Functioning of the EU Emission Trading Scheme Dr. Brigitta Huckestein

Transcription

1 Winter Academy 2018 Trading, Sales and Financing in the European Energy Market and Industry Functioning of the EU Emission Trading Scheme Dr. Brigitta Huckestein Berlin, February 2018

2 BASF We create chemistry Our chemistry is used in almost all industries We combine economic success, social responsibility and environmental protection Sales 2017: 64.5 billion EBIT 2017: 8.5 billion Employees (as of December 31, 2017): 114,000 6 Verbund sites and 352 other production sites 1

3 Reduction of greenhouse gas emissions with increased production Development since 1990 Index 1990 = 100%, BASF Group excl. oil and gas business % 50.2% 75.4% volume of sales product absolute greenhouse gas emissions specific greenhouse gas emissions 4

4 Outline EU ETS targets Carbon Leakage, Benchmarking and Free Allocation Measuring, reporting & verification (MRV) /Trading EU ETS: Fit for the Future? 7

5 EU Roadmap for moving to a low carbon economy Saving Greenhouse Gases by products is not enough to reach the EU climate targets 2050 Need to evaluate options in production Different speeds for different sectors -7% -20% -54 bis -68% -34 bis -40% Source: European Commission, The roadmap for transforming the EU into a competitive, low-carbon economy by

6 Climate protection products help to save the climate 6

7 ETS targets up to 2030 Mt CO Non-ETS -10% ( ) - 30% ( ) ETS - 21% ( ) - 43% ( ) ETS Phase I/II -20% target -40% target % p.a. ETS Phase III -2.2% p.a. -2,2 % p.a. Free industry allocation GHG cap ETS cap 9

8 Strengthening of the EU ETS after 2020 Increase of the Linear Reduction Factor (LRF) Voluntary cancellation of allowances Market Stability Reserve (MSR) changes Temporary doubling of the feeding rate: From 2019 to 2023, 24% of the total number of allowances in circulation will be put in the MSR Feeding rate of 12% restored as of 2024 but then most likely a higher LRF! Limited validity of MSR allowances: As of 2023, the number of allowances held in the MSR will be limited to the auction volume of the previous year; holdings above that amount will lose validity First MSR review in 2021 Change from a purely volume based system to a volume and (indirect) price driven system 10

9 Outline EU ETS targets Carbon Leakage, Benchmarking and Free Allocation Measuring, reporting & verification (MRV) /Trading EU ETS: Fit for the Future? 11

10 Requirements for ETS in the industrial sector Carbon Pricing through ETS to set incentives for emission reduction Advantages for GHG efficient production, disadvantages for GHG inefficient production Protection against carbon leakage Industries in a globally competitive environment shall not be disadvantaged Source: ETS Handbook Free allocation of certificates based on benchmarks Compensation of indirect costs (higher electricity prices) 12

11 Structure of the ETS in Phase Billion Allowances Source: EU Commission 13

12 EU Emission Trading Free Allocation = Carbon Leakage Faktor (CL) Production Benchmark (BM) X X X Correction Factor Total number is limited New CL list New Benchmarks Regular adjustment (rolling average of 2 years, threshold 15%) No differentiation between sectors Competitiveness until 2030 most likely kept A change towards CO2-neutral Produktion requires investments, which can are not re-financed via the ETS 14

13 Carbon leakage rules Sectors exposed: 100% free allocation of the benchmark Less exposed sectors 3. Trading Period: 80% going down to 30 % 4. Trading period: 30 % phased-out after 2026 until 2030 Current carbon leakage list prolonged until 2020, < new list valid for 10 years Quantitative assessment: Based on trade intensity multiplied with emission intensity (threshold: 0,2) Qualitative assessment possible for sectors between 0,15 and 0,2 and a limited number of carbon leakage sectors (Prodcom) 15

14 ETS 2030: Carbon Leakage List Σ kg CO2 (all installations) Carbon Intensity = Σ EUR GVA (all companies which report under this NACE-Code) 16

