Page 1
[email protected]
The role of carbon prices for low-carbon technologiesEvidence from the EU ETS
Institutional Framework for the Carbon MarketCan Financial Markets and Institutions be a Model?Workshop at the University of Graz, 25 November 2010
Stefan P. Schleicher
Wegener Center for Climate and Global ChangeUniversity of Graz
Austrian Institute of Economic ResearchVienna
5
20
89
0
20
40
60
80
100
1990 2000 2010 2020 2030 2040 2050
19
90
= 1
00
EU GHG Emissions
Page 2
[email protected]
My agenda
A reminder What was the question for proposing the
EU ETS mechanism?
The answer Did EU ETS deliver?
Second thoughts Did we expect too much from EU ETS?
Page 3
[email protected]
A reminder
What was the question forproposing the EU ETS mechanism?
Page 4
[email protected]
The global challengeThe transition to a low-energy and low-carbon economy
The need for a radical technological change of our energy systems
The need for reducing by 2050 GHG emissions in industrial countries by 80 to 95 percent
5
20
89
0
20
40
60
80
100
1990 2000 2010 2020 2030 2040 2050
1990
= 1
00
EU GHG Emissions
Page 5
[email protected]
Smart buildingsAlmost-zero and plus energy building standards
Page 6
[email protected]
Smart mobilityElectric vehicles with multifunctionality
Plug-in vehicles
They provide storage services for the grid
From ownership to accessServices are sold, not the car
Page 7
[email protected]
Smart energy generationHigh-efficient energy conversion and distribution
e.g. biorefining Processing of
biomass into a spectrum of bio-based products (food, feed, chemicals, materials) and bioenergy (biofuels, power and heat) .
Page 8
[email protected]
Scenario for an energy system in 2050Low energy and low carbon structures
16 Losses
27 Mobility
22 Low temp.
17 High temp.
10 Light, motors
8 Non-energetic
2010
5 Losses 7 Mobility 6 Low temp.15 High temp.
10 Light, motors
7 Non-energetic
2050
10 Fosils
40 Renewables
2050
Emission reductions by 80% requirea reduction of energy flows by at least 50%
Page 9
[email protected]
The answer
Did the EU ETS really deliver?
Page 10
[email protected]
-40 -30 -20 -10 0 10 20 30 40 50
GermanyUK
DenmarkGreece
SloveniaNetherlands
HungarySpain
PolandItaly
EstoniaAustria
SlovakiaFinland
PortugalIreland
MaltaFrance
SwedenBelgium
Czech RepublicLuxembourg
LatviaLithuaniaRomania
EU
in percent
Net short
Net long
Gross short
Gross long
EU ETSWide differences in stringency among Member States
Net positions:Actual emissionsminusallocations
2008-09
Only seven MS have been short in Phase 2 so far
Page 11
[email protected]
Only the power sector has been short in phase 1 and phase 2
-40 -30 -20 -10 0 10 20 30 40 50
Other
Power and Heat
Refineries
Glass
Cement and Lime
Pulp and Paper
Iron and Steel
Ceramics
EU
in percent
Net short
Net long
Gross short
Gross long
2008-09
EU ETS Wide differences in stringency among sectors
Page 12
[email protected]
EU ETS Net positions since 2005
-40
-20
0
20
40
2005 2006 2007 2008 2009
Pe
rcen
t of a
lloca
tion
Net Position EUEU ETS
Fossil
Significant differences betweenpower sectors andmanufacturing sectors
-40
-20
0
20
40
2005 2006 2007 2008 2009
Pe
rcen
t of a
lloca
tion
Net Position EU
Power and Heat
Fossil
-40
-20
0
20
40
2005 2006 2007 2008 2009
Pe
rcen
t of a
lloca
tion
Net Position EU
Manufacturing Industries
Fossil
Page 13
[email protected]
EU ETSAn interpretation of the evidence since 2005
Effective emission restrictions only for power sector Could shift carbon price
No emission restrictions for manufacturing sectors on EU level But major differences on MS level
Page 14
[email protected]
EU ETSRemembering again the question
To what extent did EU ETS stimulate technological change Neither the power nor the non-power sectors had a strong incentive
to change operating and investment decisions But this was the key intention of EU ETS
Even the designers of EU ETS gave more emphasis to the proposition of a cost minimizing mechanism for meeting an emission target than to technological change Attempting to achieve an emission target does not necessarily trigger
the radical technological change needed
Page 15
[email protected]
Second thoughts
Did we expect too much from EU ETS?
