ASSESMENT OF GREENHOUSE GAS EMISSION TRADING PERIODS IN LITHUANIA

Transcription

1 ASSESMENT OF GREENHOUSE GAS EMISSION TRADING PERIODS IN LITHUANIA Rasa Stasiulaitytė 1, Žaneta Simanavičienė 2 1 Vilniaus University, Lithuania, rasa_stasiulaityte@yahoo.com 2 Kaunas University of Technology, Lithuania, zaneta.simanaviciene@ktu.com Abstract Climate change is obvious in our planet and it gives negative consequences for flora and fauna, daily human activities and economics in all over the world. Lithuanian Climate policy and liabilities are based on Europe Union requirements and international agreements. The Kyoto Protocol is one of the most important documents regulating the fight mechanisms against climate change. The most discussed and popular is greenhouse gas emissions mitigation policy. Countries which signed the Kyoto Protocol have to act according to the system and participate in greenhouse gas emissions trading scheme. After the first trading period Lithuania had more allowances that it was used and because of selling procedures operators had a huge profit from disposition of allowance. The second trading period covering and results of trading periods are important and should be discussed. Article gives evaluation of trading system effectiveness in Lithuania. The basic results show that trading system is not so effective and there are many spaces to improve processes and regulate the market. Keywords: GHG emission trading system, environment, mitigations measures. JEL Classification: M21; Q54. Introduction Mitigation measures of climate change is one of the most popular and important topic in the world. Energy sector is one of the biggest polluters and greenhouse gas emission can be controlled most easily, that s why mitigation measures of climate change are based in energy sector. Greenhouse gas emissions in energy sector can be reduced by reducing the volume of fuel using and using different fuel, which has less carbon. Solutions based on flexible markets can be effectively used for mitigations measures of climate change, and it s done in energy sector. One of the most widely used measures is greenhouse gas emissions allowance trading system. Europe Union (EU) is one of the most important organizations fighting with climate change. After 2005 January 1 st greenhouse gas (GHG) emissions allowance trading system started. The main target of the system is reducing emissions of GHG in a lowest cost. Lithuania as a member of EU must participate in the EU s emissions trading scheme. It s important to examine EU emission trading system and to amplify the impact for Lithuanian carbon market. Energy sector makes the biggest volume of GHG emissions, that s why this article focuses on energy sector importance. Institutions, which are responsible for GHG emissions allowance trading system s job in Lithuania, often gives discussions about allowance allocation and trade issues. Nevertheless research papers and studies of this topic are poor and not full scale. GHG emissions allowance trading market is young in Lithuania and aspects of environment and economic are not clear. That s why it s so important to exam effectiveness of this market and to look at it from practical side. The main target of the article is to evaluate GHG emission trading periods in Lithuania. Following methods are used in the article: systematic and comparative theoretical and practical literature analysis methods; documentation and statistical data analysis, qualitative analysis. International commitments and climate change assessment Climate change is global problem and consequences of this process are obvious. Global warming and bigger concentration of GHG gives signal that nations needs to make changes and stop the processes. It should be noted that one of the bigger polluters for atmosphere is energy sector, which distinguishes to environment large quantity of toxic substances. Climate change does huge influence and because of that we have more numbers of hurricanes and storms, which makes more and more losses. According to the scientist s opinion, consequences of climate change will depend on temperature rise, adaptation and socioeconomic development. As bigger will be the average of global temperature, as bigger consequences we will feel. The effect of the changes will be different in different regions of the world. It can be positive effect, 387

2 especially for slightly elevated temperatures. One of the biggest harm from climate change will feel poor developing countries. The greatest concentration of producing process are focused in attackable sectors, and most of the people live in attackable areas and have unstable economic conditions, limited financial resources. The harmful effect caused by climate change could be avoided through various mitigation measures. During the next decades GHG concentration in atmosphere can be stabilize by investments and actions in renewable energy sources, carbon capture and scientific research and new innovations improving processes. That s why it s so important to scrutinize the main international commitments, which gives main lines how to act in a face of climate change. In 1997 United Nations adopted an intergovernmental agreement Kyoto Protocol. The main target of the agreement is to reduce emissions of GHG. Each country, which ratified the Kyoto Protocol, entered into various international commitments. Lithuania assumed the obligation for the GHG emissions reduce on average by 8 percent compared to 1990 emissions. The Kyoto Protocol excludes mechanisms, which