15 How Carbon Intensity is calculated (and why qualitative assessment is essential) Σ kg CO2 (all installations) Carbon Intensity = Σ EUR GVA (all companies which report under this NACE-Code) 17

16 Benchmarks in the EU ETS Source: ETS Handbook 18

17 Benchmark update Update of benchmark values for all 54 benchmarks Current benchmarks relate to First benchmark update for on the basis of data Second benchmark update for on the basis of data Methodology: Based on this data, determination of annual improvement rate for each benchmark (min.: 0,2% p.a.; max.: 1,6% p.a.) Phase 3 benchmark values reduced with that annual rate applied over the period and Exception: hot metal benchmark will be reduced by 3% (0,2%) for period 19

18 Product Benchmarks Source: ETS Handbook 20

19 EU Cracker Product Benchmark CO 2 emissions/mt of HVC Average Cracker benchmark value (0.702 t CO 2 / t HVC) Crackers % Values include both direct emissions (process and steam) and indirect emissions (electricity) HVC = ethylene + propylene + contained butadiene + contained benzene + hydrogen (non fuel fraction) + acetylene as products 21

20 Fall Back Benchmarks Source: ETS Handbook 22

21 Benchmarking methodologies EU ETS system for allocation of free certificates Historic activity level x Benchmark Benchmark Value no no no Product-BM Heat-BM Fuel-BM Product output of plant GHG efficiency of process t CO 2 / t product Individual values for 15 GHG intensive processes Measurable heat consumption of plant GHG efficiency of heat generation t CO 2 / TJ 62,3 t CO 2 /TJ (natural gas fired boiler with 90% efficiency) Fuel consumption of plant GHG efficiency of fuel t CO 2 / TJ 56,1 t CO 2 /TJ (emission factor for burning natural gas) Historic Emissions Emissions 97% of historic emissions Product Benchmark is the first priority: 70% of chemical industry emissions stem from processes covered Heat Benchmark, Fuel Benchmark, Historic Emissions are fall-back options Example: Chemical plants BASF SE Ludwigshafen: Percentage of emission certificates allocated according to respective methodology 62 % 33 % 5% 23

22 Low-carbon funding mechanisms Innovation Fund Support carbon capture and storage (CCS) and renewables as well as breakthrough technologies in industry in all Member States Initial endowment: 450 million allowances 400 million in (NER 300 monetary leftovers/ 50 million from MSR) Potential increase from free allocation 'buffer, 50 million added after 2025 Commission to adopt a delegated act to set out further details Modernisation Fund Support modernisation of energy systems and just transition in 10 lower income Member States 25

23 Indirect cost compensation State aid based compensation regime continued Enhanced reporting and transparency provisions Annual reporting in Q1 on compensation paid in year x-1 Member States should seek to use no more than 25% of auction revenue If 25% exceeded, Member States to publish a report including relevant information on power prices for large industrial consumers benefiting from compensation Enhanced reporting will apply as from 2018 Carbon Market Report: new chapter on indirect carbon cost compensation schemes already in 2017 report 26

24 Outline EU ETS targets Carbon Leakage, Benchmarking and Free Allocation Measuring, reporting & verification (MRV) /Trading EU ETS: Fit for the Future? 27

25 MRV Data flow of emission reporting Authority demands additional data 4 Operator 1 Operator collects data Check and verification of data by external third party 2a 3 Operator forwards the verified report to authority External Verifier 2b Verifier approves amounts of emissions Authority Union registry 28

26 GHG emission data acquisition on an installation level Input Output Fuels Raw materials Electricity, heat Installation Greenhouse gases Products including by-products and waste Kind of data: Amount, carbon content Accuracy of data: Detailed definition of requirements (depending on source stream) Frequency: Continuously or discontinuously (depending on installation) 29

27 Bureaucratic effort of ETS Example: BASF SE Ludwigshafen 100% 1% 75% 50% 44% 50% 25% 0% 50% 56% Number of plants Bureaucratic effort for operating company 99% GHG emissions Small emitters with GHG emissions t CO 2 e/a Large emitters with GHG emissions > t CO 2 e/a 30