Page 16
[email protected]
How relevant is the main stream perception ofthe carbon market?
Page 17
[email protected]
expectedmarketprice
allowances
marginalabatement
costs
emissionscap
The carbon marketThe simplistic view
Based on courageous assumptions Perfectly informed
forward looking agents Market knows until
2020 the aggregated marginal abatement costs for about 12.000 installations
carbonprice
Page 18
[email protected]
expectedmarketprice
allowances
marginalabatement
costs
emissionscap
The carbon market and a bit more realityPerceived abatement costs may vary
There is high uncertainty about abatement costs
Abatement costs vary Interest rates Capital depreciation rates Energy prices Economic activity
Abatement costs may not be unique at all e.g. joint production
processes for power and heat
carbonprice
Page 19
[email protected]
expectedmarketprice
allowances
marginalabatement
costs
emissionscap
The carbon market and a bit more realityAbatement costs may not be an operational concept
Abatement costs may not be unique at all e.g. joint production
processes for power and heat
Abatement costs depend on time horizon Changes in operating Changes in investments Changes in swystem
integration
carbonprice
Page 20
[email protected]
expectedmarketprice
allowances
marginalabatement
costs
emissionscap
The carbon market and a bit more realityPerceived supply of allowances may vary
The impact of strategic buyers and sellers
carbonprice
Page 21
[email protected]
Did our preoccupation with targetsoverlook technologies?
Page 22
[email protected]
Competition has shifted from targets to technologies
An example
China and United States takethe lead in renewablesinvestments
2009 investmentsin USD
Changing the EU policy mind set (1)Accepting the global technology competition
Page 23
[email protected]
Changing the EU policy mind set (2)Prices are not the only drivers of technological change
Energyand
emissions
EconomicactivityTechnologies
Non-pricedetermined
PathDependent
Pricedetermined
Cap &Trade
Carbon prices are not the only drivers
Page 24
[email protected]
Changing the EU policy mind set (3)Energy services determine energy flows
TransformationTechnologies
FinalEnergy
Consumption
ApplicationTechnologies
EnergyServices
TotalEnergySupply
Page 25
[email protected]
Shouldn't we integrate EU ETS into a broader policy framework?
Page 26
[email protected]
Developing a shared visionReduction paths to 2050
In view of 2050 targets the EU needs a more ambitious reduction path
5
20
89
0
20
40
60
80
100
1990 2000 2010 2020 2030 2040 2050
1990
= 1
00
EU GHG Emissions
Reduction Paths to 2050 1990 2000 2010 2020 2030 2040 2050
80% Reduction Target 100 91 89 72 54 37 2095% Reduction Target 100 91 89 68 47 26 5
Page 27
[email protected]
Technologies matterTargets are not sufficient
EU needs to start an ambitious technology program in view of the already ongoing global technology competition
Targets will follow from such a technology program
A revived SET Plan could be an adequate procedural instrument for stimulating a technology program
Page 28
[email protected]
EU ETS in an enhanced energy and climate policyCurrent carbon markets need more credibility
Carbon markets need to be sheltered against strategic trading and unexpected economic events
There is a need for a policy commitment to a long-term reduction path
A more ambitious reduction path needs a new distribution of efforts Between ETS and Non-ETS Non-ETS effort of Member States
Page 29
[email protected]
Thank you.
Stefan P. Schleicher
[email protected]
Stefan.Schleicher.wifo.at
+43 (676) 591-3150
5
20
89
0
20
40
60
80
100
1990 2000 2010 2020 2030 2040 2050
19
90 =
10
0
EU GHG Emissions
