Post on 30-Mar-2015
transcript
The EU Energy and Climate Package
David Harrison, Jr., PhDSenior Vice President
Eighth Annual Workshop on Greenhouse Gas Emissions Trading sponsored by IEA, EPRI and IETA
Paris, 23 September 2008
Interactions between EU Policies and Targets and Implications for CO2 Price Uncertainty
Per KlevnäsConsultant
2
Agenda
Overview of the EU Energy and Climate Package
Policy instruments for the attainment of targets
Interactions and market impacts of policies
Impacts of uncertainty of meeting targets
Implications for market participants
Concluding remarks
3
20/20/20 Targets for EU Climate Policy
1. CO2: 20% reduction relative to 1990 – 30% with international agreement
2. Renewables: 20% of total energy consumption – implying some 40% of electricity production
3. Energy Efficiency: 20% reduction in energy consumption relative to “business as usual”
Targets seem motivated mainly by climate change concerns
Other objectives include energy security
4
Mix of Policies and Approaches is in Place to Achieve Targets
CO2 reductions mainly through proposed reformed EU ETS
– Aim of predictability and stable CO2 price through EU-wide and long-term cap
– Increased scope, harmonisation, and elimination of ”distortions”
Renewable Energy through binding national targets and Member State policies
– Patchy policy for transport and heat means focus on electricity
– Tradable green certificates (PL, SE, BE, IT, UK, etc.) and feed-in tariffs (DK, NO, DE, FR, IR, etc.)
– Potential EU-wide trade in certificates / guarantees of origin – but feasibility and relevance not clear (everyone’s target is ambitious)
5
Mix of Policies and Approaches is in Place to Achieve Targets
Energy efficiency through “indicative” national targets and action plans
– No agreement on EU-wide policy but interest in tradable white certificates (FR, IT, UK, etc.)
– Key role in policy mix – but unclear evidence for low-cost savings and checkered policy history
Patchwork of other policy indicate little consensus on ”market-based” approach
– CHP, CO2 standards for cars, heat sector renewables, biofuels for transport, microgeneration, support for nuclear, etc.
Multiple policies are in place
Interactions between policies add further complexity
6
Policy Interactions: Renewables and Energy Efficiency Affect the EU ETS
Lower ”BAU” CO2
emissions
Renewables policy
Lower fossil fuel burn
Energy efficiency policy
Reduced energy
consumption
EU ETS
7
Impact of RE/EE on CO2 (EUA) Market
RE/EE lowers emissions and cost of meeting given emissions cap
EUA price depends on success of renewables and EE policy
Marginal abatementcost curve
CO2 emissions (tCO2)
Marginal cost / EUA price (€/tCO2)
Emissions cap
BAU Emissions
Lower CO2 price with RES/EE policyEUA price
(RES/EE)
Emissions with RES/EE
EUA price
8
Policy Interactions Could Be Quantitatively Significant
Commission modelling suggests EU 2020 CO2 target could be met entirely through renewables and energy efficiency
Implication / unintended consequence: ”No need for CO2 price” ?