28 Key Learnings on Measuring, Reporting & Verification Qualified and well-trained personnel required at operating company authorities external verifiers Setup of well-functioning data flow / IT-structure is essential and takes time Definition of methods to guarantee accuracy of measurement influences time and cost requirements at operators To start a system requires much more than a political decision 31

29 Key basics of certificate trading Open and harmonized market on European level Low entrance barriers: only account at registry necessary Various market players: utilities, industry participants, banks, traders High liquidity: exchanges + bilateral over-the-counter Banking and borrowing of certificates between years and trading phases possible: inter-temporal optimization of companies (phase I no banking and no borrowing) Frequent auctions with almost no restrictions (minimum price etc.) Future/forward products enabling market participants to optimize their positions (currently relevant for power production) EU ETS market well functioning: Emission reduction target achieved at the most cost-efficient way. 32

30 Outline EU ETS targets Carbon Leakage, Benchmarking and Free Allocation Measuring, reporting & verification (MRV) /Trading EU ETS: Fit for the Future? 33

31 Trading of certificates EU ETS Developments Target: Reduction of CO 2 Emission in most cost-efficient way Status: Currently around 2bn certificates less demand than scheduled supply target achieved at most cost-efficient way (~ 5 EUR/t until phase 4 decision) Ongoing discussions: Measures to increase price levels 2012 set aside (rejected) 2013 backloading (implemented in 2014) 2014 market stability reserve (MSR) 2017: Revision - MSR + cancellation of certificates ETS Structure is changing: Faster emission reduction enforced Last certificate even before

32 As an energy intensive sector, where would you invest? Industry Policy Uncertainty about global level playing field in climate policy Uncertainty about free industry allocation Low raw material costs Low electricity costs Increase of industrial production Uncertainty about political motivated interventions of the EU COM (backloading, CSCF, MSR, ) Policy of high electricity and raw material prices Decrease of industrial production New investments in energy intensive sectors Decrease of CO 2 -Emissions by using more gas and efficient new installations 35

33 Cefic/Ecofys Roadmap: GHG emissions Reduction of GHG Emissions due to lack of growth Reduction of GHG Emissions - Energy Efficiency Improvement - Fuel mix change - Decarbonisation of Electricity - N2O abatement - Carbon Capture and Storage GHG Emissions - Process - Combustion - Indirect 36

34 CO 2 Reduction in the Chemical Industry DECHEMA Scenario calculations (w/o fuels production) Carbon neutrality possible with New production installations Enourmous amounts of electricity High investment and continuously higher production costs Comparable action in other world regions 120 Mt (Million t) t) /y emission in

35 What is needed in the future? Until 2030, the ETS with Carbon Leakage protection measures is the key instrument for climate protection measures Options in the Non-ETS-Sector to be fully exploited Decarbonization in global production only possible in a global context Industry needs support, not addidional burden 38

36 A fair ETS saveguards production in Europe 1. Sufficient free allowances for the whole value chain Compensate for differences between non-eu- and EU Industry 2. Enable investments Give a perspective for industrial growth in Europe 3. Strengthen innovation Realistic expectations about timescales 39

37 Go for global Climate Protection 40

38 Thank you for your attention!

39 Contact: BASF SE Dr. Brigitta Huckestein COM/EE Ludwigshafen

40 We help our customers to reduce their CO 2 emissions Prevention of greenhouse gas emissions through the use of BASF products 2016 (in million metric tons of CO 2 equivalents) Without using BASF s products 1,110 Emissions avoided: 540 (Attributable to BASF: 11%) 570 Using BASF s products * CO 2 equivalents = units for measuring the impact of greenhouse gas emissions on the greenhouse effect 3

41 Energy and climate protection Greenhouse gas emissions per metric ton of sales product by 2020 (baseline 2002)* - 40% Status 2016: % Energy efficiency Coverage of our primary energy demand through certified energy management systems (ISO 50001) at all relevant sites 90% Status 2016: 42.3 % * Excluding oil and gas production 5