Effects of a White Certificate trading scheme on the energy system of the EU-27

Transcription

1 Ralf Kuder, Markus Blesl Effects of a White Certificate trading scheme on the energy system of the EU-27 Dipl.-Kfm. Ralf Kuder, Dr.-Ing. Markus Blesl Institute of energy economics and the rational use of energy, University of Stuttgart Article Info Keywords: European Energy System White certificate scheme Energy Efficiency Abstract The improvement of energy efficiency and thereby a reduction of energy consumption is one of the key goals of the energy and climate policy strategy of the European Union as stated in their EU 20/20/20 targets. On way of achieving this reduction target could be the implementation of a European wide white certificate trading scheme. This study examines the effect of a restriction on the total consumption of either final or primary energy on the European energy system. To analyse this impact, a TIMES-model based approach with different scenarios is used. The energy system shows clearly different reactions depending on the basis of the restriction. A target based on primary energy is mostly fulfilled by a reduction in the conversion/production sector, leading to the use of generating technologies according to their (statistical) efficiency. A final energy consumption target leads mainly to reductions in the household and industry sector, followed by commercial. An additional climate restriction leads to a clear fuel switch using more electricity and renewable energy. 1 Overview The European 20/20/20 climate policy goals consist of different targets. One of them is the reduction of energy consumption by an improvement of energy efficiency of 20 % compared to a reference development. 1 This could be one possibility of reducing greenhouse gas (GHG) emissions apart from a fossil fuel switch, renewables, nuclear or CCS technologies. One way of realizing this goal is a European wide trading scheme of certificates for energy savings and energy efficiency improvements, so called white certificates. This system consists of an overall European and not country specific target to reduce the energy consumption compared to a reference development without additional policy measures to improve energy efficiency. In this analysis, a TIMES-model based approach is used to evaluate the impact of a reduction scheme of energy consumption both based on the level on primary energy () as well as on final energy consumption () on member state level and on the level of EU- 27 as a whole. The goal of this study is to show how the reduction targets could be reached. The impact of this trading scheme on the energy system, especially on public and industrial electricity/heat generation, development of the demand sectors, CO 2 -emissions as well as changes of system costs will be displayed. Due to different costs of improving energy efficiency among the EU-27 member states, there will be different rates of reduction of energy consumption. Therefore, this analysis evaluates a cost optimal burden sharing of the targets among the different member states. 1 Council of the European Union (2007)

2 Ralf Kuder, Markus Blesl Method 2.1 Times PanEU The model which is used for this study is the TIMES PanEU model. TIMES is a multi periodic linear optimization model which is based on a technical approach. Purpose is the evaluation of the economical optimal energy supply structure at a given need of end use energy respectively energy services and also at given energy and climate policy requirements. The Pan European TIMES energy system model (short TIMES PanEU) is a model of 30 regions which contains all countries of EU-27 as well as Switzerland, Norway and Iceland. The objective function of the model is a minimization of the total discounted system costs over the time horizon of 2000 to The TIMES PanEU model covers on country level all sectors connected to energy supply and demand like for example the supply of resources, the public and industrial generation of electricity and heat and the end use sectors industry, commercial, households and transport. 2 Both GHG emissions and also pollutant emissions are covered by TIMES PanEU. 2.2 Measuring energy efficiency and White Certificate trading scheme To measure the effect of an improvement of energy efficiency especially on the industrial sector (see 3.2), the definition of energy efficiency according to the European Union is used. Thereby, it is defined as ratio between an output (e.g. goods, services or energy) and input of energy. 3 In this respect, the final energy use of the end use sector industry is divided into different drivers (energy intensity, structure and activity) and the energy efficiency improvements are measured by changes in the sub-sectoral energy intensity. 4 In detail, the efficiency effect is calculated by the increased sectoral energy intensity over time multiplied by the produced amount of the sub sector in the model base year (2000). Next to this efficiency effect, there s the demand effect (change of produced amount by sub sector multiplied with the base year s intensity) and as residual share the cross intensity-demand effect. The white certificate trading scheme is modeled by an overall European gap either based on primary or final energy consumption. To analyse the different effects of the definition of the energy consumption restriction, several scenarios are used (see 2.3). 2.3 Scenario definition To analyse the impact of a white certificate trading scheme on the European energy system, different scenarios are modelled and analysed. In general, a business as usual case (scenario: ) is compared with other scenarios. These other scenarios contain a European wide certificate trade which leads to lower energy consumption due to improved energy efficiency and energy savings. The scenario includes the EU target of an emission reduction of -21 % for the ETS-sector for 2020 based on 2005 and an ongoing reduction of %/a, but no additional special measures to improve energy efficiency. 5 The energy reduction scenarios could be distinguished between a limit to final energy consumption () and primary energy consumption (). In two additional scenarios, both white certificate scenarios are extended by a GHG reduction target to reach the European 450ppm goal (scenarios _450ppm and ). This target implies an overall ETS and NonETS emission reduction in the EU-27 of -71 % to 2050 compared to Kyoto base year (1990). 6 2 Blesl, Kober, Bruchof, Kuder (2008) 3 European Parliament (2006) 4 OECD/IEA (2008) 5 European Parliament (2008) 6 Russ (2007)

