EU Emissions Trading System

Memorandum submitted by Lichen Renewal (ETS 20)

1. Executive summary  

 

Report positioning statement:

In response to the Commons DECC Select Committee consultation, Lichen Renewal here provides its insight into the function of the EU ETS and its potential for significant improvements. The focus of this paper is to illustrate how enhancements to the EU ETS are to be seen both in its operation and ability to deliver deeper GHG reductions while encouraging climate change mitigation projects in the UK, with wider social and economic benefits.

Former uncapped landfill sites which took society’s biodegradable waste continue today, and will for several more decades, generate and release methane gas unabated to the atmosphere i.e. as that waste continues to rot. These sites are in effect unregulated with little (if any) economic incentive to be dealt with. Using a "bottom up" approach we have modelled that 500 former landfill sites, if dealt with as described below could result in 11,000,000 to 13,000,000 tonnes of carbon dioxide equivalent savings.

Without government incentives or appropriate carbon market mechanisms, these sites will continue as environmental liabilities. It is estimated that 60% of which are owned by Local Government. An expanded and more flexible EU ETS can be that incentive. Alternatively article 24a of the Revised ETS Directive may be of use to the UK.

Our submission sets out how the Government, by leveraging existing policy combined with innovative clean technology solutions, has the opportunity to establish a long term roadmap for the UK that will deliver maximum benefit from its continuing participation in the EU ETS. We advocate the deployment of a domestic market via Article 24a, combined with adopting sectoral crediting approaches and facilitating linkages to emerging international regional schemes. We have detailed the full spectrum of the outcomes of these solutions in Section 7 of this submission, however in summary they include:

· UK energy security

· Encouraging UK investment

· UK meeting its carbon reduction targets

· Reduced government spending

· UK clean technology and 'green job' development

· Benefits to UK businesses

 

We therefore urge the Committee to consider the issues raised and the holistic solution proposed in this submission.

2. Lichen Renewal Limited   ( the author )

 

2.1 Lichen Renewal landfill management  

Lichen Renewal is an independent UK company operating as an innovative leader in landfill site recovery and restoration. Lichen Renewal has developed a unique approach to capture GHG emissions released from former landfill sites by capping them with pulverised fuel ash (PFA) from coal-fired power plants. Lichen is examining and researching strategies where the coal dependent electricity generating sector may in future be in a position to offset some of its own carbon footprint when using its own waste stream (PFA) to mitigate/cap gassing landfill sites. By capturing methane and remediating landfill sites, Lichen Renewal is able to create climate change mitigation projects in the UK, with wider social and economic benefits.

There are in the order of 22,000 former landfill sites in England and Wales that leach pollutants into the groundwater and emit millions of tonnes of potent GHGs. Of these, 1500 are emitting significant enough levels of emissions to worry the Environment Agency. Lichen Renewal understands that waste disposal to landfill sites is the single largest source of UK methane emissions, accounting for approximately 42 per cent of methane emissions in the UK, yet there is no current policy for driving a reduction of landfill related emissions in the UK and EU for former landfill sites. This is a serious issue because of the global warming potential of methane, and since this gas makes up approximately 8% of the UK’s GHG emissions.

Using new environmental proprietary technology Lichen Renewal can deliver:

· The return of environmentally damaged land (i.e. former landfill sites) to productive social and economic use

· The prevention of:

o pollution from landfill gases (carbon capture);

o water pollution from landfill sites

· Production of low carbon renewable energy (electricity and heat) from landfill gas (methane) and green waste

· Reduced costs of waste management and ‘green jobs’

· Numerous other social and economic benefits of redeveloping UK’s former landfill sites

3. Does the EU ETS remain a viable instrument for climate change mitigation in the EU?  

 

3.1 EU ETS Limitations  

As DECC understands the EU ETS covers approximately 45% of the EU’s CO2 emissions (CO2e) and 40% of GHG emissions. However, some 60% (3 billion tCO2e) of EU emissions are therefore not subject to capped limits under the EU ETS. The majority of emissions that fall outside the EU ETS are subject to various other national and EU-level policies and measures. We must draw attention, however, to a highly significant volume of emissions for which there is no current policy for driving a reduction of emissions in the UK and EU. Waste disposal to landfill sites is the single largest source of UK methane emissions, accounting for approximately 42 per cent of methane emissions in the UK, yet there is no current policy for driving a reduction of emissions in the UK and EU for former landfill sites. This is a serious issue because of the global warming potential of methane and since this gas makes up approximately 8% of the UK’s GHG emissions. Whilst assessing the viability of the EU ETS for climate change mitigation in the EU it is worthwhile to understand this failing and look at how the system can be improved.

