MANDATORY GREENHOUSE GAS EMISSION TRADING SCHEMES OPERATING IN AUSTRALIA, CALIFORNIA,
EUROPEAN UNION AND QUÉBEC
July 2013
Jurisdiction
Australia
California
Québec
European Union
Scheme name
Carbon Pricing Mechanism (CPM)
Cap and trade program (Program) 1
Cap and Trade System for Greenhouse
Gas Emissions Allowances (SPEDE)
European Union Emissions Trading
System (ETS)
Scheme type
Fixed price uncapped scheme July 1,
2012 – June 30, 2015.
Cap and trade
Cap and trade
Cap and trade
From July 1, 2015 the CPM establishes a
cap on annual greenhouse gas emissions
(GHG emissions) of entities covered by
the CPM and imposes obligations on
such entities (liable entities) to acquire
and surrender an “eligible emissions unit”
for each tCO2-e 3 emitted by or
attributable to that entity.
The Program establishes a cap on annual
GHG emissions of entities covered by the
Program (covered entities) and imposes
obligations on such entities to acquire and
surrender one compliance instrument for
each tCO2-e emitted by or attributable to
that entity.
The SPEDE establishes a cap on annual
GHG emissions of entities covered by the
system and imposes obligations on such
entities (liable entities) to acquire and
submit an eligible emission allowance for
each tCO2-e attributable to their total
verified GHG emissions reported for the
relevant compliance period.
The ETS establishes a cap on annual
GHG emissions of entities covered by
the ETS and imposes obligations on
such entities (liable entities) to acquire
and surrender an EU emission
allowance or a CER 4 or ERU 5 (eligible
emission unit) (subject to restrictions as
detailed below) for each tCO2-e emitted
by or attributable to that entity.
Clean Energy Act 2011 (Cth)
Global Warming Solutions Act of 2006
(Assembly Bill 32)
Regulation respecting a cap-and-trade
system for greenhouse gas emission
allowances (made under the Environment
Quality Act 2009)
EU Directive 2003/87/EC (established
ETS)
Cap and trade from July 1, 2015 2
Scheme description
Legislation
EU Directive 2004/101/EC (set limits on
surrender of CERs and ERUs)
EU Directive 2008/101/EC (included
aviation sector)
EU Directive 2009/29/EC (Phase III)
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Jurisdiction
Target
Australia
California
To reduce Australia's GHG emissions by
5% below 2000 levels by 2020 (a
reduction of 28 mtCO2-e/pa 6).
To reduce California's GHG emissions to
1990 levels by 2020 (a reduction of 80
mtCO2-e/pa).
If a global agreement is reached for the
post Kyoto period the target increases to
15% below 2000 levels by 2020 (a
reduction of 83.4 mtCO2-e/pa).
California Air Resources Board (CARB) has
announced a goal to reduce GHG
emissions 20% below 1990 levels by 2050
(a reduction of 165.4 mtCO2-e/pa).
Québec
To reduce Québec's GHG emissions to
20% below 1990 levels by 2020 (a
reduction of 16.1 mtCO2-e/pa).
The CPM covers 60% of Australia's GHG
emissions (equals 330 mtCO2-e/pa).
It imposes obligations on 330 liable
entities that are responsible for
attributable GHG emissions of 25,000
tCO2-e/pa or more.
Examples of liable entities include: major
industrial entities, electricity generators,
gas retailers, gas/coal/fuel producers,
large gas users, large off road liquid fuel
users and waste and fugitive industries.
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To reduce EU GHG emissions by 20%
below 1990 levels by 2020 (a reduction
of 502 mtCO2-e/pa).
If a global agreement is reached for the
post Kyoto period the target increases
to 30% below 1990 levels by 2020 (a
reduction of 753 mtCO2-e/pa).
Australia's long-term aspirational target is
80% below 2000 levels by 2050 (a
reduction of 444.8 mtCO2-e/pa).
Scheme coverage
European Union
The EU's long-term aspirational target
is 80-95% below 1990 levels by 2050 (a
reduction of 2,009.6 - 2,386.4 mtCO2e/pa).
The Program covers 85% of California's
GHG emissions (equals 430.9 mtCO2e/pa).
The Program imposes GHG compliance
obligations on 350 businesses
(representing 600 facilities), each of which
is responsible for attributable GHG
emissions of 25,000 tCO2-e/pa or more.
Covered entities become subject to the
Program in two phases: (i) in January
2013, limitations on major industrial
sources and electric utilities went into
effect; and (ii) in 2015 distributors of
transportation fuels, natural gas and other
fuels will also become subject to the
regulations.
