Course Review

Introduction to Emissions Trading

As the EU Emissions Trading Scheme takes effect, it is clear that many new issues will arise. Risks involved in monitoring and reporting; regulation, trading and accounting by companies new to the arena; aspects of mergers and acquisitions, new contracts, pooling, permits and licensing requirements will need to be addressed.

'An Introduction to Emissions Trading' presented by the Energy Training Network, offers a very accessible and comprehensive means to gain sufficient knowledge to enter this new scenario with a very good foundation. Beginning with just a little understanding of the scheme, the delegate is introduced to the subject of climate change and the scientific research which led to the inception of the Kyoto Protocol. Evidence is presented to support the probability that anthropogenic activity and the over-production of greenhouse gases (GHGs) is responsible for what we now term, global warming.

Significant moments of the eight-year history of The Kyoto Protocol are outlined as the lectures lead up to the EU Scheme, its development, regulation and links with the Kyoto Protocol. All GHGs are mentioned but carbon dioxide is the initial subject of the emissions trading scheme and is the focus of these seminars. Other issues involved in the scheme's evolution are explained such as the EU Burden-sharing Agreement, which re-distributes the EU15’s 8% cut in emissions agreed at Kyoto between the European countries, reflecting varying degrees of industrial development and abatement opportunities.

With the background to the scheme established during the first lectures, the course continues with a comprehensive look at key principles and trading commodities. The delegate is introduced to the concepts of allowance trading (cap and trade), and credit trading (baseline and credit) as different means of balancing their financial commitment. Throughout the day, the 'alphabet soup' of the many acronyms which have arisen, are explained. EAs, AAUs, ECs, ERUs, CERs, ERs and VERs as commodities are variously considered and the well-presented course material, which the delegate will keep, contains a glossary as well as details of the term used in its context.

The course continues with the operation of the emissions trading scheme in the EU and explains different countries' involvement and their progress towards set targets. This leads to a look at National Allocation Plans (Naps), their development and regulation, calculation of emissions, allocation of 'permits to emit', and how targets are established and monitored. In this section the price of carbon and factors affecting the calculation of its value are considered.

Since global warming is of worldwide concern, action to prevent or subdue the emission of carbon dioxide is valid whether carried out locally or internationally. This concept has led to links with Kyoto and flexible mechanisms which allow for Clean Development Mechanisms (CDMs), project-based activities to reduce emissions in developing countries; and Joint Implementation (JI), emissions reduction activities in different industrialised nations which earn emissions reduction units (ERUs) to offset over-production of carbon dioxide from the instigating company.

These initiatives under the EU Linking Directive are clearly explained along with issues of supplementarity concerned with maintaining the level of domestic activity expected under the initial scheme. The tradable credits earned through CDMs and JIs promote market liquidity, offer increased operator flexibility, help in reducing costs of meeting targets and bring developing countries into the emissions reduction loop.

Further areas of the EU emissions trading scheme are examined in considerable detail. This includes analysis of the national allocation plans issued by major European states (with a detailed analysis of the UK Nap), sectors by covered by the scheme, and allocations between sectors, obligations on site operators and reporting and monitoring issues. The development of the trading infrastructure, through national registries, brokers and price reporters, contracts, and trading exchanges, is explained. The trading issues facing companies are examined in some detail, and the wider impact of emissions trading is assessed. The scheme will undoubtedly affect areas outside its own and the delegate is offered some thoughts and speculation on where this might lead and the future matters which could arise.

A key part of the course is the Emissions Trading Game, which will consolidate some of the immediate application of the scheme by taking the delegate through a mock auction where they are able to buy and sell electricity and 'carbon' to balance demand against emissions allowances for their fictitious power generation company.

The lecturers for this course are both experts in the energy industry and particularly now, in Emissons Trading. Both have spent considerable time and effort researching the finer points of many issues which are unclear. Their book, 'Emissions Trading in the EU' is due to be published in early May and complements the course with more detailed commentary than is able to be covered in the one-day course. Throughout the course, delegates are encouraged to make their own notes and to ask questions of the lecturers. The refreshment breaks offer further opportunity to ask questions which are particularly relevant to the delegate.

The day is spent in the peaceful setting of Templeton College on the outskirts of Oxford, where the delegate will find an ambience conducive to learning and a perfect environment to interact with others whilst focussing on the subject.