The Carbon Emissions Trading Scheme Environmental Law Perspectives

1
The Carbon Emissions Trading
SchemeEnvironmental Law Perspectives

• Conor Linehan

Law and the EnvironmentUCC 27 April 2006
2
Introduction

• What makes the ETS an Environmental Law measure?
• How does the ETS work?
• What is the legal framework?
• What are the key legal compliance issues?
• What are the key trading issues?
• What other issues emerged in 2005/2006?

3
What makes the ETS an Environmental Law measure?

• EC Directive 2003/87 is based on Articles 174
  and 175 of EC Treaty
• Ireland Protection of Environment Act 2003
  mentions Greenhouse Gases
• ETS combats environmental impact of global
  warming and climate change

4
How does the ETS work?

• CO2 Allowances issued to 12,000 installations
  across EU25
• Present (pilot) phase runs from 2005-2007 and
  Kyoto Phase from 2008-2012
• Annual surrender of allowances must match
  reported CO2 emissions
• Cap and Trade Scarcity and transferability
  create room for trade
• Under-allocation gives companies option to trade
• Excess emissions penalty and offences incentivise
  compliance

5
What is the legal framework? (International)

• United Nations Framework Convention on Climate
  Change (1992)
• Kyoto Protocol (1997)
• Country targets for GHG cuts
• EU 8 below 1990 level
• Flexible Mechanisms (emissions trading and CDM
  and JI)

6
What is the legal framework? (Eur. Community)

• Decision (2002) formally approving Kyoto Protocol
• Directive (2003) Addressed to Member States
• Linking Directive (2004)
• Monitoring and Reporting Guidelines (2004)
• Regulation (2004) For standardised/secure system
  of Registries

7
What is the legal framework? (Ireland)

• Greenhouse Gas Emissions Trading Regulations 2004
• GHG ET (Amdt.) Regulations 2005
• National Allocation Plans
• NAP 1 (2005-2007)
• NAP 2 (2008-2012) currently in preparation

8
Key Compliance Obligations for Installations

• Surrender allowances against reported emissions
• Also
• Maintain Greenhouse Gas Permit
• Monitor
• Report
• Surrender
• Independent Verification
• Compliance and enforcement is critical for market
  confidence

9
What are the key trading issues?

• Ireland Little pressing need for trade
• EU25 c. 250m tonnes traded in 2005
• Practical issues include
• Allocating trading responsibility
• Finding a route to market
• Understanding drivers of carbon prices
• Carbon market is highly imperfect

10
What other ETS-related issues emerged in 2005/2006

• Non-operator Registry holding accounts
• Tax (eg VAT and Stamp Duty) treatment of
  allowances
• Taking financial security over allowances
• Scope for investment in CDM projects
• Planning objections related to fuel switching

WF-578550-v1bb
11
The Carbon Emissions Trading
SchemeEnvironmental Law Perspectives

• Conor Linehan

Law and the EnvironmentUCC 27 April 2006