Bio-energy or Competitiveness Managing the target and protecting the economy. Tuesday 27 November 2007 Sheraton Brussels Hotel & Towers (Rogier)

Transcription

1 Bio-energy or Competitiveness Managing the target and protecting the economy Tuesday 27 November 2007 Sheraton Brussels Hotel & Towers (Rogier) Goal of the seminar To introduce this crucial issue To update you on the latest developments To show several sides of the issue To show the challenges and opportunities for the EU Forest Based Industries To involve you in this discussion 2 1

2 Todays menu Opening and welcome, introduction of the panel Introduction: Meeting the target and protecting the economy 1. Setting the target EU targets 2. Supporting developments 3. Impact assessment from toe to M3 4. Biofuels and land use, imports 5. Sustainability sustainable production and consumption 6. Research and development EU focus and support Integrated policy CEPI recommendations and summary 3 Introduction Setting the scene Meeting the target and protecting the economy 4 2

3 EU Council commitments Climate change needs to be tackled effectively and urgently. Limiting the global average temperature increase to not more than 2 C above pre-industrial levels. EU has a a leading role in international climate protection. 5 Triple objectives The Energy Policy for Europe will pursue the following 3 objectives: increasing security of supply; ensuring the competitiveness of European economies and the availability of affordable energy; promoting environmental sustainability and combating climate change. 6 3

4 Planning urgently in a picture FIN GER PORT SLO FRA CZ SWE ESP COP 12 Nairobi COP 13 Bali COP 14 Warsaw COP 15 Copenhagen Science 4th AR IPCC Convention Dialogue Follow-Up Convention Dialogue New targets for industrialised countries under the Kyoto Protocol (Art 3.9) Deal on New International Framework Review of Kyoto Protocol (Art 9) Follow-Up Review G20 Gleneagles Plan of Action G8 GER G8 JAP G8 ITA Source: DGENV at Business Europe meeting 7 Key elements Climate Change Targets Climate change and forestry International commitment International carbon markets CO2 ETS emission trading scheme Renewable Energy Policy Energy Efficiency policy The EU FBI stands at the crossroads of these policies 8 4

5 Possible implications Political context Climate change considerations Higher relevance of security of energy supply Implications managing the transition to a low carbon economy Strong international actions to reduce climate change, e.g., CO 2 abatement Strong push for renewable energy sources for power and heat Strong push for energy efficiency Growth of biomass for power and heat production Emergence of biofuels for transportation Business environment driving in the same direction Changing competitive landscape for traditional users of wood and RP 9 New policy framework The EU Commission is now working on the Renewable Energy Framework Directive. This directive will: Translate its 20% target into national targets. Ask member states to make national renewable plans. Define renewable energy again. Introduce cross border trading in renewable certificates. The draft directive still expected January 23rd. The climate package (RES, CO2, ETS) will be finalised under Swedish Presidency in 2009 (!) 10 5

6 The FBI can be a key enabler 11 Our message The Forest based industries are the key enabler for policy makers to meet the ambitious renewable energy targets IF The right policies are put in place. 12 6

7 1. Setting the targets Kyoto commitments March EU Council Bali conference EU CO2 ETS 13 20/20/20 by

8 What does this mean When the EU energy package was published, the working title was a new industrial revolution. This is exactly the case. Further discussions are focusing on a global target of minus 50% by 2050, implying reductions in industrialised countries of 60-80% by This means by then basically all energy in the developed world must be carbon-free. This revolution needs to achieved in the most cost and resource efficient way! 15 How ambitious is ambitious 16 8

9 Principles Objectives for 2020: - 20% GHG reduction - 20% Renewable energy Principles : - Cost-effectiveness - Flexibility / internal market - Fairness / solidarity 17 Climate + Renewable policies are linked To what extent do renewables policies reduce greenhouse gas emissions? To what extent do greenhouse gas emission reduction policies increase the penetration of renewables? To what extent does the achievement of both targets simultaneously have an influence on each other? 18 9

10 Link between GHG and RES Baseline projections Baseline projections Baseline 20% RES projections achieved 20% RES achieved 20% GHG achieved 20% GHG achieved 20% RES and GHG achieved Renewables Renewables share Renewables share 12.9% share 12.9% 12.9% 20.0% 20.0% 14.7% 14.7% 19.9% Compared to Compared to 1990 CO2 emissions Total GHG CO2 from emissions energy Compared to 1990 Total emissions GHG CO2 from emissions energy Total emissions GHG from 4.9% energy emissions -1.4% 4.9% -1.4% 4.9% -1.4% -5.6% -9.0% -5.6% -9.0% -14.6% -14.6% -20.0% -20.0% -16.9% -20.0% Source: DGENV at Business Europe meeting 19 Burden sharing The 20% renewables target now needs to be translated into member state targets, Current DGTren proposal: Renewable sources currently account for 8.5 (?) percent of the 27-nation bloc's energy consumption. All states make an across-the-board increase of 5.75 percentage points, regardless of current national levels of renewables. A further 5.75 percentage point increase would be divided up using a calculation based on GDP. Combined, the two elements would achieve the 11.5 percentage point increase required to meet the 2020 goal. 20% Wealthbased rate 5.75% Flat rate 5.75% Achieved % Source: DGTREN - Reuters 20 10

