Evaluation of EU ETS Monitoring, Reporting and Verification Administration Costs Final report June 2016 Europe Direct is a service to help you find answers to your questions about the European Union. Freephone number (*): 00 800 6 7 8 9 10 11 (*) The information given is free, as are most calls (though some operators, phone boxes or hotels may charge you). LEGAL NOTICE This document has been prepared for the European Commission however it reflects the views only of the authors, and the Commission cannot be held responsible for any use which may be made of the information contained therein. More information on the European Union is available on the Internet (http://www.europa.eu). Luxembourg: Publications Office of the European Union, 2016 ISBN 978-92-79-64425-2 doi:10.2834/640029 © European Union, 2016 Reproduction is authorised provided the source is acknowledged. 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Chris Green Document revisions Amec Foster Wheeler No. Details Date Floor 4 1 Draft final report 24 May 2016 60 London Wall London EC2M 5TQ 2 Final report 30 June 2016 United Kingdom Tel +44 (0) 203 215 1610 3 Final report (Representative 05 July 2016 Doc Ref. 37474 data only) h:\projects\37474 ppcc evaluation of eu ets mrv compliance costs\c client\reports\5. final issued report\redacted version_representative data only\37474_final report_representative data only_05june2016.docx July 2016 Doc Ref. 37474 3 © Amec Foster Wheeler Environment & Infrastructure UK Limited Executive summary Subject This subject of this report is an evaluation of European Union Emissions Trading System (EU ETS) monitoring, reporting and verification (MRV) compliance costs. The study was completed for DG Climate Action at the European Commission (‘the Commission) by Amec Foster Wheeler, Environment and Infrastructure UK Limited (‘Amec Foster Wheeler’) in partnership with BIO by Deloitte (‘BIO’). Background The EU ETS applies to approximately 11,500 installations across the 28 EU Member States and three European Economic Area (EEA)-European Free Trade Area (EFTA) states (Iceland, Liechtenstein and Norway). It covers sectors responsible for approximately 45% of total EU greenhouse gas (GHG) emissions, including major industrial emitters, the power sector and, from 2012, the aviation sector.1 The EU ETS started operating in 2005, with a pilot phase (Phase I) running from 2005 to 2007, followed by a second trading period (Phase II) between 2008 and 2012. These two phases were governed by Directive 2003/87/EC and Directive 2004/101/EC. The EU ETS is now in its third phase, running from 2013 to 2020 (Directive 2009/29/EC). The fourth phase will follow in 2021. In the EU ETS, one allowance is equal to one tonne of carbon dioxide equivalent (CO2e) emission. Articles 14 and 15 of Directive 2003/87/EC provide the legal basis for the monitoring, reporting, verification and accreditation requirements. Additionally, Annex IV sets some basic principles for the monitoring and reporting of emissions in and Annex V outlines the verification criteria. Installations and aircraft operators are required to monitor their emissions falling under the scope of the EU ETS during each calendar year starting from 1 January through to 31 December. These data are then summarised in an annual emissions report, which is verified by an accredited third party verifier before submission to the Competent Authority (CA) by 31 March each year. Operators must annually surrender an equivalent number of allowances by 30 April to compensate for their emissions. Finally, should an improvement report be required, these must be submitted to the CA by 30 June. The first Monitoring and Reporting Guidelines (MRG) were adopted by the Commission in 2004 (Decision 2004/156/EC) and applied for the first trading period (2005-2007). In 2007, the Commission adopted a revised version of the guidelines (MRG 2007) (Decision 2007/589/EC) to be applied for the 2008-2012 trading period. For the third trading period, the reviewed ETS Directive (2009/29/EC) provided for the adoption of two new Regulations which replaced Commission Decision 2007/589/EC: Commission Regulation (EC) No 601/2012 on the monitoring and reporting of greenhouse gas emissions pursuant to Directive 2003/87/EC (MRR); and Commission Regulation (EC) No 600/2012 on the verification of greenhouse gas emissions reports and tonne-kilometre reports and the accreditation of verifiers pursuant to Directive 2003/87/EC (AVR). The MRR replaced the MRG 2007 with a particular emphasis on simplifying the monitoring process when possible and improving the overall cost-efficiency of the monitoring and reporting duties. The MRR takes into account best practices that were observed in different Member States. The success of the EU ETS resides on the full compliance by Member States. The MRV system enables a more transparent process for tracking implementation and for ensuring the enforcement of the operators’ obligation to surrender sufficient allowances. Issue MRV is fundamental to any functioning emission trading scheme as it ensures the integrity of the system and underpins the value of allowances. The integrity, credibility and success of the EU ETS requires that one tonne of CO2e, measured, reported and verified in one country is equivalent to one tonne measured, reported and verified in another country. The EU ETS MRV compliance cycle involves different elements 1 Note that this evaluation does not include aviation operators. July 2016 Doc Ref. 37474 4 © Amec Foster Wheeler Environment & Infrastructure UK Limited (permit, plant, emission data, reporting etc.) and different actors (Member States’ CA, operators, verifiers and national accreditation bodies). For the EU ETS to not be compromised there needs to be a high level of compliance and high level of consistency in the approach taken by all actors. While it is widely accepted that the EU ETS has enabled the reduction of GHG emissions at a relatively low cost, the issue of cost-efficiency is of primary importance. The introduction of the MRR and AVR) has provided some clear improvements from the MRG 2007 on proportional approaches in order to increase cost-efficiency such as provisions for simplified monitoring plans. However, relatively little reliable information is available on the costs of compliance with the EU ETS MRV, particularly as regards costs relating to implementation of Phase III under the MRR/AVR. Multiple analyses are available on the best carbon pricing strategy, but those studies do not focus on administrative and compliance costs. Where data are available, figures are however somewhat uncertain and vary between installations. Moreover, they are based on industry surveys, which contain many uncertainties such as biased sample size (with an overrepresentation of larger companies), approximate answers due to the lack of internal