3 Ralf Kuder, Markus Blesl Table 1: Scenario description Scenario Description Business as usual -21% CO 2 reduction ETS sector 2020 (base 2005) -21% CO 2 reduction ETS sector 2020 (base 2005) European wide restriction on final energy consumption _450ppm -21% CO 2 reduction ETS sector 2020 (base 2005) European wide restriction on final energy consumption -71% CO 2 reduction till 2050 (base: 1990) -21% CO 2 reduction ETS sector 2020 (base 2005) European wide restriction on primary energy consumption -21% CO 2 reduction ETS sector 2020 (base 2005) European wide restriction on primary energy consumption -71% CO 2 reduction till 2050 (base: 1990) 3 Results 3.1 Changes in energy and emission balances Net electricity generation The outcome of the model runs shows a clear change in the European energy system under the conditions of an energy reduction target. But there are clearly different reactions in case of a restriction to compared to. At the beginning the effects on the net electricity generation are analysed and described Net electricity generation [TWh] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm public cond. public CHP autoproducer CHP autoproducer cond Figure 1: Scenario comparison net electricity generation (EU-27)

4 Ralf Kuder, Markus Blesl Focussing at first on the scenario, the total amount of net electricity generation is a little lower in the central periods compared to the base case (-244 TWh in 2030) and almost the same at the end (+ 11 TWh in 2050 to ) (see Figure 1). But there s a clear shift to public production, especially to the production in public condensing power plants (+ 371 TWh in 2050 to ). The reason therefore is the shift of conversion losses to the public sector due to the restriction which is based on and therewith on the consumption of the end use sectors. Next to this increase of electricity produced in the public sector, also the share of public (district) heat at the final energy consumption is higher in the scenario compared to (5.0 % share of district heat at final energy consumption of all sectors compared to 4.1 % in in 2050). While the share of district heat is increasing (and the total amount of heat from public CHP is almost constant) between and, the heat to power ratio is also increasing because less electricity is produced in public CHP s. Accordingly, the main role of public CHP s is the heat generation in scenario. The other main effect looking at the net electricity generation by technologies is the higher share of public CHP s in scenario and (see Figure 1). This generation technology has a higher thermal efficiency and is therefore used if a restriction on the primary energy is given. If an additional climate constraint is implemented (_450ppm and ), the net electricity generation is clearly higher. Concentrating more in detail on the net electricity generation by energy carrier (see Figure 2) the effects of a trading scheme either on primary or final energy and the climate target can be seen. Comparing to, the effect described above of a shift of electricity generation into the public sector has also an impact on the use of the different energy carriers. Especially the gas fired industrial CHP s which are used in the in case, are declining under conditions of a certificate trade. Therefore, less electricity out of gas is produced (- 179 TWh to in 2050). This reduced amount of electricity is compensated by an increased production from public condensing power plants, mainly coal fired (+ 118 TWh from hard coal and lignite fired power plants in 2050 scenario compared to ) Statistic _450ppm _450ppm _450ppm _450ppm Net electricity generation [TWh] _450ppm Coal Lignite Oil Natural gas Nuclear Hydro Wind Solar Biomass / Waste ren. Other Renewables Others / Waste non-ren. Figure 2: Scenario comparison net electricity generation by energy carrier (EU-27)

