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www.coalimp.org.uk
EuropeanRegulation and
Nigel Yaxley
Managing [email protected]
the Physical Coal Market
CoalImp Members
ABP Clydeport DB Schenker Drax Power EDF Energy
E.ON EnergyTrading
Fergussons Freightliner GB Railfreight Hargreaves
InternationalPower
Network Rail Oxbow Coal Port of TyneRio Tinto
Alcan
Rudrums RWE Trading Scottish CoalScottishPower
SSE EnergySupply
Coaltrans Geneva31st March 2011
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Is coal being left behindby EU regulation?
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“Safe, secure, sustainable and affordableenergy contributing to Europeancompetitiveness remains a priority for Europe”
“In order to further enhance its security ofsupply, Europe's potential for sustainableextraction and use of conventional andunconventional (shale gas and oil shale) fossilfuel resources should be assessed)”
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European Regulation andthe Physical Coal Market
Background and Introduction
Industrial Emissions Directive
Climate Policy – Emissions Trading
New Stations – Kick-Starting CCS
Other Regulatory Initiatives
UK Policy – a Challenge to Europe?
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2,340
695
406 378
152 146 136
646
0
500
1,000
1,500
2,000
2,500
China United
States
India EU27 Russia Japan South
Africa
Others
Million
To
nn
es
Co
alEq
uiv
ale
nt
2008 2009
6
India’s coal consumptionovertook the EU in 2009
Source: IEA Coal Information 2010
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Coal supplies 28% ofEurope’s electricity
EU-27: 3 341 TWh (16.6%)
sources: IEA Key World Energy Statistics 2010 and IEA databases (© OECD/IEA, 2010)
coal 41.0%
other
hydro
nuclear
gas oil
coal 28.1%other
hydro
nuclear
gas
oil
World: 20 181 TWh
Coaltrans Geneva31st March 2011
(2008 Figures)
EU
India
China
Others
0
500
1,000
1,500
2,000
2,500
3,000
20082020
2035
434
314
193
373 551 781
2,019
2,788 2,822
1,910 2,012
1,825
Mill
ion
Ton
nes
Co
alEq
uiv
ale
nt
IEA foresees major demandreduction in Europe…
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Source – IEA World Energy Outlook 2010
World Coal Demand Outlookin New Policies Scenario
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EU IndigenousHard Coal
110.328%
EU IndigenousLignite128.933%
Imported HardCoal
151.939%
61% of EU’s 2009 solid fuelsupply was indigenous
Mtce Based onEstimatedCalorific Values
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Russia53.7
Colombia32.0
South Africa27.8
USA24.3
Australia13.8
Indonesia12.8
Canada2.5
Others10.4
2009Million Tonnes
Russia and Colombia arenow the major suppliers
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80% of EU steam coaldemand is in 6 countries
Poland
28.2%
UK
18.6%Germany
16.2%
Spain
7.5%
Italy
7.0%
France
4.7%
Netherlands
3.6%
Denmark
2.9%
Others
11.3%
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Coal market has severalEU regulatory drivers...
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Coal MarketPlant Capacity
(CCS Directive)
IndigenousSupply
(State AidRules)
Carbon Prices
(EUETS)
EmissionsRegulation
(IED)
Foreclosure byRenewables
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… and generators havesome key challenges
• Is coal pricing itself out of the market?
• Will UK-style policies spread acrossEurope?
• How will CCS regulation develop?
Whether to investin new coal plant
• Will payback be achieved on oldstations?
• Are there other technical solutions?
Whether to investin SCR
• Buying coal to minimise NOx
• Limiting indigenous coal for SOx
How to managecoal supply underthe IED opt-out
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Competitiveness
Security ofSupply
SustainableDevelopment
Energy for a ChangingWorld 20-20-20 by 2020
Policy challenges for coal Carbon pricing
Phase 3 auctioning
CCS policies
New coal without CCS?
