wg1/2 27 th april 2007 cca23 lessons learned in m3 in the glass sector –analysis of pass/fail...
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WG1/2 27th April 2007
CCA23 lessons learned in M3 in the glass sector– Analysis of pass/fail scenarios in M3– What should be a ‘Satisfactory Outcome’?– Result after CCA23
• CCA target changes• Tonnes CO2 taken/given
– What Actually Happened– Analysis of CCA23 Situation– A Way Forward
Prepared by John Stockdale & Jenni Staves British Glass
5 out of the 13 were in EUETS Ph1Only 4 survived to M3
Fail:
Fail
Fail: Pass
Pass:
Fail
Pass:
Pass
EUETS
CCANo. of cases 2 0 1 1
Summary of Glass Sector Double Counting in 2006
Analysis of total of 13 EUETS installations
Fail:
Fail
Fail: Pass
Pass:
Fail
Pass:
Pass
EUETS
CCANo. of cases 3 3 5 2
62%
Sector No of TUs involved in Double Counting
TUs in either fail – pass or pass-fail situation (36/114)
Aerospace 4 ?
Cement 4 ?
Ceramics - non-fletton 13 6
Chemicals 49 14
Dairy Industry 7 1
Food & Drink 16 7
Glass 4 1
Lime 3 ?
Malting 3 ?
Motor Manufacturers 12 3
Steel 4 2
Textiles 3 2
Wood Panel 4 0
All sectors with fewer than 3 TUs 15 ?
Of the sectors for which there was information, over 30% of opted in TUs ended up with mixed P/F results. What would have been the ratio for all EUETS eligible TUs?
How many mixed results in M3 double counting participants?
What is a satisfactory outcome?DEFRA draft review paragraph 3: “It was necessary to avoid the situation where the TU would be able
to benefit from a surplus arising from the same emission reduction in both schemes, or alternatively be penalised in both schemes to cover the same shortfall. CCA23, and a subsequent addendum for CHP, describe the methodology that was used to avoid this double counting of emissions for TP3.”
Because of potential for mixed outcomes glass suggestion for a better approach was: CCA23 method prevents a company from double trading without changing the CCA pass/fail outcome. Contained a “logic” step.
Other industry methodologies also aimed at reducing extremes.
Co.
EU
ETS
CCA
CCA 23
Effect of DEFRA Double Counting in 2006
All EU ETS companies* Those in EUETS & applying CCA23 in M3
Conclusion:
DEFRA: 13 satisfactory
Glass: 4 satisfactory
1* → Not penalised twice but not pushed into a CCA pass Satisfactory
2 → Not penalised twice but not pushed into a CCA pass Satisfactory
3* → Not penalised twice but not pushed into a CCA pass Satisfactory
4→ Could never double trade but can now ringfence more greatly Unsatisfactory
5→ Could never double trade but can now ringfence more greatly Unsatisfactory
6 → Could never double trade but can now ringfence more greatly Unsatisfactory
7→ Could never double trade but now forced to buy yet more CO2 to be CCA
compliant. Unsatisfactory
8
→ Could never double trade but now forced to buy yet more CO2 to be CCA compliant.
Unsatisfactory
9
→ Could never double trade but now forced to buy yet more CO2 to be CCA compliant.
Unsatisfactory
10
→ Could never double trade but now forced to buy yet more CO2 to be CCA compliant.
Unsatisfactory
11*
→ Could never double trade but now forced to buy yet more CO2 to be CCA compliant.
Unsatisfactory
12*→ Company passes both but is forced into a CCA fail and has to purchase CO2 Unsatisfactory
13 → Company passes both but is not pushed into a CCA fail Satisfactory
Co.
EU
ETS
CCA
CCA
23
Out come
Effect of CCA23 Double Counting in 2006
Opted in companies
Conclusion:
9 out of 13 unsatisfactory
1 → Not penalised twice but not pushed into a CCA pass Satisfactory
3 → Not penalised twice but not pushed into a CCA pass. Satisfactory
11→ Could never double trade but is now forced to buy more CO2 to be
CCA compliantUnsatisfactory
12→ Company passes both but is forced into a CCA fail and has to
purchase CO2Unsatisfactory
EUETS Opt ins surviving to end M3
CCA deficit increased by 2,000 tCO2e95→10
CCA deficit increased by 28,000 tCO2e51→11*
CCA surplus increased by 4,000 tCO2e101→6
CCA surplus increased by 1,800 tCO2e106→5
CCA deficit reduced by 8,000 tCO2e106→2
CCA surplus increased by 25,000 tCO2e120→4
→
→
→
→
→
→
→
CCA
23
Out come
99
90
38
71
97
104
106
New CCA23 target as %age of
original CCA target
EU
ETS
CCA
CCA surplus reduced by 3,500 tCO2e 13
Deficit created due to CCA surplus reduced by 7,500 tCO2e 12*
CCA deficit increased by 21,000 tCO2e9
CCA deficit increased by 600 tCO2e8
CCA deficit increased by 2,000 tCO2e7
CCA deficit reduced by 1,500 tCO2e3*
CCA deficit reduced by 10,000 tCO2e1*
Effect of EUETS adjustment on the C02e tonnage to be ringfenced or
purchasedCo.