As discussed above, there are 22,000 former landfill sites in the England and Wales. Lichen Renewal calculates that if they cap only 500 sites, this will mitigate 11-13 million t/yrCO2e. This comes from preliminary modelling from three sites which were found to produce 22,000 to 26,000 t/yrCO2e. Lichen Renewal calculate that if the 500 sites were left in their current state, over 40 years (taking into account decline in emissions over time), 158 million tonnes of CO2 equivalents will be released to the atmosphere unabated. In the UK, there is currently no framework to directly tackle the large volume of emissions from former landfill sites.

The Carbon Reduction Commitment Energy Efficiency Scheme is predominantly designed to reduce energy use in buildings, while the EU Landfill Directive (1999/31/EC of 26 April 1999) is designed to reduce the volume of materials being sent to landfill. Neither of these specifically tackle the emissions that are emitted as a consequence of waste degradation occurring within former landfill sites, which are in effect unregulated.

Whilst the volume of methane emissions from landfill sites are included under the UK’s emissions within the Kyoto Protocol and, according to the IPCC Guidance, must be reported in the national GHG inventory, the waste sector is not included in market-based GHG regulations such as the EU ETS and so the reporting is not relevant to these schemes. Further more, the capping of landfill sites and the utilisation of GHGs is a valuable source of carbon credits through the Clean Development Mechanism (CDM) and Joint Implementation (JI) schemes. However, the UK is unable to directly benefit and to reduce emissions in the UK through this mechanism as it does not approve JI projects hosted in the UK.

4. Revised ETS Directive in place to   reward investment in UK landfill management projects

 

4.1 Article 24a of the Revised ETS Directive (2009/29/EC)  

i. Paragraph 1 of Article 24a states that "measures for issuing allowances or credits in respect of projects administered by Member States that reduce GHG emissions not covered by the Community scheme [the EU ETS] may be adopted". Explicit reference is also made to the offsetting mechanism of Article 24a under the Effort Sharing Decision (ESD) of the European Parliament and the Council, which introduced emissions targets for Member States in a range of areas not covered by the EU ETS (e.g. transport, buildings, agriculture, waste). Under the ESD, Member States are permitted to trade up to 5% of their annual emission allocation between themselves, and can also use limited volumes of CERs and ERUs to meet their targets. Importantly, the Directive states they would be allowed to use credits resulting from Article 24a projects without any limitations.

ii. As described above, the majority of GHG emissions within the EU (c. 60%) lie outside the scope of the EU ETS. A new offsetting mechanism could therefore potentially extend the economic incentive provided by the carbon market to domestic emissions reductions outside of the scheme, many of which, such as landfill gas projects, are likely to represent highly cost-effective abatement projects. Introducing such offsets into the EU ETS could reduce the costs of achieving the targets, thereby potentially allowing for an increasing tightening of the scheme’s overall cap. An extension of the offsetting mechanism in Europe could also potentially address some of the problems associated with JI.

iii. As we have discussed, emissions from landfills sites not captured under the EU ETS scheme or by any UK support scheme to encourage a reduction in emissions is preventing an opportunity for the UK to reduce its national emissions and benefit from the economic environmental and social advantages of improving these sites. We note that Article 24a of the Revised ETS Directive (2009/29/EC) provides the legislative basis for establishing a domestic offsetting scheme and ultimately allowing the UK to benefit from the carbon reduction projects in the UK without the issues that prevents the UK allowing projects under the JI mechanism.