operate in carbon market: joint implementation projects; emissions trading and Clean Development Mechanism (M. Nagevičius, 2010). Most discussed and developed is GHG emissions allowance trading market, that s why, it s important to analyze it in more detail. After 2005, when greenhouse gas emissions allowance trading market started, it involved around major global energy and industrial processing of manufacturing facilities. The main target of trading scheme is in a lowest cost to reduce carbon dioxide emissions. Economic and environmental trading system s efficiency depends on market structure and requirements implementation. GHG emissions allowance trading system is the largest trading system, which allows for users to buy or sell trading allowance permits. Allowance permits may be defined as a currency of the system. One allowance permit is worth one ton of CO2 emissions to environment. Limited number of allowance permits makes shortages and it regulate allowance permits value between participants of the market. The first period of greenhouse gas trading covered period and the second is longer (R. Čiegis, R. Bubnienė, 2006). Each member of greenhouse gas trading market makes National Allocation Plans. National Allocation Plan helps to divide and to use allowance for countries and for mechanisms. In Lithuania energy-generating mechanisms, which installed capacity exceeding 20 MW are involved in allowance trading market. Lithuania has around 60 companies and 100 mechanisms, which are members of GHG emissions allowance trading market. Companies can dispose of the amount of allowances. If company makes bigger emission of carbon than it has allowance permits, the fine must be paid or company must buy extra allowance permits on the trading market. If company can t successful act in the carbon market, some actions can be done for reduce pollution: invest in more efficient technologies, use less carbon emitting energy sources, buy necessary value of allowances in the market. Different countries have different international commitments and situation in implementation of reducing carbon emission is different. First figure gives view how CO2 emissions changed in 2008, compared with 1990 value. Results are given in percents; figure 1 is made by the author, according to United Nations Framework Convention on Climate Change database. Figure 1. Changes in GHG emissions excluding LULUCF (%) 388

3 As it is shown in figure 1, Lithuania is in a good position of reducing CO2 emissions, comparing with results in According to Lithuania s Ministry of Environment (2009), Lithuania s economic growth in the nearest future shouldn t grow faster and pollution shouldn t exceed Kyoto commitments to reduce pollution of carbon in 8%, comparing with Now the results are below than 40% of pollution, compared with pollution level in It should be mentioned that in 1990 Lithuania had many manufacturing objects, based like Soviet Union objects, and it made huge amount of pollution. That s why comparison of 1990 and 2008 it s so different. In this point it s difficult to improve that Lithuania needs more GHG allowance and it s hopeless to expect that it will be overdraft in value of allowances. EU wants to control and be sure that all the recourses from GHG emissions allowance trading system will be placed for GHG mitigation measures and environment improvement. For good understanding what measure the first and the second period of GHG emissions allowance trading gave for Lithuania economic, carbon market and environment, it should be discussed in more detail. EU GHG emissions allowance trading system evaluation of results in Lithuania According to Ministry of Environment (2009), during the first GHG emissions allowance trading period in Lithuania, 93 operators where involved in trading scheme Lithuania got thousand of GHG emissions allowances. The value was based on 1990 and 1998 situation of GHG emissions. Evaluation of the first trading period in 2005 gives results that just 3 operators from 93 participants had bigger pollution values that could be done, according to GHG emissions allowance value. In operators had to buy allowances, and mechanism had bigger value of pollution, than the right to pollute. Results shows that all others operators had overdraft number of allowances and Lithuania redistributed over 18 million allowances and purchased only 1,5 million. Because of the reason, that operators had huge overdraft of GHG allowances, companies had millions LTL profit, because GHG allowances were sold. The biggest problem was how the business sector used the profit and how much attention was given on improving the resources of environment. Europe Direct database (2008) gives information, that the second greenhouse gas emissions allowance trading period is finishing in 2012, Lithuania has 100 operators in. The problem of this period is that Lithuania has got less allowance that it was asked to give. Because of this during the second period here is no overdraft number of allowances. The economic crisis gave the solution, because some sectors were not so productive and pollution was not so strong and all Lithuania s operators fitted in value of allowances during the period Lithuanian s operators are actively involved in greenhouse gas emissions allowance trading system, but not all are fully using the potential of financial opportunities. It s important to mention, that until 2013 most of allowances is given for free, but after the end of the second period the system will change. From 2013 allowances