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Roadmap for Implementing a Greenhouse Gas Emissions Trading System in Chile: Core Design Options and Policy Decision-Making Co

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Roadmap for Implementing a Greenhouse Gas Emissions Trading System in Chile: Core Design Options and Policy Decision-Making Co Roadmap for Implementing a Greenhouse Gas Emissions Trading System in Chile: Core Design Options and Policy Decision-Making Considerations Report to the World Bank Partnership for Market Readiness Consortium Lead: Motu Economic and Public Policy Research Final Report November 2012 Acknowledgments and Disclaimer This report was authored by an international consortium led by Motu Economic and Public Policy Research. Consortium members comprise: Country base Firm Key staff New Zealand Motu Economic and Public Policy Suzi Kerr (Senior Fellow) Research Catherine Leining (consultant) Justine Sefton (consultant) Chile Centro de Cambio Global UC, Juan-Pablo Montero (Professor of Pontifica Universidad Catolica Economics) Sebastian Vicuna (Executive Director) Cambio Climatico & Desarrollo Eduardo Sanhueza (Executive Director) Consultores Grasty Quintana Majlis & Cía Michael Grasty (Principal and Founding Partner) United States Environmental Defense Fund Ruben Lubowski (Chief Natural Resource (EDF) Economist) Thomas Sterner (Visiting Chief Economist) Nicholas Institute for Billy Pizer (Faculty Fellow, Associate Environmental Policy Solutions Professor of Public Policy and Environment) (Participating in his personal capacity) United Kingdom AEA Technology PLC Chris Dodwell (Knowledge Leader, International Energy & Climate Change) Norton Rose LLB Anthony Hobley (Partner and Global Head of Climate Change & Carbon Finance) The Consortium also wishes to acknowledge the additional input and peer review provided by: Robert Milnes (AEA Technology, UK), Mark Johnson (AEA Technology, UK), Tim Baines (Norton Rose, UK), Andrés Pica Téllez (Centro de Cambio Global UC, Chile), Lucy Young (Grasty Quintana Majlis & Cía, Chile), Jessica Coria (University of Gothenburg, Sweden), Peter Sopher and Annie Petsonk (EDF, USA), Jos Cozijnsen (JC Consulting, The Netherlands), and David Antonioli and Will Ferretti (Verified Carbon Standard (VCS), USA). Pedro Piris- Cabezas (Consultant Researcher, EDF, USA) was the lead in conducting the preliminary modelling analysis in Appendix 6. Editorial support was provided by Susi Bailey, Gemma Freeman and Tui Head. However, the content remains the responsibility of the authors. The opinions, findings, recommendations and conclusions expressed in this report are those of the authors and do not necessarily represent their institutions. Lead Authors and Contact Details Consortium lead Suzi Kerr Overall strategic direction Motu Economic and Public Policy Research PO Box 24390, Wellington, New Zealand Email: [email protected],nz Telephone: +64 4 939 4250 Website: www.motu.org.nz Project manager Justine Sefton CHAPTER 1 – Introduction [email protected] CHAPTER 2 – Sector Coverage and Chris Dodwell Point of Obligation [email protected] CHAPTER 3 – Setting the Level of Ambition Catherine Leining in an ETS [email protected] CHAPTER 4 – Linking and Offsets Ruben Lubowski [email protected] CHAPTER 5 – Designing Emissions Trading Catherine Leining Phases [email protected] CHAPTER 6 – Allocation Suzi Kerr [email protected] CHAPTER 7 – ETS Research Needs Juan-Pablo Montero [email protected] CHAPTER 8 – Recommendations for ETS Eduardo Sanhueza Process and Meetings [email protected] CHAPTER 9 – Roadmap for Government Catherine Leining Decisions [email protected] Contents EXECUTIVE SUMMARY ....................................................................................... 1 Sector Coverage and Point of Obligation .......................................................................................... 2 Setting the Level of Ambition............................................................................................................ 4 Linking .............................................................................................................................................. 5 Relationship between the ETS Cap, Linking and Price Stabilisation in Setting Ambition .............. 7 Offsets ............................................................................................................................................... 8 Designing ETS Phases ...................................................................................................................... 9 Phasing sectoral entry .............................................................................................................................................. 10 Defining phases for ambition, price stabilisation, and linking ......................................................................... 10 Allocation ........................................................................................................................................ 13 Integrated Straw Man Option ......................................................................................................... 14 Research Needs .............................................................................................................................. 15 Process Considerations ................................................................................................................... 16 1 PROJECT OBJECTIVE AND SCOPE ......................................................... 18 1.1. What is an ETS? ................................................................................................................ 19 1.2. Exploring an ETS for Chile ............................................................................................... 21 1.2.1. Drivers and objectives ............................................................................................................................ 21 1.2.2. General criteria for the design of an ETS ........................................................................................... 22 1.2.3. Key context and considerations for ETS scoping and design in Chile.......................................... 23 1.2.4. Organisation of the report ..................................................................................................................... 31 1.2.5. Bringing it all together ............................................................................................................................ 31 1.3. References ......................................................................................................................... 33 2 SECTOR COVERAGE AND POINT OF OBLIGATION .......................... 35 2.1. Introduction ....................................................................................................................... 36 2.1.1. Overview and structure .......................................................................................................................... 36 2.1.2. Coverage of sectors and gases ............................................................................................................... 37 2.1.3. Point of obligation .................................................................................................................................. 39 2.1.4. Forms of thresholds for excluding small emitters ............................................................................. 43 2.1.5. Where to set the threshold for excluding small emitters .................................................................. 44 2.2. Lessons Learned from Other ETS ..................................................................................... 44 2.3. Chilean Context ................................................................................................................. 50 2.3.1. Electricity .................................................................................................................................................. 51 2.3.2. Industry ..................................................................................................................................................... 53 2.3.3. Transportation ......................................................................................................................................... 56 2.3.4. Forestry ..................................................................................................................................................... 58 2.3.5. Waste ......................................................................................................................................................... 61 2.3.6. Agriculture ................................................................................................................................................ 62 2.4. Framework for Government Decisions .............................................................................. 63 2.4.1. Straw man options for Chile ................................................................................................................. 63 2.4.2. Priorities for further research ................................................................................................................ 64 2.5. References ......................................................................................................................... 65 3 SETTING THE LEVEL OF AMBITION ................................................... 68 3.1. Background on Setting the Ambition of an ETS ............................................................... 71 3.1.1. General context for design of this component in an ETS ............................................................... 71 3.1.2. Lessons learned from other ETS .........................................................................................................
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