Renewables targets
Market foreclosure
Industrial EmissionsDirective
EU policies are based aroundthe energy ‘trilemma’
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Proposed by European Commission mid-2009and supported by European Parliament butamended in Council
Replaces LCPD on January 1, 2016 Further tightens limits on SOx and NOx emissions
In order to comply with lowered NOx levels from2016 onwards, operators would have to install SCRequipment
Emission Limit Values (mg/Nm3)
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The proposed IED was amajor threat to coal…
LCPD IED
SO2 400 200
NOx 200 200
Implement Emission Limit Values (ELVs) from2016 Derogation for ‘peaking plant’
OR Transitional National Plan to end-June 2020 Straight line reduction based on 2001-2010 fuel use
and operating time NOx trading between ‘TNP’ plants
OR Opt out 17,500 hours or close end-2023 (25% load factor for
full period) To be declared by 1 January 2014
Derogation in meeting SOx ELVs on burningindigenous coals given a desulphurisation rate of96% (aimed at Eastern European lignite burners)
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…then final compromisegave further concessions
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Energy for a ChangingWorld foresees‘20-20-20’ by 2020 20% reduction in
greenhouse gaseson 1990 levels
20% improvementin energy efficiency
20% share ofrenewables in totalenergy
30% GHG targetdependent oncomparableinternational action
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Energy Roadmap 2050 willbe published this Autumn
European Council's target of an 80-95%reduction in EU greenhouse gas emissionsbelow 1990 levels by 2050
Energy Roadmap 2050 will present differentpathways as scenarios
Will address established objectives –sustainability, energy security andcompetitiveness
Will focus on how energy security andcompetitiveness can be improved throughoutthe transition to a low-carbon energy system
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Emissions trading wasintended to be the keyinstrument for reducing CO2
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EU Emissions Trading System (EUETS) is a cap andtrade scheme for CO2 emissions
Bad for coal Emissions from coal typically twice the emissions
from gas Switching to gas one of the easiest short term
options
Prices have so far been insufficient to driveinvestment
Key determinants of price Level of cap Level of Kyoto Instruments allowed
CDM/JI
Coal/gas price differential
Coaltrans Geneva31st March 2011
Will the third phase finallydeliver what was intended?
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2005: EUETS First Phase – launch and initial(over)allocation
2008: Second Phase – undermined by therecession
2013: Third Phase – 17.5% cap reduction 2012 to2020 Consistent with 20% emissions reduction by 2020 100% auctioning for power sector
NB derogation from full auctioning in some countries
Auctioning phased in for industry (carbon leakage) Limitation on JI/CDM credits that can be used
But fuel switching to gas remains a key emissionsreduction tactic rather than investment in low-carbon generation A new dash for gas may be triggered
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EU attempts to kick-startCCS…
EU Council agreed12 CCSdemonstrationsby 2015
CCS Directive Regulation for CO2
storage
All plants carboncapture ready
CCS to qualify forcarbon permits
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…and provides somefunding Economic Recovery package
€1 billion for 6 projects (including Hatfield)
Original scheme – 300 million free carbonallowances for up to 12 projects Now 8 CCS projects envisaged
Invitation for bids Q310 Assessment by EIB Q111 Recommendations Q411 Announcements end-2011
Commercial operation by end-2015 But will require top-up funding from member
states e.g. UK…..
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Will renewable energyforeclose the market?
Target of 20%energy fromrenewables by2020
But what willprovide the back-up?
What further policyinstruments maybe required?
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EU state aid rules nowallow subsidies until 2018 Package finally agreed in December 2010
All member states approved except Denmark
Closure aid permissible until 31 December2018 (instead of Commission proposal of2014)
Aid must be degressive Member states must provide a plan to mitigate
environmental impacts of coal production Subsidies permitted until December 2027 for
exceptional costs of closure not related toproduction E.g. social welfare benefits and site
rehabilitation
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Further policy initiativesemerged in 2010…
EU Energy Strategy2011 to 2020
Priorities mainly inenergy efficiencyand infrastructure
EU InfrastructurePackage definessix priorities forthe next twodecades
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… including a priority fora CO2 infrastructure…
CCS could contributeto abating 13% of theEU’s greenhouse gas
Public engagementbeyond the nationallevel is needed.
Limited storagepotential in someEuropean countries A European, rather than
a national approach tobe taken
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…with a vision of a CO2
network - 2020 to 2050
Does new UK policy showleadership for Europe?
Carbon price floor
Targeting €85 per tonne CO2 by 2030
Feed in tariffs for low-carbon generation
Based on contracts for differences
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Emissions performancestandard
Allows grandfatheringof unabated gas
Capacity payments
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Conclusions
Europe’s coal consumption becomes lessimportant in a global context
Industrial Emissions directive will force closureof some older power stations
EU has ambitious climate change targets for2020 and 2050
Policies will impact coal through carbon pricesand through market foreclosure
EU is positive about CCS and a CO2 network
But funding is uncertain
New policies may be needed to deliverobjectives – e.g. UK model
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www.coalimp.org.uk
Thank [email protected]