5. L inking the UK’s domestic carbon scheme to other International ETS’s  

 

5.1 Australian example  

In Australia, the New South Wales GHG Reduction Scheme (GGAS) has been operational since 2003. It is a trading scheme focused on reducing the carbon intensity of electricity suppliers and makes use of domestic project offsets. The GGAS recognises offsets that "destroy landfill methane that would otherwise have been vented to the atmosphere".

Beyond this the Australian Government has structured a comprehensive climate action plan which addresses its domestic emissions reductions targets and has been designed to complement existing international carbon market mechanisms. The Clean Energy Future legislation encompasses three main areas:

i. National Carbon Offset Standard (NCOS)

In effect from 1st July 2010:

§ Companies in Australia claiming carbon neutrality can only do so if they are compliant with NCOS

§ NCOS recognises a clearly defined list of eligible offset types

· Australian Carbon Credit Units (ACCUs);

· Certified Emissions Reductions (CERs)

· Emission Reduction Units (ERUs)

· Removal Units (RMUs)

· Verified Emissions Reductions (VERs) - Gold Standard

· Verified Carbon Units (VCUs) - Verified Carbon Standard

ii. Carbon Farming Initiative (CFI)

Successfully passed the House of Representatives in June 2011 and likely to pass the Senate later in 2011:

§ Mechanism for domestic farmers and landholders to benefit from carbon markets via GHG reduction projects including:

· Legislation to establish a carbon crediting mechanism

· Fast-tracked development of methodologies for offset projects

§ CFI credits will be both Kyoto and non-Kyoto compliant

§ There is potential linkage/trading of the non-Kyoto CFI credits in other regional/national trading schemes, such as California.

iii. Carbon Price

Currently proposed and likely to be approved by the House of Representatives in 2011 prior to passage through the Senate:

§ Initially in the form of a fixed price tax, set at A$23 per tCO2e and commencing 1st July 2012

§ Transitioning to a floating price, cap and trade mechanism from 1st July 2015

§ Expected to have a cap of 280-315 million tCO2e by 2020

§ Expected to be linked to international carbon markets, such as the Kyoto market for CERs, from the start of the floating price period

§ Anticipated that Australian Cap and Trade scheme will have demand for up to 100 million CERs by 2020

§ Up to 50% of participants’ liability can be sourced from international credits

§ Australian originators will be able to sell their Kyoto and Non Kyoto credits to the international market

§ Ability for regulated Australian entities to offset 5% of their emissions liability during the fixed price period and 100% of their liability under the floating price period using Kyoto-compliant CFI ACCUs

This comprehensive legislation represents a multifaceted approach to addressing the combination of domestic reduction objectives and broader international carbon market participation. Essentially it offers Australian industry and Government the opportunity to derive domestic benefits across a spectrum of criteria including economic, carbon mitigation, attracting domestic investment, catalysing innovation, promoting clean technology development (adoption and export) and providing a more sustainable model by which Government can manage its GHG emissions. The approach underpins the ability for Australia to export carbon assets rather than liabilities, thus generating revenues and broader economic benefits.

The UK has the opportunity to achieve such benefits by harnessing the existing policy and provisions facilitated by the EU ETS to implement a complementary domestic market, which has interoperability with other international schemes. This approach reinforces the UK and EU’s long term objective of achieving an international carbon market, and through establishing interoperability, building confidence in the market and attracting investment. This investment will stimulate UK innovation in clean technology, economic activity across sectors and contribute to effective GHG reductions against their targets.  

6. Could sectoral agreements form part of the future of the EU ETS?

 

Sectoral agreements could contribute to a post-2012 EU ETS market benefiting the relevant signatory countries. The flexibility of sectoral agreements could allow the UK government to tailor its choice of commitment type to particular UK sectors (potentially at risk of rising carbon prices) such as the energy generation or automotive sectors. By assisting in diffusing competitiveness concerns and channelling the technology and financial focus towards specific sectors, this allows the UK government to concentrate on areas of the environment (and the economy) which need it most.

August 2011

7. Expanding the EU ETS   - our Solutions and Outcomes

 

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