Tag: ERUs

Durban COP 17 – An Agreement to Agree

 

From November 28 to December 11, 2011, delegates from 194 countries met in Durban, South Africa for the 17th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC). With the expiry of the Kyoto Protocol’s initial commitment period looming at the end of 2012, the Durban conference delegates were focused on reaching an agreement to extend or replace the existing UN climate regime.

The negotiators ultimately reached an agreement entitled the Durban Platform for Enhanced Action (the Platform is available online). While the absence of specific details as to what is to be agreed by 2015 introduces considerable uncertainty, for the first time a number of nations which contribute significantly to global GHG emissions have agreed to accept legally binding targets on GHG from 2020. This list includes Brazil, China, India and the US.

Four key actions were agreed upon to build towards a global carbon agreement requiring all major emitters to reduce emissions:

  1. Kyoto Protocol Extension. The Kyoto Protocol has been extended for a second commitment period and 35 developed country parties committed to taking on binding emission-reduction commitments after the Kyoto Protocol expires on December 31, 2012. This second commitment period will run from January 1, 2013 to either December 31, 2017 or December 31, 2020, with the final expiration date to be decided upon next year. The parties who committed to a second round of reduction obligations were primarily from the European Union (EU) and have already committed to internally binding emission reduction targets. Certain other industrialized parties, such as Australia, will not take on targets under a second commitment period until a new international climate agreement has been finalized. Japan and Russia have also declared that they will not submit to a second commitment period under the Kyoto Protocol.
  2. Global Carbon Agreement.  All UNFCCC parties are required to establish, by 2015, “a protocol, another legal instrument or an agreed outcome with legal force” that would come into force in 2020. This agreement will replace the Kyoto Protocol and impose binding emissions reductions on both developed and developing nations (including the US, China and India). The goal remains to limit global warming to 2° Celsius. Nations did ot change the emission reduction commitments they made at the 2009 Copenhagen and 2010 Cancun climate talks. Rules will be developed in 2012.
  3. Green Climate Fund (GCF).  It was agreed that up to US$100 billion per annum by 2020 will be transferred to developing nations for mitigation and adaptation measures. However, it still remains to be seen how the parties will finance the GCF, but it is expected that the GCF will leverage private sector capital to source results-based investments in emission reduction projects.
  4. Work Plan. Starting in the first half of 2012, the Durban Platform Working Group will plan its work on matters such as mitigation, adaptation, finance, technology development and transfer, transparency of action, and support and capacity-building.

Other key outcomes include:

  • Carbon Capture and Storage (CCS). CCS was approved to qualify for the Clean Development Mechanism (CDM) and earn carbon credits (under the Kyoto Protocol). 5 per cent of credits issued will be held in a reserve to ensure carbon dioxide does not leak from approved CCS projects for 20 years.
  • Reduced Emissions from Deforestation and Degradation (REDD). Supportive market-based mechanisms and funding will be discussed through 2012.

As a result of the extension of Kyoto and a second commitment period, emissions offset markets based on the CDM and Joint Implementation (JI) will remain active. Although details have not been finalized, it is likely that the EU will continue to accept certified emission reductions (CERs), which are awarded under the CDM to emission reduction projects in developing countries, and emission reduction units (ERUs), which are awarded under the JI to such projects in certain developed countries. The EU has committed to a third phase of its Emissions Trading System, which contemplates the continued use of international offset credits such as CERs and ERUs.

It is anticipated that carbon markets will continue to play an important role in the new international climate treaty to be established by 2015. According to Christiana Figueres, the Executive Secretary of the UNFCCC, the extension of Kyoto will enable its accounting rules, flexibility mechanisms and markets to remain as models to inform future agreements.

Within a day of the negotiations closing, Canada announced that it will formally withdraw from the Kyoto Protocol before the end of the year, with the intent that it will no longer have an enforceable emissions reduction commitment. Canada will, however, remain a party to the UNFCCC and a participant in international climate negotiations.

The next key date is February 28, 2012 when parties must submit their views on raising what the conference called the “level of ambition” to achieve significant mitigation, so that a work plan can be launched. The next round of UNFCCC negotiations will take place in Qatar from November 26 to December 7, 2012.
 

BC Releases Consultation Papers for Proposed Cap-and-Trade Regulations

BC Ministry of Environment (MOE) released consultation papers for the Emissions Trading Regulation and the Cap and Trade Offsets Regulation. The proposed regulations will provide the foundation for the province’s proposed cap-and-trade system under the Western Climate Initiative (WCI), which has a planned start date of January 1, 2012.