5 Ralf Kuder, Markus Blesl If a climate target is added to the restriction (scenario _450ppm), clearly more electricity is produced. This additional amount mainly comes from public condensing gas fired power plants, from renewable energy sources and also slightly more nuclear is used. The extended use of fossil fuels comes along with an increased use of CCS power plants. Especially hard coal fired power plants use more CCS technologies (+ 158 TWh in 2050 _450ppm compared to ), mainly in IGCC power plants. Implementing a white certificate trading scheme according to the energy efficiency goal of the European Union based on, there s also a clear change in the structure of electricity generation. This change is influenced by the balancing rules of the efficiency method. Technologies with a low (statistical) efficiency like nuclear (33%) are substituted by technologies with higher ones (like wind or solar with 100%). Taking a detailed look on the scenario, there s no more nuclear energy used after Apart from that, more electricity comes from public CHP plants with a high thermal efficiency which are mainly gas fired (+ 488 TWh from gas fired power plants in 2050 to ). The use of coal is clearly declining. Also the option of CCS is considerably less used in scenarios compared to because the efficiency is the main driver for the use and CCS leads to a reduction of efficiency. Furthermore, more renewables which are balanced with 100 % efficiency are used, in total TWh (2050 scenario compared to ) mainly coming from wind, other renewables and solar. An additional 450ppm target (scenario ) leads to a higher use of electricity in the end use sectors which mainly comes from gas and renewables (comparing to ) Primary energy consumption Looking at the primary energy consumption split into the final energy and the use (or losses) in the conversion/production sector, the ways the restrictions work could be clearly seen (see Figure 3). While the final energy consumption of and _450ppm is the same, there are differences of the energy used in conversion/production sector and thereby, the primary energy consumption is not the same. Comparing and, both scenarios have of course the same level of consumption of primary energy, but different levels of final energy. Focusing on the scenarios with a white certificate trading scheme based on final energy, the energy use in conversion/production sector is higher in the _450 compared to due to the higher amount of electricity with is produced under conditions of an additional climate constraint and therewith the higher conversion losses (+ 990 TWh net electricity generation in 2050 to _450ppm). and have certainly the same level of primary energy consumption, but has in contrast to a simple energy consumption restriction without additional climate targets also a clear reduction of final energy consumption. In contrast, the consumption of final energy in is just 5 % (in 2050) lower than in the base case. That shows that the reduction target is almost completely reached by a reduction in conversion/production sector in scenario.

6 Ralf Kuder, Markus Blesl Primary energy consumption [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm conversion/production Figure 3: Scenario comparison primary energy consumption (EU-27) The effects described above lead together with the changes in the end use sectors to different structures in primary energy consumption by energy carrier between the five different scenarios (see Figure 4). Comparing and, due to the comparable final energy consumption the key driver for the changes in primary energy consumption are the above mentioned shifts in electricity generation. In summary, these changes are a reduced total amount due to the restriction and a switch to gas and slightly to renewables (concerning the share) while nuclear and coal is declining. Concerning the renewables (which are displayed together in Figure 4), there are two opposing effects. While more hydro, wind, solar and geothermal energy is used for electricity generation in the conversion/production sector in scenario, less biomass is used both in conversion and also in the end use sectors due to its lower efficiency compared to gas or coal (see Figure 7 for reduced use of renewable energy sources at final energy level; PJ in 2050 in scenario compared to ).