will be sold at auction. So companies need to invest in renewable energy sources, innovations and environment recourses improving. It s time to think now, because after the third period will start, companies will need to pay for allowances, it means - no profit from selling the unused allowances, just expenses. If companies will invest in innovations and because of that pollution level will be lower, they will win, because they will need not so much allowances and they will save. Very important thing is how environment recourses saving process and profit from allowances selling is used and what the low is saying about the abilities how to use recourses. Lithuania needs to improve climate policy and regulation of recourses needs to be based on the low. EU Commission estimates that until 2020 revenues from auctions and allowances trading will be around 50 billion euro per year. Income from trading scheme needs to be used for environmentally sustainable economy by promoting renewable energy sources and development of innovations. A part of the revenues should be given for developing countries to adapt to climate change. Climate change policy gives opportunity to have a benefit from emissions trading. Emissions trading system is a rapidly growing market. The positive side of it is profit for companies and countries - earn money has environment protection features. Companies in Lithuania should used allowance market by all power, because reasonable allowances and investment management can bring not only profit, but also generate long term investment in pollution and cost reduction for the companies. Such strategic approach for business leaders is important if the company wants to be competitive and provide products with the lowest prices (Europe Direct database, 2008). GHG emissions allowance trading market involves brokers, agents, investors and project promoters, operators, which makes pollution and states, which are taking part in international commitments. Lithuania can be called like a new player in this market. Good opinion about participating in allowance trading market 389

4 results has not everyone. The main reason is lack of transparency in procedures of trading and revenues using opportunities. After the selling procedures in GHG emissions allowance trading market Lithuania s operators don t want to say how much money is earned. The information should be given, in other way it could be trade like cheating and it has no interest of corporate transparency. Many allowances are sold by using market brokers and it lets to cover the trading results. According to Ministry of Environment (2009), during the 2009, using brokers services were sold thousand of GHG emissions allowances. The main problem is, that after trading procedures Lithuanian companies has profit growth and uses it not for pollution mitigating project or improving environment recourses, but for their own use. After 2012 period companies will buy allowances and it will increase the prices of production. The worst thing is that for prices changing will pay buyers. Another tricky thing is that after investing to innovations which improving environment and new technologies, it s very hard to prove that new mechanisms are serving for pollution reducing process. So it s very important to improve low base and to control all steps which companies have to make in GHG emissions allowance trading market. Ministry of Environment (2009) gives information that during 2009 more than a half of resources from GHG emissions allowance trading processes were used for investment in cleaner technologies (Figure 2, source - Ministry of Environment, 2009). It can be said that big influence for resources using was done by the new law in 2009, which required companies to use profit from trading for cleaner technologies and environment saving. Figure 2. Income from the sale of GHG emissions allowance use in 2009 (thousands of LTL) In conclusion it can be said, that GHG emissions allowance trading market hadn t no significant effect on investment in cleaner technologies. But the new low should places everything in the correct places and companies will involve more and more funds for investments in cleaner technologies and trading scheme will give environmental effectiveness. It s very important to evaluate the results of trading market and make the basic conclusions. Evaluation of emissions trading system effectiveness in Lithuania Based on GHG emissions trading system analysis, the qualitative assessment will be done. Methods and principles for a qualitative assessment are used for scoring system (D. Štreimikienė, 2007). Zero score means that the influence is insignificant; One score quite a significant impact; Two score very significant impact; Plus positive impact; Minus negative impact; Plus/minus both positive and negative effects, but the main effect is depending on the circumstances. According to previously selected criteria for evaluation of emissions trading system the qualitative assessment will be done. The positive impact will be assessed in a positive score, while a negative effect - the negative points. Impact of GHG emission reduction efficiency. EU GHG emissions allowance trading market hadn t a significant impact for GHG emission reduction. During the both trading periods Lithuanian operators had more allowances that they needed and used. Because of this it s no reasons to reduce GHG emissions and invest in lower pollution making mechanisms. GHG emissions allowances giving for free make not good distribution of allowances in the market and between the operators, because of that, the impact for environment is low. GHG emissions allowance trading market environmental impact in score table is worth 0 scores. 390

