Reviewing the EU Emissions Trading Scheme (Part II): Priorities for Short-Term Implementation. CEPS Task Force Reports No. 57, 1 March 2006

[From the Introduction]. This report constitutes Part II of the twin reports of the CEPS Task Force on Reviewing the EU Emissions Trading Scheme. The Part I report, which was presented to the UK Presidency on 7 July 2005,1 focused on a number of short-term implementation issues including transparency requirements for the National Allocation Plans (NAPs), the definition of installations, treatment of small installations, new entrants, closure and transfer rules, allocation methodologies, the possibility of opt-ins as well as monitoring, reporting and verification. This follow-up Part II report examines deep-seated topics such as whether the EU Emission Trading System (ETS) contributes to meeting Kyoto Protocol targets, economic impacts, effects on investment and the potential inclusion of aviation. These issues lie at the interface of NAP phase II and the longterm formal 2006 review. Neither of the two reports (Part I or Part II) examines issues related to the formal review of the EU ETS, which the Directive calls for no later than June 2006. Since this formal review, which will lead to an amendment of the Directive by co-decision, is likely to trigger a fundamental and longer-term debate, it is being treated in a separate CEPS Task Force launched in early 2006. After a status report of the ETS and a reminder of some fundamentals in sections 1 and 2, the following sections cover investment incentives (3), competitiveness (4 and 5) and aviation (6). The main findings of the report are contained in the Executive Summary, including Key Messages & Recommendations and an extended Full Summary. Appendix 1 presents a list of members of the Task Force and invited guests and speakers