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EU 2030 Framework / ETS
Commission proposals
22 January 2014– Commission Communication and Impact Assessment + Energy Prices and Competitiveness study
13-14 February 2014– European Council summit on competitiveness
20-21 March 2014– European Council summit on 2030 targets
October 2014– UN Heads of Government summit on climate in New York
December 2014– UNFCCC COP20 in Lima
EU timeline to decisions on 2030
• Commission will propose a 40% GHG target and a 30% RES target
• Decision on an energy efficiency target in 2015 (after progress report)
• GDP costs and health benefits are quantified
• Weak ETS in combination with today's high gas to coal price ratio can lead to carbon lock-in, while regulatory uncertainty is leading to fragmentation of climate policies within the EU
• RES help limit external energy dependency and help stabilise electricity prices in the medium term, while the EU’s external fossil fuel bill rises 50% from 2010-30
• “As pointed out by stakeholders e.g. from the power sector”, investors need a stable long-term policy framework
Leaked 2030 Impact Assessment / rumoursDraft version only!
2014? Back-loading: pending Council position (German position) Cosmetic fix, would help market confidence but makes no difference to the short-term 2 bn EUA structural surplus
2017+ Supply Adjustment Mechanism: pending completion of the back-loading Useful re market volatility, nice to have for the long-term, but makes no difference to the short-term 2 bn EUA structural surplus
????? Set-aside: only possible in case of strong political consensus Short-term fix for the 2 bn EUA structural surplus, but not a solution to the medium-term problem of making the cap (linear factor) consistent with 2050
2020+ Widening to additional sectors Long-term objective
Slow progress of ETS reformDecisions are linked to other processes
2020+ Linear factor revision: after agreement on the EU 2030 GHG target Medium-term fix making the cap (linear factor, role of offsets) consistent with 2050, slow impact on the short-term 2 bn EUA structural surplus
2014 Carbon leakage list review
2014? Agreement on EU 2030 Framework/ GHG target
1: EU RES target delivered through national targets and support schemes Market fragmented and distorted
2: EU RES target with EU harmonisation of support schemes (not yet clear how this would work) Market distorted but not fragmented
3: EU RES target delivered through ETS (mature RES) and innovation support (immature RES) Fully market compatible
4: No EU RES target Unlikely in light of Commission, German, and
European Parliament opposition….
Four possible outcomes re the 2030 RES target
EU 2030 Framework / ETS
EURELECTRIC’s position
Lessons from the 2020 FrameworkEURELECTRIC’s priorities
Climate policies must be cost-effective, this requires
1. Focus on emissions reduction (not renewables, imports)
2. Economy-wide targets (not just a few sectors)
3. EU-level instruments (not national)4. Market instruments (not command)5. A steady pace of change (early + high
ambition, not delay + low ambition; stable framework, not stop/start)
…Do not replicate the 20/20/20 package
EURELECTRIC commits to:
Combat climate-change:
• Carbon-neutral electricity by 2050;
• Boost energy efficiency by electrifying transport, heating/cooling…
Deliver cost-efficient, reliable electricity:
• European, market-based solutions
Whole-economy model
1. Reference: models policies which have been adopted and implemented to end 2011, but excludes policies currently in the process of announcement or adoption, additional policies beyond 2020 are not considered
2. Power Choices Reloaded: aims for an optimal portfolio of power generation based on an integrated energy market and all technology options, identifies a least cost pathway to the 2050 goal with switching between different forms of final energy use• Meets all 2020 targets (but assumes 20% energy efficiency target reaches in 2025);• Carbon price in ETS sectors only until 2020, but thereafter a uniform carbon price
signal applies to all sectors and all Member States;• Simulates policy measures to overcome non-economic barriers to energy efficiency; • Assumes key grid or storage infrastructure will be built as planned in line with the
needs of the overall electricity system.
3. Lost Decade: postpones major abatement action beyond 2030, so that an extremely steep abatement path becomes necessary to reach the 2050 goal, leading to bottlenecks in equipment supply, price effects due to overheated demand, and stranded assets because of exaggerated investments in redundant capacity.
Power Choices Reloaded 3 main scenarios
9
2010 2015 2020 2025 2030 2035 2040 2045 20500
1000
2000
3000
4000
5000
PCR: Decomposition of avoided CO2 relative to 2005
Fossil Fuel Mix
CCS
Renewables
Nuclear
Policy-induced Energy Efficiency
Market-driven Energy Efficiency
Mt CO2
'2010-2050'
18
21
11
32
6
13
% cumula-tive
2020 2030 2050
14 17 21
2626 16
15 13
7
3834
28
6 1118
10
% of Total
39% from energy efficiency32% from Renewables11% from nuclear, 6% from CCS and 13% from natural gas
Power Choices Reloaded Combines all options to reduce emissions
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Distr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. LossesDistr. Losses
IndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustryIndustry
HouseholdsHouseholds
HouseholdsHouseholdsHouseholds
HouseholdsHouseholdsHouseholdsHouseholdsHouseholdsHouseholdsHouseholdsHouseholdsTertiaryTertiaryTertiary
TertiaryTertiary
TertiaryTertiaryTertiaryTertiary
TertiaryTertiaryTertiaryTertiary
Energy BranchEnergy Branch
Energy Branch
Energy BranchEnergy Branch
Energy BranchEnergy BranchEnergy BranchEnergy BranchEnergy BranchEnergy BranchEnergy BranchEnergy Branch
HydrogenHydrogen
Hydrogen
HydrogenHydrogen
HydrogenHydrogenHydrogenHydrogenHydrogen
HydrogenHydrogenHydrogen
Transport
Transport
Transport
TransportTransport
TransportTransportTransportTransportTransport
TransportTransportTransport
Electromobility
Electromobility
Electromobility
ElectromobilityElectromobility
ElectromobilityElectromobilityElectromobilityElectromobility
Electromobility
ElectromobilityElectromobilityElectromobility
Reference
Electricity Demand in TWhStarting with emissions of 350g/kWh in 2010, the power sector will deliver about 10g/kWh in 2050 in the Power Choices Reloaded scenario.
