allocation of the ETS sectors at the expense of other sectors.

• It results in windfall profits to those firms passing through the opportunity costs of freely allocated emission allowances.

• It results in a widely diversified, complex and non-transparent system of allocation rules throughout the EU ETS.

• It reduces the incentive for investments in less carbon intensive technologies and, hence, undermines the rationale and credibility of the EU ETS to support the transition towards a less carbon intensive economy.

• It leads to all kinds of lobbying, gaming and other rent-seeking activities of interested parties. To deal with these disadvantages, a variety of allocation options beyond 2012 are available, including a harmonization or centralization of allocation decision making at the EU level combined with a selected number of allocation methods such as auctioning or uniform/product- generic benchmarking. However, governments of EU Member States are likely to be rather reluctant to transfer a major part of their allocation decision competence to the EC level as allocation decisions may have significant distributional and competitive effects at the national, sector and firm levels.

Moreover, whereas allocation options such as auctioning or uniform/product-generic benchmarking have certain advantages, they also have certain disadvantages, notably if outside competitors do not face similar climate policy-induced cost increases. Therefore, in such a situation, a selection of allocation methods could be considered, including (i) auctioning for sheltered sectors, i.e. the power sector and other sectors where outside competition is lacking, (ii) grandfathering for incumbents in exposed sectors, (iii) relative, uniform and/or product- generic benchmarking for newcomers in exposed sectors, and (iv) recycling of auction revenues to compensate the adverse effects of passing through carbon costs, notably for those firms exposed to outside competition. Once a global climate policy regime is introduced, i.e. all relevant competitors face similar cost increases due to climate policy, auctioning can be applied to all ETS participants while the auction revenues can be used to finance general socioeconomic purposes.

Joint options for EU burden sharing and ETS allocation post-2012

Major types of joint options for EU burden sharing and ETS allocation beyond 2012 include: 4. Present system, i.e. firstly, sharing the overall EU emission target among its Member States

and, subsequently each Member State (MS) divides its national target between the ETS and other sectors, while the allocation of the national ETS cap to eligible installations is based on (different) MS rules.

5. EU burden sharing with ETS allocation at EU level, i.e. both the top-down ETS cap and the bottom-up allocation rules are set at the EU level, while the EU target for the non-ETS sectors is shared among the MS.

6. EU burden sharing with EU-wide ETS cap and MS allocation for either (a) both existing and

new installations (Type 3a) or (b) existing installations only (Type 3b), while the EU target for

the non-ETS sectors is shared among the MS.

These three types of options have different implications in quantitative terms (e.g. assigned amounts of emissions and costs at the EU, national, sector or installation level), depending on the specific burden sharing and allocation rules applied (which is beyond the scope of the present study). In addition, the option types have different implications in qualitative terms, notably in terms of decision competence, competitive distortions and other potential adverse effects of national-oriented versus EU-harmonised allocation. Centralising or harmonising the process of setting the ETS cap and the allocation rules for eligible installations throughout the EU may appear an attractive - or even ‘ideal’ - option as it reduces competitive distortions and other adverse effects due to a national-oriented allocation process, but it implies a significant transfer of decision competence from the national to the EU level (compared to the present allocation process). Hence, for the allocation period immediately post-2012 an ‘intermediate’ option might be possible, i.e. an approach in which certain parts of the allocation process are centralised - such as setting an EU-wide cap for the ETS as a whole or harmonising fully the reserve of allowances and allocation rules for new entrants - while other parts are left to the discretion of national decision-makers or subject to a gradual process of increasing harmonisation of allocation rules in the trading periods beyond 2012.

Interaction between international burden sharing and EU ETS allocation post-2012

Options for EU ETS allocation post-2012 are well compatible with a variety of options for post- Kyoto international agreements on addressing climate change (including a variety of emissions targets and policy measures or instruments). However, if major competitors outside the EU ETS do not participate in such agreements or only take part in agreements that to not raise production costs in a similar way as the EU ETS, it raises competitiveness problems for those EU ETS sectors facing outside competition and, hence, the need for additional options to deal with these problems. This includes border tax adjustments, indirect allocations, recycling and targeting auction revenues, output-based allocations, or opt-out options for these sectors.