During the first compliance period (2013
and 2014) the scheme imposes
obligations on operators of around 80
sites (mainly in the industrial and
electricity sectors) that are responsible for
attributable GHG emissions of 25,000
tCO2-e/pa or more.
The scheme will be extended in the
second compliance period (2015-2017) to
covered entities that distribute fuel in
Québec or import fuel for their own
consumption.
From January 1, 2015 the scheme will
cover about 85% of GHG emissions in
Québec (equals 65.30 mtCO2-e/pa).
The ETS covers 27 EU States plus
Norway, Liechtenstein, Iceland and
Croatia equaling 45% of EU GHG
emissions (2,124.5 mtCO2-e (based on
2010 EU GHG emissions)).
The ETS initially imposed a cap on
GHG emissions on a Member State
basis. Since 2013, an EU wide cap has
been introduced and that cap reduces
by 1.7% pa. Total cap for 2013 = 2,039
mtCO2-e.
Liable entities include power generators
and major industrial entities responsible
for attributable GHG emissions (e.g. oil
refineries, steel works and production of
iron, aluminium, metals, cement, lime,
glass, ceramics, pulp, paper,
cardboard, acids and bulk organic
chemicals). Aviation was added in 2012
but suspended pending international
agreement (no liability for 2012 year).
Jurisdiction
Scheme administrator
Start date
Australia
California
Clean Energy Regulator (CER)
California Air Resources Board (CARB)
http://www.cleanenergyregulator.gov.au
http://www.arb.ca.gov.
July 1, 2012
January 1, 2013 (first compliance period);
July 1, 2015 (transition to cap and trade)
January 1, 2015 (second compliance
period);
January 1, 2018 (third compliance period)
Québec
European Union
Minister of Sustainable Development,
Environment and Parks and the Western
Climate Initiative, Inc.
Directorate-General for Climate Action
January 1, 2012 – December 31 2012 for
transition year
January 1, 2005 – December 31, 2007
for Phase I
January 1, 2013 – December 31 2014 for
first compliance period
January 1, 2008 – December 31, 2012
for Phase II
January 1, 2015 – December 31 2017 for
second compliance period
January 1, 2013 – December 31, 2020
for Phase III
http://ec.europa.eu/dgs/clima/mission/in
dex_en.htm
January 1, 2018 – December 31 2020 for
third compliance period
Register, records,
creation, registration,
transfer and surrender
The Australian National Registry of
Emissions Units records an entity’s
holdings in carbon units, KACCUs, and
eligible international emissions units
http://www.cleanenergyregulator.gov.au/
ANREU/Pages/default.aspx
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The Compliance Instrument Tracking
System Service (CITSS) administered by
the Western Climate Initiative Inc.
The Compliance Instrument Tracking
System Service (CITSS) administered by
the Western Climate Initiative Inc.
https://www.wci-citss.org/?lang=en
https://www.wci-citss.org/?lang=en
Single "Union registry" records holdings
of eligible emission units and
transactions concerning those units.
http://ec.europa.eu/clima/policies/ets/re
gistry/links_en.htm
Jurisdiction
Certificate allocation/
acquisition process
Australia
In the period July 1, 2012 to June 30,
2015 the fixed priced carbon units are:
• issued free of charge to trade
exposed emission intensive
industries (95.5% or 65% of their
requirements) (88 million in
2012/2013) and to certain electricity
generators as compensation for
value loss (nil 2012/2013); or
• issued by the Regulator on payment
of the fixed charge ($23 for the
2012/2013 period).
Carbon units (up to the cap amount)
issued under the CPM from July 1, 2015
will be:
• issued free of charge to trade
exposed emission intensive
industries and to certain electricity
generators as compensation for
value loss; or
• auctioned – with the design still to be
finalized but anticipated to be a
descending clock auction
Plus the secondary market for such units.
California
Québec
Quarterly emission allowance auctions are
held by CARB (at the first auction, held in
November 2012, the settlement price for
the 2013 emission allowance vintage was
US$10.09 per allowance; at the second
auction, held in February 2013, the
settlement price for the 2013 emission
allowance vintage was US$13.62 per
allowance; at the third auction, held in May
2013, the settlement price for the 2013
emission allowance vintage was US$14.00
per allowance).
Each compliance year a limited number
of emission units are issued free of
charge by the Minister to certain entities
in trade exposed industries. From 2015
the number of free allocated units will
drop by between 1 and 2 percent each
year.
There is an active secondary market for
California GHG compliance instruments.
Auctions (single round sealed bid) will be
held up to four times per year (quarterly)
and administered by Western Climate
Initiative, Inc. 7
Emissions reductions made during the
eligibility period from January 1, 2008 to
December 31, 2011 may also qualify for
early reduction credits.
Plus the secondary market for such units.