On October 22, 2010, the BC Ministry of Environment (MOE) released consultation papers for the Emissions Trading Regulation and the Cap and Trade Offsets Regulation. The proposed regulations will provide the foundation for the province’s proposed cap-and-trade system under the Western Climate Initiative (WCI), which has a planned start date of January 1, 2012. MOE is seeking comments from stakeholders, First Nations and the general public on the two proposed regulations until December 6, 2010. The proposed regulations are anticipated to be finalized in early 2011.

The proposed Emissions Trading Regulation is designed to establish an efficient, fair market for trading cap-and-trade compliance units. Under the proposed Emissions Trading Regulation, operations that meet certain criteria will be considered a “Regulated Operation”.

The following provisions are under consideration:

  • starting January 1, 2012 (or any subsequent year in which an operation emits 25,000 tonnes or more of CO2e), the regulation will apply to the operator of an operation that emits 25,000 tonnes or more of CO2e;
  • source types listed in Schedule A of the current Reporting Regulation (including activities such as general stationary combustion, aluminum production, cement production, coal mining, industrial wastewater processing, lime manufacturing, petroleum refining, and pulp and paper production) are under evaluation to be “covered sources” in the first compliance period;
  • additional sources types under consideration include emissions from anaerobic or aerobic digestion of wastewater, emissions from surface coal mines and stored coal piles, specific oil and gas and petroleum refinery emissions, and fugitive hydrofluorocarbon emissions  from cooling units at electricity generators;
  • verified emission reports and compliance unit liability may be linked in the registry, meaning that an amount equal to a Regulated Operation’s annual greenhouse gas (“GHG”) emissions will become its corresponding compliance obligation;
  • facilities below the 25,000 tonne threshold may be able to opt in to the emissions trading system;
  • each compliance period will last three years;
  • at the end of each three-year compliance period, one compliance unit will be retired for each tonne of GHG emissions;
  • every three years, BC will prepare a nine-year “Allowance Budget Forecast”, with the first forecast for the period from 2012 to 2020 being published in the first quarter of 2011 (in 2014, BC would release a forecast for the period from 2015 to 2023);
  • every three years, BC would establish a cap on allowances issued for the following three-year compliance period, known as an “Allowance Budget”;
  • in the third quarter of 2011 and every year thereafter, BC would publish an annual “Allowance Distribution Plan” that will describe how allowances will be allocated for the following year (including number of allowances to be auctioned, number of allowances to be distributed for free, number of allowances to be held in reserve or contingency accounts, and number of allowances to be sold directly in the market);
  • there will be two main allowance distribution mechanisms for distributing allowances to a Regulated Operation: by auction and by distribution for free;
  • auctions of allowances will be held quarterly in coordination with other WCI members on a single round, sealed-bid, uniform price basis;
  • BC will have the ability to set a minimum price for allowances sold at auction;
  • allowances allocated for free will be transferred into accounts at the beginning of each year;
  • a registry will be established to record the issuance, holding, transfer, retirement and cancellation of compliance units;
  • BC may collaborate on a registry with other WCI members;
  • compliance will be assessed every three years on July 1 of the year following the last year of the compliance period;
  • a number of compliance mechanisms will be available to Regulated Operations including limited use of offsets and approved compliance units from other systems, unlimited banking, multi-year compliance period, linking with partner jurisdictions, and government support for low-carbon policies and programs;
  • BC will set limits on the use of offsets as a percentage of an operator’s compliance obligation and is still seeking input about the percentage to be adopted in BC;
  • penalty for non-compliance will be assessed at three additional allowances for every allowance that the regulated operation is short; and

The proposed Offsets Regulation will govern emission offsets and set out steps for offset registration, validation, monitoring, quantification, reporting, verification, certification and issuance. It is expected that offsets issued in BC will be able to be traded and used for compliance across the WCI.  The following provisions are under consideration:

  • offset project eligibility will be evaluated on the basis of the following criteria: definition of an offset, real, additional, permanent and verifiable;
  • a BC offset, of “emission reduction unit” (“ERU”), would be issued based on certification of verified emission reductions from a registered offset project (one ERU will represent a reduction or removal of one tonne of CO2e);
  • ERUs would be issued for projects located within BC and may also be issued for projects located outside of BC in a partner jurisdiction (Recognized Compliance Units, or RCUs, are compliance units that will be recognized by BC under the Cap and Trade Act but not issued by/in British Columbia.;
  • ERUs would only be issued for projects that have a start date of January 1, 2007 or later (2007 was the year in which the WCI Memorandum of Understanding was signed);
  • BC government will carry out periodic risk-based auditing.

The consultation papers for the proposed Cap and Trade Offsets Regulation and Emissions Trading Regulation are available online.