Memorandum submitted by Shell International
Ltd
1. THE DEVELOPMENT
OF EMISSIONS
TRADING
An active emissions trading market remains the
most cost effective approach available for industry to reduce
CO2 emissions. It does not depend on specific technology choices
nor predetermined implementation timetables, but simply on price
signals and the consequent selection of a route forward by the
emitters.
A truly international system is feasible, but
probably not by design. Such a market needs to evolve and would
be based on bilateral and multilateral recognition of individual
schemes and approaches in different parts of the world. Even if
many nations agree the same high-level system (such as Kyoto based
on AAUs), each individual country may still choose to cascade
it differently (eg the forthcoming domestic Canadian emissions
trading system looks to be intensity based, but Canada itself
has absolute caps under Kyoto). Trade with other systems should
be actively promoted by such recognition (eg the recent EU linking
directive) to allow the international market to take shape. The
difficulties encountered in getting the Kyoto Protocol ratified
show that it is very difficult to get wide consensus/action on
this issue. The shape of any system will depend on whether an
ETS that covers the globe is required, with all parties participating,
or an ETS where the willing participants from various parts of
the globe are allowed to manage their emissions together. The
latter is more feasible and the issue then is to ensure that the
schemes are compatible and that the verification is good.
Legislated systems (eg EU-ETS) need to be based
on considerably longer time periods than is currently the case.
Three and five year allocation with late notification of allowance
positions does not encourage business investment. Clearer goals
over periods of up to 10 years forward are required, supported
by the necessary targets for facilities, sectors etc Significant
emission reduction projects can take a number of years to implement
with payback periods stretching many years into the future after
start-up. Uncertainty beyond a three or five year time frame with
no or at best a weak future price signal discourages such projects.
However, emissions trading may not be a suitable
approach for tackling the totality of carbon emissions. A critical
success factor in all emissions trading schemes is that the allowance
holder directly controls the emissions, so that an efficient decision
to make reductions or buy allowances can be made. Schemes that
simply pass a price through the supply chain may not work. An
example of such a scheme would be the application of emissions
trading to the road transport sector. As it is not practical to
cap each motorist, one scenario might be that the caps would be
put on the fuel supplier. However, the fuel supplier cannot implement
the necessary reductions with existing fuels, short of restricting
supply. Reductions with existing fuels can only be achieved with
more efficient vehicles and changes in consumer behaviour. Other
measures would also be required to assist the transition to a
new fuel base.
2. APPROACH OF
THE UK GOVERNMENT
DURING ITS
PRESIDENCY OF
THE G8 AND
EU IN 2005
As the UK takes over the G8 and EU presidencies,
it should encourage the tabling of a variety of solutions from
individual countries. However, a first step must focus on energy
and carbon in the economy. By 2010, all countries should aim to
have either carbon managed economies (where carbon is measured,
reported and managed through targets, trading systems, incentives,
etc) or at least carbon aware economies (where carbon is measured
and reported and its link with future energy demand is recognised
by government and a lower carbon economy is clearly being encouraged).
Before any discussion on targets, timetables or approaches can
take place, countries should table their respective energy strategies,
stretching out to 2030 or even beyond (as the UK did in its Energy
White Paper). These energy strategies should place emphasis on
the issue of carbon emissions in the context of expected energy
demand. Without some clarity around energy development and the
goals of individual countries understood by all, it is difficult
to see how further discussions on managing carbon can commence.
The goal of the UK during it presidencies should
be to push this energy and carbon based agenda, lending the necessary
assistance and advice based on its own experience in developing
the UK Energy White Paper.
3. LINKS BETWEEN
GOVERNMENT DEPARTMENTS
All Government departments need to work together
in a joined up approach that will deliver the most cost effective
means of reducing CO2. For example, to say that bio-fuels should
be used in road transport, because transport has to do its bit,
rather than finding the most effective place to use the bio-fuels
is clearly not designed to deliver the overall objective.
1 November 2004
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