11 Trading brings flexibility A trading mechanism would be introduced as part of the legislation to enable countries to pay others for producing more renewables to meet those targets. For example Luxembourg, a wealthy country with few domestic renewable energy resources, could buy credits from another country with large amounts of wind production, for example. Trading would be electronic. Member states would be able to buy a credit that represents renewable energy, with a guarantee of origin, produced and consumed in another nation. CEPI: the organisation of the trading is crucial as this determines the real impact! Source: DGTREN - Reuters Supporting developments Subsidies for Renewable Energy Environmental State Aid framework Study on harmonisation of MS support schemes Communication on harmonisation 22 11

12 Support for Renewable Energy In order to meet the targets, member states will continue or introduce support systems for RE. Support can consist of green certificates, tenders, feed-in tariffs or investment subsidies and...the EU CO2 emission trading system. Support is justified by State aid rules if: the cost of production of renewable energy is higher than the cost of production based on conventional sources. if there is no mandatory Community standard concerning the share of energy from renewable sources for individual producers and consumers. 23 Support allowed (proposal) The extra investment costs compared to a conventional power plant, with a maximum of 50%, plus 10% for MSE s and 20% for SME s. Operating aid for the production of renewable energy may be justified in order to cover the difference between the costs of producing energy from RE and the market price. Source: Environmental state aid framework 24 12

13 Current revenues from electricity generated from biomass EUR/MWh Feed-in tariff schemes Austria Germany (<= 150kW) Portugal Netherlands (<= 50MW) Germany (<=500kW) Czech Rep. Germany (<= 5MW) Germany (<=20MW) Ireland Spain France* Average market price for electricity around EUR 50/MWh Market price for electricity Green certificate/premium 2006 Green certificate/premium** schemes Note: Finland follows none of the schemes but has a tax incentive of 7 EUR/MWh * France mainland ** Premiums are applicable for Czech Rep., Spain and Norway. In CR and Spain, producers can choose between selling at a regulated tariff or get a green premium on top of the market price of electricity *** Average for Wallonia and Flanders to represent Belgium Source: EREF; IEA; National sources 25 Italy Belgium*** UK Czech Rep. Spain Poland Sweden Norway Favorable economics are already underlying the focus on biomass 2005 full generation cost in EUR/MWh* Generation CO CCGT costs increase from EUR 55/MWh to EUR 87/MWh as oil price increases from USD 40 to 80/bbl USD 80/bbl USD 40/bbl 22 CO 2 (7) Wind on-shore Wind off-shore Rooftop PV Centralized PV Solar CSP Biomass Small hydro Geothermal Wave Tidal CCGT Note: PV=Photovoltaic cells; CCGT=Combined Cycle Gas Turbine; CSP=Concentrating Solar Power * Includes capital costs, O&M, fuel, and CO2 cost at 20 EUR/ton; best available technology at average location Source: Public data and client workshops; McKinsey analysis based on interviews 26 13

14 Many thoughts on the design FBI has different roles and positions: energy producers and consumers, wood and recovered paper buyers, tax payers and investors. The EU PPI can be both at the paying and at the receiving end, depending on each mill. Crucial issues on future support system design: Power and heat Qualification of black liquor Self use and delivery to the grid Qualification of the biomass share of waste Old and new installations Operating aid or investment aid Efficiency criteria Sustainability criteria 27 But one crucial one Wind, water and solar are for free, for biomass there are other users on a market. The crucial factor on the biomass markets of the future will be the buying power of the bio-energy producers. Markets will settle the key question is to decide on interference in the market support the energy market or support the biomass to come to market. CEPI: supporting biomass mobilisation can be much more effective than support on energy markets enabling all players to compete on a level playing field

15 3. Impact assessment Renewable Energy Roadmap RER impact assessment PRIMES and Green-X models Member State National RE plans Impact Assessment Board Biomass action plans 29 Impact assessment In our study, we have followed the EU assumptions on the Renewable Energy Roadmap impact assessment. We ve then calculated along the so called Green-X model, also used by the Commission. We ve modelled with the EEA studies on sustainable availability of biomass. We ve tried to make a translation from tonnes of oil equivalents to m3 of wood equivalents supply and demand on EU forests. We have modelled a number of scenarios. We ve focused on solutions and an integrated view on policy

16 Impact assessment We ve seen major differences of interpretation with the Renewable Energy Roadmap on land use, heat value and mobilisation - and they still need to be sorted out. But what has become clear is that there will be a major player on the EU raw material markets and that wood mobilisation, waste policy and forest management practices are key issues for the near future. Land use is a key policy area of the future. 31 First acknowledgement The EU council has acknowledged this issue in March: new legislation is needed and should include Criteria and provisions to ensure sustainable production and use of bio-energy and to avoid conflicts between different uses of biomass