Reaching the whole-economy 2050 goal requires a significant share of final energy use to switch to electricity, notably in the transport sector and heating, thus delivering emissions reductions and efficiency improvements
10
Power Choices Reloaded A systems approach with electricity as the pivot
Already in the Reference scenario, ETS drives strong restructuring of power generation in the long termIn Power Choices Reloaded additional decarbonisation is achieved through higher RES and CCS post 2030Gas plays a key role in balancing and reserve services.Pumped storage increases and in the long term hydrogen storage emerges.
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 20500%
10%20%30%40%50%60%70%80%90%
100%
PCR: Structure of power generation
HydroVariable RESBiomassGas w/o CCSGas-CCSOilCoal w/o CCSCoal-CCSNuclear
2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 20500%
10%20%30%40%50%60%70%80%90%
100%
Reference: Structure of power generation
HydroVariable RESBiomassGas w/o CCSGas-CCSOilCoal w/o CCSCoal-CCSNuclear
Power Choices Reloaded Structure of power generation
Power Choices Reloaded’s Lost Decade modelling scenario assumes a complete lack of action in the decade 2020-
2030, therefore the entire decarbonisation action has to occur in the last two decades to 2050
Infrastructure, power sector decarbonisation, mobility electrification and technology R&D, as well as energy
efficiency in the demand side sectors will have to develop in a very short period of time post-2030
The changes required in the system from 2030 to obtain the necessary cumulative emissions reductions by 2050
result in this scenario being barely feasible in true life
Key failures involved in the Lost Decade case
• Weak carbon market until 2030• Limited financing under uncertainty hampering
investment• Market coordination failures delaying infrastructure• Non-completion of IEM leading to low cross-border
energy trade• Slower pace of technology progress: learning curves
and build up of supply chains• Delays to energy efficiency persisting up to 2030,
especially on the demand-side and in electrification
What ambition, when?Power Choices Reloaded – high cost of a Lost Decade
2010 2020 2030 2040 2050 115
120
125
130
135
140
145
150
155
160
Reference
Power Choices Reloaded
Lost Decade
Average Price of Electricity, after tax
(Euro'10 per MWhe)
-3000 -2000 -1000 0 1000 2000 3000 4000 5000
Difference of Cumulative Energy System Costs (excl. auction and disutility from the optimal
scenario / bn €2010)
Reference scenario (doesn’t achieve the 2050 goal)
What ambition, when?Power Choices Reloaded – high cost of a Lost Decade
Limited financing
CO2 driver without energy efficiency market failure correction
Limited cross-border trade
2030 RES target with support schemes
Delays to energy efficiency
Lost Decade
<1%1 to 2%2 to 3%3 to 6%>6%
na
1.91.8
2.9
2.0
1.6
3.2
5.13.7
2.94.1 7.7
naYU
nK
10.7
n
2
2.5
Fre
F
F
1.0
1.7
1.7N
1.1
1.5
1.1 2.4
7.7
6.6
K
5.5
8.6
3.0
2.3
Increase of energy system costs as percentage of GDP in the Lost decade compared to the PCR
What ambition, when?Early, economy-wide, high ambition
• Climate is a lower political priority than before the economic crisis, BUT there is still some priority and therefore some policy ambition
• The power sector is always the first (easy) target for climate policy• Therefore we face a choice:
No ambitionLow ambition
= few sectors (power)= stop/start policies
High ambition= whole-economy= stable policies
(Not a realistic option for the power sector)
Costs the power sector investment in low-carbon technologies and loss of market share from energy saving
Gains the power sector new market share through electrification of additional sectors
Who and how?EU + market, not 28 x command chaos
ETS as the key driverStrong innovation policy
National RES and EE schemes National carbon price floors/taxes
National capacity mechanisms
MAR
KETS
ARE
FRA
GM
ENTE
D A
ND
PO
LICI
ES
ARE
STAR
T/ST
OP
ENER
GY
MAR
KET
INTE
GRA
TIO
NAN
D (M
ORE
) PRE
DIC
TABL
E PO
LICI
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NL coal tax
UK carbon price floor
1. The ETS cap is not coherent with the EU 2050 goalSolution: Revise the linear factor
2. Surplus of 2bn-2.5bn EUAsSolution: Permanent set-aside
3. Fixed supply and demand shocks result in price volatilitySolution: Supply adjustment mechanism
ETS problems and reforms3 different problems, 3 different solutions
EURELECTRIC’s recommendationsThrough a 2030 framework built on:- At least a 40% emissions reduction target
- The ETS as the key driver policy for investment choice in low-carbon technology, infrastructure and processes
- Extend the ETS to additional sectors
- Phase out all energy subsidies and market distortions
- Bring renewables fully into the market, fulfilling the same balancing and scheduling responsibilities as other technologies
- Support energy innovation
- Demand-side energy efficiency measures if necessary to correct market failures
- 2014 completion of the internal energy market
EURELECTRIC commits to:
Combat climate-change:
• Carbon-neutral electricity by 2050;
• Boost energy efficiency by electrifying transport, heating/cooling…
Deliver cost-efficient, reliable electricity:
• European, market-based solutions