7 Ralf Kuder, Markus Blesl Primary energy consumption [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm Coal Lignite Oil Natural gas Nuclear Hydro, wind, solar Other renewables Waste (non renewable) Electricity import Figure 4: Scenario comparison by energy carrier (EU-27) European wide burden sharing of a reduction target based on primary energy Taking the year 2020, the burden sharing of the reduction of primary energy between the member states of the European Union is analyzed (see Figure 5). The overall reduction target (which is set to 13.5 % in 2020 compared to the results of the scenario) has to be reached by the EU as a whole due to the tradable white certificates. The energy efficiency target set by the European Union is a reduction of the primary energy consumption by 20% to 2020 compared to a reference development. 7 The goals of this target are among others improvement of the security of supply and environmental protection. 8 Used as reference development when calculation the EU target are the PRIMES results. Taking a reduction of the primary energy consumption of 20 % to the reference development, the target is a consumption of about 66,000 PJ in 2020 (EU-27). 9 The target used in this analysis is even stricter with a goal of about 64,000 PJ in 2020 (scenarios and ) because it is based on the TIMES PanEU scenario. This overall target leads to different contributions of the member states. A comparison shows the reduction of primary energy by country in 2020 compared to the results (see Figure 5). According to the effect described above of a reduction mainly in conversion/production sector and a substitution according to the (statistical) efficiency, the rates of reduction reflect this substitution. The highest rate is in Finland, where both in conversion/production and in the end use sector this substitution takes place. In the scenario, about 60 % of Finland s net electricity generation comes from nuclear energy including electricity from new unit at Olkiluoto. In scenario, the total amount of electricity is reduced but especially the one from nuclear by 38 TWh (2020 compared to ). 7 European Commission (2008) 8 European Commission (2005) 9 European Commission (2008b)

8 Ralf Kuder, Markus Blesl % -5.0% -10.0% -15.0% -20.0% -25.0% EU27DE BE BG CY CZ DE DK EE ES FI FR GR HU IE IT LT LV MT NL PL PT RO SE SI SK UK Figure 5: Reduction of primary energy (scenario and ) compared to in 2020 Further reductions occur in other countries with a high share of nuclear at net electricity generation in the case. Like in Finland also in France the amount of electricity from nuclear power plants is reduced. In addition, France will clearly reduce its export of electricity (scenario ). Next to the substitution of nuclear, also the use of coal is considerably reduced. That s why also clear reductions occur in countries with a coal intensive electricity supply in the base case. One example is Poland where the electricity generation from coal declines by 23 TWh in 2020 ( compared to ). Other countries with the same effect are Romania or Czech Republic. Another country with a relatively high share of nuclear and coal is Germany, but unlike the other mentioned countries, the reduction is below the average reduction rate. The reason therefore is that Germany has to produce more electricity in scenario compared to in contrast to almost all other countries. Due to the reduced electricity in France from nuclear energy, clearly less electricity is exported from France to Germany. Therefore, Germany has to produce the missing electricity on its own End use sectors The different end use sectors contribute on a different level to reach the reduction target. As mentioned before, in scenario just a small amount is reduced compared to. and _450ppm reduce the same amount due to the restricted final energy consumption. An additional climate protection target added to (scenario ) also leads to a considerable reduction even if it s not comparable to the one of or _450ppm (see Figure 7). Comparing to, the strongest reductions occur in the household sector. Key driver are the efficiency potentials in generating space heat. Next to the reduction, there s also a fuel switch in this sector. Due to the shift of conversion losses into the public sector which is not covered by the restriction on final energy consumption, more district heat is used (+ 402 TWh in sector households in 2050 compared to ). Furthermore considerably less biomass is used due to its low efficiency.

9 Ralf Kuder, Markus Blesl % 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Industry Commercial Households Transport Agriculture Total Figure 6: Reduction of final energy by end use sector (scenario compared to ) Next to residential, the industry sector has the second strongest contribution to reach the reduction targets based on final energy consumption. Key drivers are changes in manufacturing technologies but also the supply of heat and electricity. The industry sector is analyzed more in detail afterwards (see 3.2). The main changes at scenario concerning the shares of the different energy carriers at the total industrial final energy consumption are a decline of biomass (for heat supply) and gas (mainly used in industrial CHP s in ) while the share of electricity and the total amount of district heat are higher in scenario than in. There s also a considerable contribution of the commercial sector which is even more increasing after 2025, whereas the transport sector stays almost on the base case level until Even in 2040 the reduction is just 4.6 % (final energy consumption transport sector scenario compared to ). The effects described above result in the final energy consumption of all end use sectors (see Figure 7). While the changes in scenario are mainly already analyzed, further adjustments take place if the 450ppm condition is added. Comparing _450ppm with, there s a shift towards more electricity ( PJ in 2050 _450ppm to ), renewables ( PJ in 2050) and district heat (+521 PJ) while mainly the use of petroleum products ( PJ) and gas (-3657 PJ) is lower. One key driver therefore is the development in the transport sector between and _450ppm. Under the conditions of an additional climate constraint there s a clear increased use of biofuels in the transport sector beginning in period 2040 and also a slightly higher use of electricity (comparing to _450ppm). In 2040, the use of renewables is 3359 PJ higher in _450ppm than in (electricity: +95 PJ) and in 2050 even 4746 PJ (electricity: +200 PJ). On the other side the use of petroleum products drops by 3422 PJ in 2040 and even 5257 PJ in 2050 in the transport sector.

