"Environment and Energy: What Lies Ahead for Serbia”

Carbon Trading and Carbon Future(Belgrade, 2012/03/02)

Clemens Plöchl

www.energy-changes.com

Carbon Trading Background

Carbon Trading

SMB

q2 q1

t = tax

PMC

SMC

Quantity = q

Price = p

p2

p1

t = tax

PMC´

Tax (Pigou): internalizing external

effects by increasing prices of

(polluting) products by tax

SMB

Q2q1

t = tax

PMC

SMC

Quantity = q

Price = p

p2

p1

t = tax

PMC´ Standard/Price Approach

Regulatory Body sets goal/target

(see Q2 !!) based on science

(environment/technological/econo

mical) and then either sets tax or

implements Cap and Trade

Reducing external effects of Climate

Change?

Internalization of negative external effects

on environment

• Commodity (currency of the system e.g. 1t CO2e)

• Cap/Target (determining the „optimal“ quantity of pollution)

• Coverage (geographical, upstream – downstream, size of installation, sectors)

• Allocation Rules (grandfathering, benchmarking, auctioning;)

Windfall Profits

Carbon Leakage

• Banking/Borrowing (banking to coming periods, borrow. from coming p.)

• Trading Period

• Monitoring/Verification

• Administrative Bodies

Carbon Trading

Cap and Trade Design Components

http://web.mit.edu/12.000/www/m2012/finalwebsite/solution/econ.shtml

Carbon Trading

Cap and Trade in the EU Short History

1997 Kyoto Protocol to the UNFCCC – developed countries obtain a cap

on their emissions

1990s first proposals for carbon emission trading

2000 “Green paper” Emission trading

2001 proposal of the Commission

2003 EU Directive on Emission Trading accepted. Free allocation

embraced as allocation mechanism that would minimize harm for

companies involved in the scheme. Companies agree with this

2005-2007 first period: trial and error

2008-2012 second period: creating a non-zero price

2013 – 2020 third period: greater emphasis on harmonized allocation rules,

auctioning and inclusion of aviation;

(2016) mid-term review

Carbon Trading

eg. Austria:

has 69 Mio t

needs 88 Mio t

Kyoto

Cap and Trade in the EU

AAUs AAUsAAUseg. Slovakia:

has 66 Mio t

needs 49 Mio t

EU ETS

Industry

Energy sector

gets 30 Mio t

needs 32 Mio t

gets 32 Mio t

needs 25 Mio tEUAs EUAs

Carbon Trading

Price History EU ETS

Carbon Trading

Source: Point Carbon

Impact of EU ETS on Serbian Energy Sector

• ETS will not affect the competitive

position of current generation

companies in Serbian market.

• ETS costs in power sector will be

passed fully to the consumers or

socialized

• Energy Intensive Industry may

suffer competiveness

• ETS alone will not deliver expected

mitigation results unless

accompanied by other changes in

the sector and outside the sector.

Carbon Trading

Source: Mid-term Kyoto Protocol Implementation Plan in the Serbian Energy Sector

Carbon Future

Source: Presentation EU Commission

Carbon Future

Potential Development of Future

Carbon Markets

Source: Presentation EU Commission