5 Impact for investments in environmental technology. EU greenhouse gas emissions allowance trading market s impact for less polluting technologies can be assessed positively. Situation changed after 2009, when new low gave strict directions and requirements, where the profit from selling allowances can be used. The funds from trading system need to be used for investments in cleaner technologies. Allowances surplus made poor incentives to invest in new, less polluting technologies. According to that it can be said that investments in new technologies can be inspired by the way how allowances dispensation is done. The impact for investments in environmental technology is worth 0 scores. Impact for electricity prices. According to the theory, electricity prices growth should be based on GHG emissions allowances prices. Lithuanian operators had more allowances than pollution level was, and because of that electricity prices were not influenced by allowance prices. Giving the score for impact for electricity prices the result is +2 scores. It should be mentioned that closing procedures of Ignalina NPP will make corrections of electricity prices, which should increase. Electricity prices increasing will give the impact for others products which producing process is based on electricity using process, the prices will grow. Impact for firm s work effectiveness. Effect for firm s performance is both: positive and negative, depending on the circumstances. Companies which participating in GHG emissions allowance trading market had more allowances than they needed and because of that companies had a profit from selling the free allowances. Companies which had to buy allowances, because it was reached bigger pollution level than they had allowances to do it. This group had expenses, because of the buying process. These chestnuts are going to production prices and it increase prices, because company s needs to cover financial lost and customers are paying for that. According to this criterion impact of firm s work effectiveness is worth both +/ -. Impact for economic growth. According to the theory GHG emissions allowance trading market should stop the growth of economics, but Lithuanian situation results are different. Because Lithuanian had more allowances that it was needed our economy was growing and the trading system had no negative impact for economy. Even more the trading system gave good initiative for clean technologies, that s why impact for economic growth can be worth pluses (+) and considered as positive. Impact for public welfare growth. Public welfare is directly influenced by environmental improvement, since it depends on public health and environmental quality of service. As it was mentioned earlier GHG emissions allowance trading system hadn t big influence for GHG emission reduction, the budget of the system can t be changed and allowances were distributed for free. Government can t provide extra funds for public welfare incentive. The impact for public welfare growth is worth 0 score. Readjustment for climate change policy development. Lithuanian companies participating in GHG emissions trading system can convert some pollution emissions (emissions of allowances) to environments projects based in other country. In the period of implementation projects will be done. It will give less pollution for mechanisms. The special reserved fund is opened and money from it can be used for indirectly projects, which reducing pollution. Because of the compatible system between trading market and Kyoto flexible mechanisms, the system is worth +2 scores. Organizational requirements, transaction and monitoring cost. Each organization, which is a part of GHG emissions allowance trading market, has some cost. Register of allowances and account maintenance, employee training system s installation, administration and monitoring, and others make cost for organization. It can be said that because of all the inputs that organizations need to make organizational requirements, transaction and monitoring cost worth -1 score. Table 1. Qualitative evaluation score summary Rate Scores Impact of GHG emission reduction efficiency 0 Impact for investments in environmental technology 0 Impact for electricity prices +2 Impact for firm s work effectiveness +/- Impact for economic growth + Impact for public welfare growth 0 Readjustment for climate change policy development +2 Organizational requirements, transaction and monitoring -1 cost Overall impact

6 Results of the first table shows that GHG emissions trading system for most of the criterions had neutral or insignificant influence. Trading system can be evaluated like very significant just for impact for electricity prices and for readjustment for climate change policy development. It should be noticed that the system could made influence for producing the electricity. The system was successful in case of organization s competitive abilities, because organizations hadn t replace the cost of allowances to the production cost. Other authors give opinion that GHG emissions trading system s efficiency depends on many different factors. EU policy and other state member s examples are very important. GHG emissions trading system s efficiency depends on not only EU pollution reduction policies but also from growth of Lithuanian economy. GHG emissions in