10 Ralf Kuder, Markus Blesl Total final energy consumption [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm Coal Petroleum products Gas Electricity Heat Renewables Waste Others (Methanol, Hydrogen) Figure 7: Scenario comparison final energy consumption (EU-27) CO 2 emissions Also the CO 2 emissions play one key role in this analysis. The two scenarios which include the climate condition reach their 450ppm target by reducing their CO 2 emissions down to about 1253 Mt of CO 2 in But there are still small differences between these scenarios concerning the allocation between the sectors which describe the different way the two white certificate trading schemes work. Comparing _450ppm to, the scenario _450ppm allows higher primary energy consumption because it is not limited. Therefore the primary energy consumption is in PJ (_450ppm to ) and in PJ. Due to the possibility to use more primary energy and therefore have more conversion losses, clearly more electricity is produced in _450ppm (+284 TWh in 2030, +893 TWh in 2050). For this reason, more technologies with high end use efficiency are used in _450ppm in the end use sectors. These differences can also be seen in the emissions. While the total amount is the same, the emissions of the sector conversion/production are higher in _450ppm compared to (+75 Mt in 2050). On the other side, mainly the industrial emissions are lower in (-52 Mt in 2050). The scenarios, and don t face the 450ppm target but an ETS target which includes a reduction of -21 % of ETS CO 2 emissions in 2020 (compared to 2005) and an ongoing reduction of -1.74%/a (see 2.3). The ETS sector covers conversion/production and energy intensive industry. The emissions in the scenario decline down to 2884 Mt in This reduction is clearly driven by the reduced emissions of the conversion/production sector. Due to lower costs of reduction, almost the whole ETS amount is reduced in conversion/production and less in the industry sector.

11 Ralf Kuder, Markus Blesl Emissions of CO 2 [Mt] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm Conversion, production Industry Households, commercial, AGR Transport Figure 8: Scenario comparison CO 2 emissions by sector (EU-27) Comparing the emissions of to, the total emissions are lower by 16 % (or 456 Mt). Due to a change in the net electricity generation structure with an increase of public generation and therefore the shift of conversion losses, the emissions of the conversion/production sector are higher in compared to (+86 Mt in 2050). On the other hand, the emissions of the industry sector are lower (-153 Mt) due to the use of more efficient technologies and the use of electricity from public sector. In the opposite direction on the industry emissions works the effect of a reduced use of biomass due to their lower efficiency. Looking at the scenario, the model results show that there s almost no reduction compared to. The emissions are just lower by -1% in in To reach the reduction target concerning primary energy consumption, technologies with low or zero emissions (like nuclear or biomass) are substituted by other technologies (gas fired power plants). Also CCS is less used because this technology reduced the efficiency. Due to these changes, the emissions in the conversion/production sector are higher in than in (+24 Mt in 2030, +57 Mt in 2050) even if less electricity is produced. Accordingly the emission intensity of electricity generation in is considerably higher than in (+29 kg/mwh electricity from public sector including all energy carriers in 2050). Next to this effect, the restriction on primary energy doesn t lead to a clear reduction of energy consumption in the end use sectors. Almost the whole target is reached by the conversion/production sector (see 3.1.2). For that reason there are only small reductions in the end use sectors. Due to the ETS condition, the industry sector has to reduce the emissions compared to the results (-43 Mt. in 2030 to ; -69 Mt. in 2050). There are almost no changes in the other end use sectors caused by the restriction on primary energy consumption.

