Design aspects of TGC schemes in the 2030 framework

The Federation of Finnish Technology IndustriesExecutive summary

26.10.2015

Juha Ollikainen

Roland Magnusson

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Background and objective EU countries have agreed on a new renewable energy targets; the aim is that at least 27% of final

energy consumption in the EU is from renewable sources by 2030. Means for achieving the target are under development

The European Commission will propose a new renewable energy package in 2016-2017 including: Renewable Energy Directive for 2030 Best practices in renewable energy support schemes and bioenergy sustainable policy

Also the guidelines on state aid for environmental protection and energy will be reviewed in 2017-2019

The commission’s summer package released in July 2015 launched a public consultation that on its part relates to the renewable energy support schemes

The general purpose of the study was to support the Federation of Finnish Technology Industries in forming its position on the future RES-E support schemes that will be used in achieving the 2030 targets

The specific subject of the study was selected aspects of Tradable Green Certificates (TGC) as on the context of the EU and the 2030 targets

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Conclusions As shown by past experiences, RES-E support can cause very significant cost to the financiers of the

scheme, typically the either tax payers or electricity users To avoid distortions in global market, the new RES-E support schemes should be designed so that the

cost burden for the export industry is predictable and remains in all scenarios on level that does not jeopardise the industry’s international competitiveness

First requirement is that the scheme meets its primary target, the expansions of RES-E, cost efficiently. Cost efficiency translates into lower costs for all financers of the scheme. Theory and past experiences support the assumption that market based mechanisms with wide geographical scope and uniform support across technologies promote cost efficiency

Even if scheme is cost effective, the cost may be detrimental for the competitiveness of the export industry. Furthermore, the costs of meeting a RES target cannot be known beforehand, which creates uncertainty for the industry. To avoid distortions in global market, additional measures must be introduced to secure competitiveness of the export industry that is subject to international competition

In addition to the direct costs, which are typically levied on electricity users or tax payers, RES-E support schemes distort other market prices, - wood raw material of the pulp and paper industry being the primary concern. However, a TGC scheme can be designed in a way to minimise such distortions

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Main characteristics of the proposed schemeDesign elements What Why Downside

Geographical scope EU-wide Low cost, low distortions Distribution of investments out of control of regulator

Technology banding No or little (impacts on biomass raw material market to be limited)

Low cost, low distortions Distribution of technologies out of control of regulator

Investmets directed to mature low cost technologies. Early phase techology development supported through other channels

Exceptions for the export industry

Combined cost of RES support and EU ETS capped on sustainable level for export indusry

Low distortions to competitiveness of export industry in global market

Higher costs for the non-excempted ones

Price control Leave room for the market(moderate floor and relative high cap could be considered)

Risk of oversized support not addressed to the financiers of the scheme

Higher investor risk premiums than in fixed priced schemes

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