* Those in EUETS & applying CCA23 in M3
CCA deficit increased by ~28,000 tCO2e51→11
→
→
→
CCA
23
Out come
90
104
106
EUETS adjusted target as %age of
original target
EU
ETS
CCA
CCA surplus reduced by ~7,500 tCO2e to create a deficit 12
CCA deficit reduced by ~1,500 tCO2e3
CCA deficit reduced by ~10,000 tCO2e1
Effect of EUETS adjustment on the C02e tonnage to be ringfenced or
purchasedCo.
EUETS Opt ins surviving to end M3
CCA23 and Phase Balancing
-50
0
50
100
150
Allocation Emission Borrowing Balance
CO2
2005 2006 2007
In 2008 CCA23 requires no sale of 2007 allowances.
But residue in 2007 is reduced by previous borrowing.
What happens?
Double counting opt-ins for Ceramics
Company
EU ETS
CCA
CCA
23
Outcome
Effect of EUETS adjustment on the C02e tonnage to be ringfenced or purchased
ConclusionsDEFRA: 13 satisfactory?
Ceramics:10 out of 13 unsatisfactory
1 CCA deficit decreased by 150 tCO2e Satisfactory
2 CCA deficit increased by 50 tCO2e Unsatisfactory
3 CCA deficit increased by 1000 tCO2e Unsatisfactory
4 CCA deficit increased by 21500 tCO2e Unsatisfactory
5 CCA deficit increased by 9000 tCO2e Unsatisfactory
6 CCA deficit increased by 5500 tCO2e Unsatisfactory
7 CCA deficit increased by 150 tCO2e Unsatisfactory
8 CCA surplus reduced to deficit of 750 tCO2e Unsatisfactory
9 CCA surplus reduced to deficit of 50 tCO2e Unsatisfactory
10 CCA surplus reduced to deficit of 1350 tCO2e Unsatisfactory
11 CCA surplus reduced to deficit of 1500 tCO2e Unsatisfactory
12 CCA surplus reduced by 300 tCO2e Satisfactory
13 CCA surplus reduced by 350 tCO2e Satisfactory
Effect of EUETS CCA23 adjustment on performance relative to target - All EU ETS companies
Effect of CCA Double Counting on Performance Relative to Target
0
50
100
150
200
250
300
CCA performance as % of original CCAtarget
CCA performance as % of EU ETSadjusted target
%
Extreme changes to target values are recognised in last column of Table 2 of DEFRA review
Effect of EUETS CCA23 adjustment – Opted in Co.s
Effect of CCA Double Counting on Performance Relative to Target
0
50
100
150
200
250
CCA performance as % of original CCAtarget
CCA performance as % of EU ETSadjusted target
%
What actually happened?• In glass most of the eligible TUs fell into the mixed result scenario for which,
glass would argue, CCA23 is not designed. Many TUs in other sectors did the same.
• CCA23 changes to TU CCA target values were often greatly out of
proportion to what could realistically be achieved.
• The resulting deficit or surplus was often out of proportion to the actual performance against target.
• In 5/13 cases there was no surplus to trade in CCA because there had been failure in any case and yet the deficit was increased.
• In 3/13 cases the surplus of a passing CCA company was increased.
• The financial damage/windfall was only limited due to what will most likely prove to be in the long term an exceptionally low market price.
Analysis of CCA23 situation• Analysis and decision making process on hold since July 2006 with
the result that now short of time for M4• Proposal for use in M4 only tolerable because it relies on very low
EUETS price due to closure of Phase 1 market and excess MS allowances1. Will not be repeated at M5.
• Current DEFRA review incomplete:– awaiting further information on categories of performance i.e. P/P, F/F,
P/F, F/P. This is important because CCA23 is designed to deal with P/P & F/F scenarios and need to know extent of anomalies in P/F and F/P. (How many out of 140? 30%? E.g. actually 18/19 ceramics, 8/13 glass).
– shows no thorough analysis of the alternative proposals and no other methodology has been put forward by government.
– no financial analysis; results in tonnes CO2, yet recommendation for M4 relies entirely on market prices remaining as they are.
– review (table 2 col. 6) suggests that sector balancing removes financial damage – not always the case as TUs not necessarily pooled and individual target swings can be extreme.
– Opt in data skews picture as represents only those who opted to go in or couldn’t avoid it. Those at a disadvantage stayed out – sectors could provide complete opt out and opt in analysis.
1/ Paragraph 1 - A proposal for TP3 and TP4: “assuming there is no significant change to the EU allowance value, it is likely that double counting will have no adverse impact”
A Possible Way Forward: a compromise
• Given– Lack of time now left before M4– Low price and closure of Ph1 EUETS– Limited number Opt ins (and ignoring individual TU issues)
• Do the following– As a backstop: use CCA23 for M4– Comprehensively complete the review including points given
above– Redefine the double counting objectives for all circumstances
under Phase 2 conditions and reformulate CCA23 – Where appropriate develop split target regimes for those
sectors/TUs capable of using them AND NOT “one size fits all”.
End
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