EU 27 CO2 emissions (MtCO2)
Sources: Eurostat, EC ’Impact assessment for Renewable Energy Roadmap’ SEC(2006) 1719, DG TREN ‘Scenarios on renewables and energy efficiency’
BAU forecast
CO2 2020 target
Green-X forecast
PRIMES forecast
3,000
3,250
3,500
3,750
4,000
4,250
4,500
2000 2005 2010 2015 2020
9
0
50
100
150
200
250
300
350
400
1990 1995 2000 2005 2010 2015 2020
EU27 Renewable energy (total, Mtoe)
But ... Achieving the Targets Looks a Tall Order
2,000
2,500
3,000
3,500
4,000
4,500
1990 1995 2000 2005 2010 2015 2020
DG TREN Baseline
2020 target
EU27 CO2 emissions (MtCO2)
1,000
1,200
1,400
1,600
1,800
2,000
2,200
1990 1995 2000 2005 2010 2015 2020
2020 target
DG TREN Baseline
EU27 Energy Consumption (Mtoe)
0
200
400
600
800
1,000
1,200
1,400
1,600
1990 1995 2000 2005 2010 2015 2020
2020 target
Current trend
DG TREN Baseline
EU27 Renewable electricity (TWh)
Sources: Eurostat, European Environment Agency, DG TREN, IEA and NERA calculations
2020 target
Current trend
DG TREN Baseline
10
Attainment of Past Targets Is Proving Elusive
2010 Target EU27 Renewable electricity (TWh)
0%
5%
10%
15%
20%
25%
1990 1995 2000 2005 2010
2010 Target EU27 Renewable energy (TWh)
0%
2%
4%
6%
8%
10%
12%
14%
1990 1995 2000 2005 2010
11
Additional Reasons Attainment of Targets Looks Uncertain
Much of past emissions reductions have been a cheap ride (e.g., “dash for gas”), but costs are increasing
Hope of low or even “negative-cost” reductions through energy efficiency may prove unrealistic
Resigned acceptance of high costs not universal in the EU
– Challenges to Phase II NAPs (modest cuts only), “Hungarian proposal” for EU ETS, “Polish proposal” for auctioning
12
Additional Reasons Attainment of Targets Looks Uncertain (contd.)
Revision of transport renewables targets likely given controversy over biofuels
Unease about industrial competitiveness implications of continued EU unilateral approach
Unclear consumer / voter tolerance of higher energy prices – cf. recent commodity price increases
Unclear how legally “binding” targets can be enforced on EU level (cf. budgetary rules)
Despite strong apparent current commitment, the attainment of the 20/20/20 targets is highly uncertain
13
Interactions and Uncertain Attainment of Targets Lead to Uncertain CO2 Price
Marginal abatementcost curve
CO2 emissions (tCO2)
Marginal cost / EUA price (€/tCO2)
Uncertain attainment of RE/EE targets leads to uncertain EUA prices
Note: Price uncertainty greater with firm CO2 cap
Possible CO2 prices with RE/EE policy
High price
Low price
Emissions cap
BAU Emissions
Possible emissions with RE/EE policy
14
Implications: Long-Term CO2 Price
Certainty May Be Elusive
Major apparent aim of recent (Jan 2008) EC proposals to reform EU ETS is to increase price EUA certainty
– Longer phases, set cap until 2020
– Introduce full banking and some borrowing
– Lay out rules for CDM/JI or similar credits
– Pre-defined allocation schedule until 2020
20/20/20 interactions may undermine these efforts:
– Modelling suggests very low CO2 prices possible if RE/EE targets were met
– Current trends, past performance, high cost suggest targets may not be met—but gulf between targets and results highly uncertain
Wide range of CO2 prices possible under 20/20/20 approach
15
Implications: Challenges for Current Assets and for Investment
Impacts on asset values, especially coal
– Renewables and energy efficiency imply shrinking market for conventional generation – but by how much?
– Uncertain CO2 price leads to uncertain generation and net revenues
“Caveat investor”
– Significant new capacity required in EU, but unclear how much will be met by renewables
– Planning for new fossil generation? Amount? Technology?
Auxiliary market effects also complicated by interactions
– E.g., competition for biomass resource, interaction with fuel prices
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Concluding Remarks
Interactions of renewables/energy efficiency targets and policies with EU ETS risk compromising objective of CO2 price stability
– Attainment of RE/EE targets highly uncertain, leading to CO2 price uncertainty
Effects in “other direction” add further complications – level of CO2 prices influences attainment of RE and EE goals
General lesson: interactions of market-based and “command-and-control” approaches can yield unexpected results
– Relevant to a number of current policy proposals (EU, California, etc.)
Further analysis in NERA study of policy interactionshttp://ec.europa.eu/environment/climat/pdf/ec_green_final_report051117.pdfhttp://ec.europa.eu/environment/climat/pdf/ec_green_summary_report051117.pdf
Contact Us
David Harrison, Jr., PhD
Senior Vice PresidentBoston+1 617 621 2612david.harrison@nera.com
© Copyright 2008NERA UK Limited
All rights reserved.
Per Klevnäs
ConsultantLondon+44 20 7659 8848per.klevnas@nera.com