12 Ralf Kuder, Markus Blesl Sector view industry and efficiency indicators A more detailed analysis is made for the industry sector. The focus is thereby on improvements of energy efficiency. As already described, the improvement of the sub-sector energy intensity over time weighted with the base year activity of the sub sector is used to measure energy efficiency and the reduction of the final energy consumption of the industry sector which is caused by this improvement. Looking at first at the final energy consumption of the sector industry, the total reduction and fuel switches could be seen. In, the total consumption is 3126 PJ lower in 2050 ( compared to ). _450ppm has a slightly higher consumption than. Under the conditions of an additional climate constraint the transport sector reduces more than in so that the other end use sector could consume more. If the restriction is on primary level, the consumption is clearly higher than in the scenarios and especially in quite close to the results of. Analyzing the shares of the different energy carriers, it can be observed that in case of a climate constraint the use of renewables (7.0 % of final energy consumption industry in 2050 in _450ppm to 3.6 % in ) and electricity increases while less coal and petroleum products are used. Furthermore under a white certificate scheme based on final energy, more district heat is used (as already discussed above). Under conditions of a climate constraint, it is used more electricity due to the higher efficiency of electric applications (like a technology switch to electric arc furnace in the iron and steel industry) and the ongoing decarbonization of the public electricity generation. The increased amount of renewables mainly comes from biomass which is used for heat and steam supply Final energy consumption Industry [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm Coal Petroleum products Gas Electricity Heat Renewables Waste Others (Methanol, Hydrogen) Figure 9: Scenario comparison industry by energy carrier (EU-27) The reduction of is reached by changes or improvements of manufacturing processes and by efficiency gains in heat and electricity supply. Using the calculation methods described above (see 2.2), the energy efficiency improvements are measured and displayed in Figure 10. The development of the demand (physical amount of produced goods in the industry sector like Mt of steel in the sub-sector iron/steel) is set constant between the scenarios and is an external assumption and input for the model. The BIP and therewith the

13 Ralf Kuder, Markus Blesl output of industrial processes is increasing, especially in the new member states. But the growth rate of this extension is decreasing over time. As shown (see Figure 10), the increasing output in the industry has of course an increasing effect on the final energy consumption. In contrast, the energy efficiency improvements are reducing the energy consumption. Key drivers for these improvements are in the non-energy intensive sub sectors the more efficient cross-sectional technologies (like pumping system, fans, compressed air) and process optimization in the energy intensive branches. Key sub sectors and technologies are in scenario compared to iron/steel (substitution of blast oxygen steel by electric arc furnace), chlorine (replacement of mercury and diaphragm processes by membrane technologies) and cement (improved kilns with better pre-heaters and reduced clinker to cement ratio). In 2030, the sub sector energy intensity improvement is 39.1 % at chlorine production (2030 scenario compared to model base year 2000), 38.6 % in cement industry and 31.8 % in iron/steel. Effects on development relative to 2000 [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm energy efficiency demand Intensity-/Demand-effect Figure 10: Scenario comparison reduced of sector industry by improved energy efficiency (EU-27) Apart from adjustments in production processes, also the structure of heat and electricity supply changes under conditions of a white certificate trade and an additional climate target. Next to the change in electricity supply to a higher share of electricity from public condensing power plants in scenario (see 3.1.1) also the supply of heat is different to the base case. Because less electricity is generated by autoproducer CHP s, also less heat comes from industrial CHP s (see Figure 11). Not only the heat coming from industrial CHP s in scenario and _450ppm is lower than in the base case, the reduced demand of process and space heat is the key contribution of the industry sector to reach the final energy reduction target. While the share of industrial CHP s is lower in the and _450ppm scenario, in the runs the share is higher than in, especially when an additional climate target has to be reached (see in Figure 11). While the amount of district heat is increasing especially under conditions, the main savings occur in heat coming from kilns and boiler. To fulfill the climate targets, in both 450ppm scenarios more process heat comes from electricity based applications (like electric arc furnace or other kilns using electricity like crucible furnace).