Lithuania have reduced and are expected to reduce more in the future, for the bigger influence to clean the atmosphere new flexible instruments should be implemented. Strict environmental policies and clear government position can help combine business and people to concentrate on atmosphere cleaning actions (D. Štreimikienė, B. Esekina, 2008). Talking about impact for public welfare growth, need to be mentioning the EU Directive 2002/91/EC on increasing the energetic effectiveness of buildings. The main attention is concentrate on lowering energy expenditures and expanding non traditional sources of energy (wind, solar, bio fuel). Buildings renovation pan needs to help to implement the commitments for EU until the All state members needs to reduce CO2 emissions at least 20% comparing with the 2006 level. Construction material production makes damage for environment, because it is energetic useless. Production eco balance (life cycle assessment) can be a strategic economical and ecological problem solving and managing instrument. 4 major stages can describe how to increase the building s energetic usefulness process: construction materials production energetic usefulness increase by using eco balances which take into account extraction of raw materials and beneficiations; improvement of construction projects and technologies; maintenance of buildings; utilization of demolished buildings after the end of their use. Implementation of these stages can be useful not just for environment improvement but also for public welfare growth (S. Gaidučis, R. Mačiulaitis, A. Kaminskas, 2009). Conclusions Climate change makes huge effects and negative impact for quality of people life. If the GHG emission will increase more and more and global warming will be not stopped we will have catastrophic consequences for our Planet. Climate change controlling cost are indeed high, but it is possible to manageable it. However, the delay would be dangerous and more expensive. It should be taken different measures for reducing damage caused by climate change. Lithuania s commitments to reduce greenhouse gas emissions are directly related to international obligations, and European Union legislation. Currently, the most important law on climate change policy, in 2009 adopted the Climate Change Management Financial Instruments low, which establish a climate change financial mechanisms and regulate their use. The Lithuanian law provides greater opportunities for operators to carry on trade allowances, but at the same time conditions are more strength on the proceeds from the disposition of allowances and use of profit. Since 2005 Lithuania participates in EU emissions trading system. Until 2012 allowances are given for free, but after this period it will be distributed in auction. Such changes may significantly affect our country's business units and increase development of production cost, because the cost of allowances will be put in a cost of production. Companies should now invest in environmental projects and carry out processes that reduce GHG emission levels. Such investments would have a high potential for future. But not all operators are using profit from trading system for environmental process development. According to the Kyoto Protocol, funds from trading system must be used for environmental purpose. Lithuanian operators heavily invest to the climate change process. It s very difficult to verify how much the company invested for the environment improving processes. Legal regulations of the fund use should be developed and fitted. Trading system evaluation model showed that GHG emission trading system didn t significantly affect the environmental quality improvement. The result is like that, because during the first and the second trading periods, the amount of allowances was excess and companies had opportunity to sell the allowances. However the system can be positively evaluated in terms of its flexibility/adaptability. The GHG emission trading system is a part of Kyoto Protocol. The part of economic valuation of the system can give negative results, but the other part is different, because the system didn t affect the prices of electricity. 392

7 References 1. Čiegis, R., Bubnienė, R. (2006) Emissions trading system for economic efficiency: the distribution methods of influence. Economic. 73, Europe Direct database (2008) Interactive. Available in the internet< [Viewed on the 2 nd of January, 2011]. 3. Gaidučis, S., Mačiulaitis, R., Kaminskas, A. (2009) Eco-Balance Features and Significance of Hemihydrate Phosphogypsum Reprocessing Into Gypsum Binding Materials. Juornal of Civil Engineering and Managemnt. 15(2): ISSN Lithuania s Ministry of Environment (2009) Funds received for the transferred allowances and Kyoto units, distribution and use of summary reports. Interactive. Available in the internet< >. [Viewed on the 2 nd of January, 2011]. 5. Nagevičius, M.; Valuntienė, I. (2010). Green investmant scheme the real financial support for the Lithuanian economy, the implementation of the Kyoto Protocol agreement. Thermal technology. Vilnius: Baltic copy, Number 2 (43), 10, Štreimikienė, D. and others. (2007) Sustainable Energy Development. Vilnius university press. 48, Štreimikienė, D. Esekina, B. (2008) EU Pollution Reduction Strategies and their Impact on Atmospheric Emissions in Lithuania. Technological and Economic Development. 14 (2): ISSN United Nations Framework Convention on Climate Change database. Interactive. Available in the internet< [Viewed on the 2 nd of January, 2011]. 393