European Union
Phase III
Up to 60% of capped amount of EU
allowances are issued free of charge to
certain entities including:
•
100% of their requirements to
entities who are trade
exposed; and
•
80% of their requirements to
industrial entities (reducing
by 7% pa); and
•
nil% to power generators 8.
This allocation will reduce by 7.7% pa.
The remaining 40% of EU allowances
will be auctioned. Bidders submit their
bids during one given bidding window
without seeing bids submitted by other
bidders. The main two auction
platforms are the European Energy
Exchange (EEX) (common platform for
the large majority of countries
participating in the EU ETS) and ICE
Futures Europe (ICE) (acts as the
United Kingdom's platform).
The European Parliament has
approved a proposal to withhold around
900 million allowances from the market
over the next few years. It still requires
approval from the European Parliament
and the European Council to become
law.
Plus the secondary market for such
units.
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Jurisdiction
Scheme linkage
Australia
One-way link with EU Scheme,
operational from July 1 2015.
Discussions for linkage with California's
cap and trade Program.
California
Proposed link to Quebec appears in the
CARB cap and trade regulations. California
Governor, Jerry Brown, and CARB have
formally approved implementation of the
link effective as of January 1, 2014.
Québec
European Union
See California tab.
See Australia tab.
A liable entity can acquit liability under
the SPEDE by transferring to its
'compliance account' [for surrender to the
administrator] any of the following eligible
emission allowances:
A liable entity can acquit liability under
the ETS by surrendering:
Discussions are ongoing regarding
potential linkage with Australian CPM and
carbon trading programs in other
jurisdictions.
Liability acquittal process
A liable entity can acquit liability under
the CPM by surrendering:
• Australian carbon units issued under
the CPM;
• Australian carbon credit units (issued
under the Carbon Credits (Carbon
Farming Initiative) Act 2011 from
Kyoto compliant activities (KACCUs)
which sequester, avoid or abate
GHG emissions;
• eligible international emissions units
for up to 50% of liability (being
CERs, ERUs and EU allowances
(with an additional sub limit of
12.5%) and any other units
prescribed by the CPM).
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A covered entity can acquit liability under
the Program by surrendering compliance
instruments issued under the Program.
There are two permitted forms of
compliance instruments: (1) emissions
allowances created and auctioned by
CARB, and (2) offset credits issued by
CARB to reflect reductions in GHG
emissions from qualifying emissionsreduction projects. Offset credits may be
used by a covered entity to satisfy only a
maximum of 8% of the entity’s GHG
compliance obligations.
The CARB regulations impose compliance
obligations for each compliance period.
The years 2013 and 2014 are the first
compliance period, the years 2015 through
2017 are the second compliance period,
and the years 2018 through 2020 are the
third compliance period. At the end of each
compliance period each covered entity is
required to surrender compliance
instruments for its total GHG emissions
throughout the compliance period.
• Emission units;
• Early reduction credits;
• Offset credits issued by the Minister
to entities conducting approved
activities in Québec which destroy
GHG emissions or the government
of a linked scheme (limited to 8% of
total
compliance
instruments
submitted);
• any emission allowance issued by a
partner entity in the Western Climate
Initiative (once the partner's scheme
is linked with the SPEDE).
•
EU allowances
•
pre 2013 CERs, up to the
relevant State based limit
•
pre 2013 ERUs, up to the
relevant State based limit
•
from 2013, CERs and ERUs
may only be surrendered if
created from projects already
registered and provided in the
case of CERs that the host
country has entered a
commitment for a second
Kyoto period or from new
projects established in a
'least developed country'
http://www.un.org/esa/policy/
devplan/profile/ldc_list.pdf
Jurisdiction
Australia
California
Québec
European Union
Price drivers
The Australian carbon unit and KACCU
price may track and be slightly higher
than the EU allowances price due to the
linking of the two schemes with the limit
of 50% on acquittal of eligible
international emissions units.
CARB has projected that compliance
instrument prices in the first compliance
period of the Program (2013-2014) will
range from US$15 to US$20. We would
anticipate that following linkage between
California and Quebec the prices under
each scheme will converge, with California
allowances driving pricing as a result of the
much larger size of the California market.
See California tab.
EU market may influence prices in
other markets due to the EU market’s
much larger size.
Certificate denomination
One carbon unit represents the right to
emit one tCO2-e.
One compliance instrument represents the
right to emit one tCO2-e.
Each emission unit, offset credit and early
reduction credit represents the right to
emit one tCO2-e.
One EU allowance represents the right
to emit one tCO2-e.
One KACCU represents the
sequestration, avoidance or abatement of
one tCO2-e.