14 Ralf Kuder, Markus Blesl Final Energy Consumption [PJ] Statistic _450ppm _450ppm _450ppm _450ppm _450ppm Industrial CHP Kilns and Boiler District Heat Figure 11: Industrial heat generation from fuels by technology (EU-27) In the next section, three indicators which could be used to measure energy efficiency improvements are displayed. All the effects analyzed above influence these indicators. The first one uses the energy efficiency target of the EU as setting a fixed limit to the primary energy consumption in relation to the PRIMES reference projection (see Table 2). The other two indicators measure the energy intensity as a ratio of energy consumption to BIP. While the first one is based on the final energy (see Table 3), the second one is based on primary energy consumption (see Table 4). Table 2: EU target of 20% reduction of primary energy in 2020 based on PRIMES Scenario Description UNIT PRIMES Primary energy consumption PJ EU target (in PJ) Primary energy consumption PJ reduction primary energy to PRIMES % -10.2% -9.1% reduction primary energy to PRIMES % -15.9% -16.9% _450ppm reduction primary energy to PRIMES % -15.9% -15.8% reduction primary energy to PRIMES % -22.3% -23.9% reduction primary energy to PRIMES % -22.3% -23.9% The indicators based on the EU target show that even the scenario (as it is defined for this scenario analysis) is considerably below the PRIMES results. One reason therefore is that the current global economic crisis is taking into account in this study. Furthermore, even under conditions an emission reduction target (-21 % ETS) has to be fulfilled. Looking at the scenarios which face a restriction based on primary energy and therefore which are comparable to the EU target, in both cases the 20 % reduction goal is reached due to a stricter application of the energy reduction constraint. The and _450ppm scenarios make clear that the EU target is not achieved if the restriction is only based on final energy.

15 Ralf Kuder, Markus Blesl Table 3: Energy intensity based on final energy consumption Scenario _450ppm The two energy intensity indicators (see Table 3 and Table 4) set the energy consumption in relation to the BIP. Based on final energy, both scenarios facing a restriction based on final energy, show of course the same and the lowest value of final energy intensity. There s a reduction of 64.4 % between 2000 and 2050 ( and _450ppm). But even in the scenario there s a considerable reduction. Comparing and, _450 shows the lower values because more efficient technologies are used in the end use sectors to fulfill the climate restriction (see 3.1.2). If the energy intensity is measured on the base of primary energy, the scenarios and show the lowest value by reaching a reduction of 67.3 % between 2000 and Comparing and _450ppm, the _450ppm scenarios shows the lower reduction due to the increases amount of electricity produced as a strategy to achieve the climate target and thereby the higher conversion losses in the production/conversion sector (see 3.1.2). Table 4: Energy intensity based on primary energy consumption Scenario _450ppm Costs To analyze the monetary effect of these trading schemes on the energy system, the total system costs which are caused by the energy consumption and climate restrictions, compared to, are taken into account. These total system costs cover all investment costs, operating costs and capital costs. The additional discounted annual system costs increase with the energy consumption restrictions. To fulfill the restrictions, there s a need for investments in more efficient but more invest cost intensive technologies. If the trading scheme is based on, between 2020 and 2040 the costs are even higher compared to a based system (see Figure 12). The reason therefore is that the reduction can be fulfilled also in the conversion/production sector while the reduction is only possible in the end use sectors. As the results show that in scenario almost all reductions are done in conversion/production, the reduction costs in this sector are lower than in the end use sectors (see Figure 3). Just in 2050, the increase of the system costs is by an increase of % ( additional discounted system costs compared to ) at scenario higher than in _450ppm (+ 6.7 %). This is a result of the different strategies to achieve the very strong climate protection target in 2050 (- 71 % emissions compared to 2050). In _450ppm scenario, there s a clear switch to electricity based application in the end use sectors with high end use efficiency (see Figure 7). Therefore, the net electricity generation and accordingly the conversion losses in the conversion/production sector are higher compared

16 Ralf Kuder, Markus Blesl to. This strategy is more cost efficient in 2050, but due to the restriction on primary energy consumption in scenario not possible under these conditions. The additional climate constraints increase the system costs even more. So the additional system costs (always relative to the system costs of ) of _450ppm are above and of above. If these additional costs are divided by the final energy consumption of the respective scenario (for scenarios and _450ppm) or by the primary energy consumption of the scenario ( and ), this value shows the fuel price increase by the energy consumption restriction and the 450ppm restriction (see Figure 12). This specific costs vary between 0.18 /GJ at scenario in 2050 and 1.33 /GJ at scenario _450ppm in % Specific Costs[ /GJ or /GJ ] % 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.00 _450ppm _450ppm _450ppm _450ppm Delta System Costs [in % to ] 0.0% Figure 12: Additional system costs / or (EU-27) The costs caused by the climate restriction increase over the time horizon. That shows that the reduction is getting harder to fulfill for the EU-27 energy system because the target is getting clearly stricter up to -71 % in 2050 compared to Kyoto base year At the end, the specific costs of are clearly dominated by the environmental related cost. That can be seen by the increasing gap between and. Also the gap between _450ppm and is getting bigger, even if the _450ppm costs are not dominated that explicitly by the environmental costs. In the early periods, in both white certificate schemes the costs are dominated by the part with is caused by the restriction on energy consumption. Because this restriction is not getting that much stricter as the climate constraint does, the impact of this energy consumption related costs are declining in the late periods where the model is more flexible and has further possibilities to react on this reduction target.

