Non-ETS offsets in brief

Under the Kyoto Protocol, European Union (EU) Member States (except Malta and Cyprus) have been assigned with a national amount of greenhouse gases (GHG) that they can emit during the period 2008-2012.

Through the EU emissions trading scheme (ETS) part of these so-called assigned amounts have been further allocated to European installations in energy-intensive sectors. Slightly less than half of EU CO₂ emissions are covered by the ETS.

The management of the remaining part of Member States’ assigned amount is generally carried out by governments through carbon/energy taxation, subsidies, voluntary agreements, green/ white certificates, etc. Target sectors/groups are, e.g., built environment, decentralised green energy production, and transport.

Thus far, activities within and outside the ETS have taken place separately, although the common aim is to reduce GHG emissions. One possibility to combine the two is through so-called Non-ETS Offset projects, which would reduce emissions of CO₂-eq. in the non-ETS sectors and trade these as CO₂ credits on the ETS market. This would enable installations covered by the ETS to purchase CO₂ credits from a domestic offsets project and add these to the number of CO₂ emission allowances that they must surrender to the European Commission by the end of each year.

Linking DO projects with the ETS market would have a number of advantages:

• DO projects stimulate development of low-carbon energy technologies within the EU and could unlock enormous amounts of CO₂savings in non-ETS sectors.
• They broaden the scope for ETS installations to comply with their annual targets.
• The economic value of GHG credits reduces the need for government subsidies, e.g. feed-in tariffs, to support low-carbon energy technologies projects outside the ETS.

Although the EU ETS has been operational since 2005, Non-ETS offsets as a concept has not yet been applied on a large scale by EU Member States; in France, UK, Germany, and Portugal, interest in Non-ETS offset projects has been translated in some pilot projects and programmes. An important reason for the lack of interest was the fact that most of the EU Member States who became active with purchasing carbon credits did so through JI and the CDM and they realized that domestic JI or DO would not necessarily bring them closer to their Kyoto Protocol targets.

With a view to this context, the main question of this working group is: How could domestic CO₂ emission reduction projects support the implementation and subsequent roll-out of new low-carbon energy technologies and thus contribute to complying to international and EU climate and energy objectives?