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Jurisdiction
Timing restrictions
Australia
Carbon units are issued with a vintage
year. Liable entities can surrender
permits of a current and earlier year
vintages and up to 5% of a following
year's vintage.
California
Compliance instruments are issued with a
vintage year, but do not expire until they
are surrendered and retired:
•
in compliance with the requirements of
the Program;
•
voluntarily, or
•
by an external trading system linked to
the Program.
In any compliance year, a covered entity
may surrender compliance instruments
having a vintage of that year or any
previous year.
In order to prevent hoarding of compliance
instruments, the CARB regulations impose
account holding limits that restrict the share
of total allowances that registered market
participants and their affiliated entities can
maintain in their compliance instrument
holding accounts. The holding limit for
allowances under the cap and trade
regulations is based on the annual
allowance budget for the then current
budget year.
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Québec
Units and credits are issued with a
vintage year.
At the expiry of a compliance period, the
Minister deducts the required eligible
emission allowances sitting in a liable
entity's compliance account in
chronological order, from the least recent
to the most recent, in the following order:
• Offset credits (up to 8%);
• Early reduction credits;
• Emission units.
European Union
EU allowances are issued with a
vintage year and can be used within a
Phase. The 1.5-2 billion unused
Phased II EU allowances have been
converted to Phase III allowances and
so can be used in Phase III.
Jurisdiction
Shortfall charge
Australia
Currently US$29.90 for each tCO2-e
GHG emissions for which an eligible
emission unit is not surrendered.
From July 1, 2015, 200% average auction
price of carbon units.
California
Québec
European Union
Failure to surrender sufficient GHG
emissions by the compliance deadline will
lead to an administrative sanction equal
to four times the missing number.
US$130 per unit for each tCO2-e GHG
emissions for which an eligible
emission unit is not surrendered.
Approximately US$14 (emission
allowances for vintage year 2013 were sold
at a settlement price of $14.00 in the May
2013 auction)
A minimum auction price is set annually,
increasing by 5% plus inflation until 2020.
US$5.30
Market observers have projected that the
aggregate annual revenues from auctions
of emission allowances could grow to
approximately US$10 billion by 2020.
Predicted to generate a minimum of
US$2.7 billion by 2020.
If a covered entity fails to surrender a
sufficient number of compliance
instruments and the procedures for
untimely surrender of compliance
instruments by the entity have been
exhausted, the entity will every 45 days
thereafter accrue a separate violation for
each required compliance instrument that
has not been surrendered or obtained.
Violations can result in fines as well as
imprisonment. Penalties vary depending
on mens rea and the severity of resulting
injuries. For example, a negligent emission
in violation of the regulations can result in a
fine of up to $25,000 and imprisonment for
up to 9 months. If such negligence causes
great bodily injury it can result in a fine of
up to $100,000 and imprisonment up to one
year. Different penalties apply for willful or
intentional conduct.
Price of units as at July
18, 2013
Revenue from
government auction sales
1
US$24.15
US$5.77 billion in 2012/2013 at a price of
$24.15
In 2012 the auction floor price was
US$10.
Europe wide revenue of US$4.24 billion
at a price of US$5.30
“California is working closely with British Columbia, Ontario, Quebec and Manitoba through the Western Climate Initiative to develop harmonized cap and trade programs that
will deliver cost-effective emission reductions. The WCI jurisdictions have formed a non-profit corporation, WCI, Inc. to provide coordinated and cost-effective administrative and
technical support for its participating jurisdictions’ emissions trading programs.” (See http://www.arb.ca.gov/cc/capandtrade/capandtrade.htm)
2
On July 16, 2013 the Labor party stated that if they are re-elected they will try to bring forward the start of the Australian trading scheme to July 1, 2014. However Labor needs to
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amend the Clean Energy Act 2011 for the scheme to begin and both the Greens and the Coalition are vowing to block such a change in the Senate.
3
“tCO2-e” is an abbreviation for metric tons of CO2 equivalent. “tCO2-e/pa” is an abbreviation for metric tons of CO2 equivalent per annum.
4
Certified emission reduction is a credit issued by the Clean Development Mechanism (CDM) Executive Board for emission reductions achieved by a CDM project and verified
under the Kyoto rules.
5
Emission reduction unit is a credit issued under a Joint Implementation Project established under the Kyoto Protocol.
6
“mtCO2-e” is an abbreviation for million metric tons of CO2 equivalent. “mtCO2-e/pa” is an abbreviation for million metric tons of CO2 equivalent per annum.
7
The auction design is harmonised with the California process to allow joint auctions when the systems are linked.
8
Other than generators in eight of the Member States which have joined the EU since 2004 - Bulgaria, Cyprus, Czech Republic, Estonia, Hungary, Lithuania, Poland and
Romania.
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