Emissions trading webchat with David Hone, Shell Climate Change Advisor. Transcript for ETS webchat: Session #1

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Message

Jane Buston

What do you think about the process for allocating allowances in the EU ETS?

Response

David

Initially the EU chose to go for mainly free allocation which has worked well, although there has been much debate as to the impact of this in the power sector where the CO2 price has been passed through the value chain relatively easily. Nevertheless, much has been learned from the early phase and the Commission has now proposed a “three-box” approach.

Message

Andrew.Ducas

Hello David, thank you for taking the time to make this webcast. I have an environmental engineering background, but my query relates to the internationalization of an emissions trading market. Do you believe this is a role that should be undertaken by the WTO? To prevent artificial market distortions due to non-regulated markets. Also, are you concerned about the involvement of market opportunists, whose aim is to seek profit and potentially disrupt the function and primary objective of an ETS market? With regard to the actual dilemma of a changing climate, should ETS revenue fall short of funding adaptation projects, how would this be reflected in an ETS market?

Response

Steven

Hi, you have raised a number of important points. Let me try to answer them in turn. On the internationalization of the carbon market, it is likely that the emission trading systems in industrial countries would have provisions that seek to minimize the market distortions that would arise from competition by foreign, unregulated producers. These provisions usually take the form of a relatively high free allowance allocation to emission-intensive, trade exposed sector. The best protection against manipulation of the secondary (or primary market) for emission allowances to design the system to make sure that these markets are liquid and transparent. Given the potential size of these markets, there should be of sufficient scale to make sure they are deep and liquid. Regarding the use of proceeds from the sale of emission allowances by governments, we think that most of these revenues should be returned to consumers who are indirectly paying for them through higher product prices. Funding of adaption projects should largely be done through normal government budget processes rather than the earmarking proceeds from allowance sales.

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