17 Ralf Kuder, Markus Blesl Conclusion If a white certificate trading scheme is modeled according to the energy efficiency target of the European Union as it is part of their 20/20/20 goals based on primary energy consumption, the main changes occur in the generation of electricity. A substitution takes place from technologies with a low efficiency to technologies with higher ones. A part of this substitution effect is caused by statistical balancing rules concerning the efficiency of electricity generating technologies. Some technologies have according to the efficiency balancing method a low statistical efficiency like nuclear, others have high ones like wind or solar. But this substitution is not only limited to a balancing effect. There s not only a switch from nuclear but also from biomass or coal fired power plants to gas fired power plants, especially CHP s, in addition to the change towards wind and solar. As a result of this switch, the original goals of the energy efficiency target from the European Union of a clear emission reduction and increased security of supply are not reached. Because the electricity generation has higher carbon intensity, there are higher emissions in the conversion/production sector. And because the primary reduction target is almost completely achieved in the conversion/production sector, there s just a small reduction of emissions in the end use sectors. Furthermore the use of biomass is reduced because of its lower efficiency. In total, there s no clear emission reduction and due to the switch from nuclear, biomass and coal to more gas, there no increase of security of supply. A trading scheme based on final energy causes a shift of conversion losses into the public sector (reduced autoproducer). Furthermore, the main contribution to achieve the reduction targets comes from household and industry sector. Both sectors generate reductions in the heat supply (space and process heat) which are strengthened by process improvements occurring in the industry sector. Because all reductions have to be achieved in the end use sectors (and not in the conversion/production where almost the complete target is achieved), the additional system costs are higher. An additional 450ppm target leads to a fuel switch with a higher use of renewables and electricity. Applications based on electricity increase due to their efficiency advantages and the improvements of reducing the CO2- intensity of public electricity generation. The specific costs show the potential price increase of fuel costs by the implementation of an energy consumption restriction. They differ between 1.19 per GJ of final energy in 2020 to 0.78 per GJ in 2050 (focusing on scenario ). This corresponds to a price increase of natural gas of 22 % in 2020 to 13 % in 2050 both measured in real terms in As an outlook it could be pointed out, that the influence of the statistical effect, which is one of the reasons for the technology switch, should be tried to neutralize. For that reason, a comparable study could be done using the substitution method as the relevant balancing rule instead of the efficiency method. Especially the results concerning nuclear or renewable energy sources like wind would be different. 5 References Blesl, Kober, Bruchof, Kuder (2008): Beitrag von technologischen und strukturellen Veränderungen im Energiesystem der EU 27 zur Erreichung ambitionierter Klimaschutzziele, Zeitschrift für Energiewirtschaft 04/2008 Council of the European Union (2007): Council of the European Union, Presidency Conclusions 8/9 March 2007 (7224/1/07) European Commission (2005): Green Paper on Energy Efficiency, COM(2005) 265 final

18 Ralf Kuder, Markus Blesl European Commission (2008): Communication from the Commission, energy efficiency: delivering the 20% target, COM(2008) 772 final European Commission (2008b): European energy and transport, Trends to 2030-Update 2007 European Parliament (2006): Directive 2006/32/EC of the European Parliament and of the council, April 2006 European Parliament (2008): Greenhouse gas emission allowance trading system, texts adopted, 17 December 2008, thereof: P6_TA-PROV(2008)0610 OECD/IEA (2008): Worldwide trend in energy use and efficiency Russ (2007): P. Russ, T. Wiesenthal, D. van Regenmorter, J.C. Ciscar, Global Climate Policy Scenario for 2030 and beyond, JRC Reference Reports