🤔 How much is 5% international credits really? 🤔

🎯 I am seeing a lot of confusion regarding the amount of international credits to be used by the European Union to achieve its 2040 target.

👀 Yesterday, I was finally able to look at the compromise text which came out of the successful trilogue negotiations last week. Here is what it comes down to:

📊 The 5% take a 1990 baseline. In that year, emissions were 4.736Gt, meaning we are looking at 237Mt.

Beyond this, the text is still surprisingly vague, which leaves room for interpretation. Here are the scenarios:

➡️ Scenario 1: 237Mt total between 2036 and 2040 (e.g. 21/34/47/61/74Mt)

➡️ Scenario 2: 237Mt in the year 2040 with a gradual ramp up from 2036 (e.g. 30/82/133/184/237Mt) for an estimated total of 666Mt

➡️ Additionally: a “Pilot Phase” from 2031. Numbers are complete guesswork at this point, but let’s assume 5Mt per year for a total of 25Mt

⚠️ Note: the ramp up pace for both scenarios and the amounts in the pilot phase are not explicitly stated and just indicative. The key takeaway is that Scenario 2 is likely to have 3x the volume of Scenario 1.

🤷 It’s crazy to me that there are still so many unknowns.

😵‍💫 One more huge variable is the 5% additional international credits that member states might be able to use following the first review in 2028. Again, no one seems to understand what this really means, what the baseline is, whether it is truly additional to the other 5%, and what volume we are talking about.

📈 My take: given international credits were introduced to increase flexibility / lower cost for the EU, I expect that we will see higher vs lower amounts and scenarios (so more likely Scenario 2 than Scenario 1 above).

🙄 And don’t get me started on what type of credits we are talking about: reductions or removals? What standard? For now we just have “high quality”, “high integrity”, and “Article 6”, which can basically mean anything under the sun.

🎙️ Hope this helps guide the conversation a bit, although we won’t have the full picture until the EU publishes details on all the questions above. Make sure to listen to this CDR Policy Scoop episode we did with Lambert Schneider for a deep dive into all the options.

▶️ Youtube: https://lnkd.in/dbhUkn4K

🎧Podcast: https://lnkd.in/dm6Gnjgn

❓ What is your take? Do you read it differently?

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