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KYOTO CLUB aims at testing the EU ETS system, established by the Emissions Trading Directive 2003/87/EC, on a small range of Italian municipalities and provinces building a system for the reduction of emissions from the public building sector and the transport fleet.

The EU Emissions Trading Scheme (EU ETS), established by the Emissions Trading Directive 2003/87/EC, is one of the principal policies being introduced across Europe to reduce emissions of carbon dioxide. The system, which focuses on specific energy intensive industrial sectors, envisages that from 2008 Member States may apply emission allowance trading to activities, installations and greenhouse gases which are not yet listed in Annex I.

Within this framework, the Kyoto Club project is aimed at testing the EU ETS system on a small range of Italian municipalities and provinces building a system for the reduction of emissions from the public building sector and the transport fleet. The emission trading system will be consistent with the EU ETS system, as a pilot experiment which can be integrated in the existing framework starting with the second phase of the European Scheme.

The aim is that of building a viable system through the establishment of an emission reductions target, a methodology for emission allowances allocation, a study on the type and fungibility of the credits generated and the set up of a monitoring and validation system.

The project assesses the specific structural conditions of the public building and transports sector and highlights its characteristics and obstacles especially in the field of data collection and administrative reform.

Ultimately, the project is aimed at training the public administration personnel through its participation in energy auditing activities and the monitoring and verification of emissions saving measures occurred.

The project started in April 2006. The kick-off meeting took place in Vicenza on the 28th of April 2006 during the SolarExpo Exhibition. The meeting has recorded a very successful participation and a very high level of interest by local decision makers and public administration stakeholders. A draft outline of the ET system will be presented to the selected local municipalities on the 28th of September 2006 at the CO2 Expo Exhibition in Rome.

The EU Emissions Trading Scheme (EU ETS) established by EU Emissions Trading Directive 2003/87/EC, creates a scheme for greenhouse gas emission allowance trading which focuses on specific energy intensive industrial sectors listed in Annex I. However, the ETS Scheme doesn’t prevent Member States from establishing national trading schemes regulating emissions of greenhouse gases from activities other than those listed in Annex I. The EU ETS envisages that from 2008 Member States may apply emission allowance trading to activities, installations and greenhouse gases which are not yet listed in Annex I. With the purpose of testing the enlargement on other sectors, the Kyoto Club project is focused on testing the EU ETS system on the public building sector and on the transport fleet of a small range of Italian municipalities and provinces.

The project develops around the following cornerstones:

  • Development of a methodology for setting the annual emission reductions targets.
  • Development of an emissions allowances allocation (benchmarking approach).
  • Analysis of the potential linkages/additionality issues deriving from the interaction with the White and Green Certificates systems and the existing EU Emissions Trading Scheme.
  • Definition of a monitoring and verification system for the validation of the emissions reduction.
  • Institution and role of the main bodies of the ET market: the Authority (Unique buyer), monitoring and verification operator.
  • Performance of energy audits and economic assessment of the energy saving measures pursued.
  • Training and capacity building of the PA personnel on the ET mechanism and energy saving technologies and measures.

FEEM is involved in the first phase of the Kyoto Club project focusing on the development of emissions scenarios, on the definition of the reduction target, on the development of an emissions allowances allocation methodology and on the interaction with existing policies. The study entails a study on allocation methodologies and on the type and fungibility of the domestic credits generated. The credits fungibility issue will be analysed in the light of additionality in particular in the framework of integration with the EU ETS and with other existing domestic schemes, such as the White and Green Certificates systems. In this phase the project will review experiences of domestic offset projects carried on in other countries, focusing on experiences of integration of emission reduction from energy efficiency projects in the building and public transport sectors with systems of Emission Trading.

The emission trading system will be consistent with the EU ETS system, as a pilot experiment which can be integrated in the existing framework starting with the second phase of the European Scheme. Therefore, the gas considered in the first place by the Kyoto Club system is carbon dioxide, although, coherently with the Directive 2003/87/EC it can be enlarged to include other gases.

The Emission Trading system chosen is that of cap and trade. The emission reductions target and the allocation methodology are based upon an efficiency benchmarking approach. Therefore, the allowance allocation methodology among the participants is based on their average relative efficiency in relation to an energy efficiency optimum (which will be defined for each sector) rewarding early actions. The allowances are assigned on an annual basis free of charge by the Authority. To ease the operations in the first place and to focus on the methodological and the structural aspects of the emerging system, the municipalities and provinces involved do not trade among themselves but they surrender their allowances to an Authority, represented by the Italian Ministry of the Environment and Territory, which act as the unique buyer of credits on the ET market. The price system is an incentive based one, setting a premium for those who overtake the annual target, paying for the allowances with an x more for each allowance given, whereas it doesn’t envisage penalties for those who don’t respect the target.

In the subsequent phases, the activity comprehends energy auditing and cost-effectiveness evaluations, the implementation of emissions reductions measures, the training of the PA personnel and the verification and monitoring of the reductions obtained.

The project is innovative in that it tests the enlargement of the EU ETS scheme into other sectors at a domestic level and in that it looks for linkages with other environmental markets in place in some EU countries (i.e. white and green certificates). Moreover, this project is particularly relevant given the European end-use energy efficiency politics. In particular, in the light of the newly approved Directive 2006/32/CE on end use energy efficiency and energy services, which calls MS to implement an annual reduction of 1,5% in the end-use energy consumption of the public sector, and of Directive 2002/91/CE on the energy certification of buildings.