17 The 2020 target in more detail % 2005 share Final energy consumption EU-25, 2020, TWh 100% = 15,000 TWh 120% 20% 100% 80% Transportation 3, Heating and cooling 1,105 20% Electricity 1,452 BAU % EU efficiency target Target 2020 Renewables 6% Non-renewables 2020 RES targets in Green-X leastcost scenario Source: Renewable energy road map, Green-X 33 And then translated into RES TWh energy output, EU-25 Electricity Heating and cooling , Other Geothermal Biowaste Tide & wave Biogas Hydro Wind 570 1, Biogas Geothermal Biowaste Solar thermal Heat pumps Solid biomass* (grid) 308 Solid biomass* 533 Solid biomass* (non-grid) 2004 Actual 2020 Green-X least-cost * Both forest and other solid biomass Source: Green-X economic analysis of reaching a 20% share of RES in Actual 2020 Green-X least cost 34 17

18 Study: What does this mean for FBI? Supply factors Demand factors Production of wood products Technical potential and mobilization of forest wood supplies Net imports to Europe Recovered wood and paper Byproducts from wood products production (supply) Production of pulp, paper, and board Production of bio-energy and biofuels 35 The EU estimates translated in wood Estimated energy consumption based on solid biomass CEPI-16, TWh 896 Estimated demand for forest biomass and recovered wood CEPI-16; Million m 3 * 280 ESTIMATES Grid 363 Grid Dedicated Nongrid Nongrid Dedicated 137 Co-firing 66 5 Co-firing 45 Electricity Heat Transportation Electricity Heat * Based on total primary energy input from Green-X report on least cost scenario: 1 million m 3 equals 0.17 Mtoe (2 MWh/m 3 ) Source: Green-X; team analysis 36 18

19 The extreme scenario we should avoid CEPI-16, wood supply and demand; million m 3 (under bark); 2020 Supply Current forest biomass supply Source: McKinsey/Pöyry team analysis Mobilization Net imports Recovered wood Estimated supply Estimated gap 37 Estimated demand Non-traditional demand (energy) Not reality yet but policy expectations need to change Demand ~380 Traditional demand PPI WPI For recovered paper The challenge is equal, although in a different way. The RES targets also put pressure on recovered paper. Today, the ones who can pay to burn recovered paper do not have the technology, the ones who do, cannot afford it. This is a temporary situation though. The challenge will not be that recovered paper is directly burned soon, it s not sorting that is the short term challenge. The co-mingled system is a bad start already. CEPI: Support for renewables, even the directive, should therefore hold a reference to the waste hierarchy! 38 19

20 The solutions are there 1. Secure the assumptions under the EU Energy Roadmap. 2. Bring fiber to the market mobilisation increase supply. 3. Invest in the forests of the future. 4. Secure sustainable solutions And the FBI can be the key enabler Biofuels and land use Common Agricultural Policy (CAP) WTO international trade legislation EU Raw material policy (?) EU Fuel quality directive Fuel chapter in RE Directive 40 20

21 Biofuels The first generation biofuels will come from agricultural materials (maize, rapeseed, etc.). The second generation biofuels will be made from cellulosic material a.o.woody biomass. Second generation lignocellulosic biomass brings opportunities and solutions. When developing biorefinery concepts, the added value from wood can improve therefore increasing our buying power as well. 41 Biofuels: a second challenge coming Experts do not expect second generation biofuels from wood to be fully large scale commercial before Still a race of technologies. As we modelled in the study, the impact on wood markets from biofuels in 2020 will still be limited, but the R&D needs of our sector are there! But raw materials for lignocellulosic woodybiomass will also have to be grown and at this time agriculture only focuses on first generation. Further, we face a potential lock-in for land when only first generation is grown

22 Trade and imports are crucial A key question for the EU is if we want to meet this target on EU territory, or engage in global trade. A vast supply of biofuels is available, outside of the EU. The carbon and financial profile of imports can be better than 1st generation EU fuels. There are however sustainability issues to be covered. The draft directive will include criteria. DG AGRI assessed: if technology is not there in time we will depend on imports for 50% of the target. Also import from wood chips from boreal regions is needed. Import opportunities are indispensable to ease the policy impacts on the wood and biofuel markets in the short term. Russian wood tax and Brazilian imports are key issues. CEPI: We need a raw material and land use policy. 43 Biofuel performance Second generation biofuel Feedstock examples (not exhaustive) Production cost EUR/MWh CO 2 profile** Percent Bio-ethanol Corn (US) Wheat (EU) Sugar beets (EU) Sugarcane (Brazil) Wood* Other lignocellulosic feedstock* Biodiesel Rape seed (EU) Soy bean (US) Syndiesel BTL* (Fischer-Tropsch) ~ * Expected cost in 2020 ** Percentage of CO 2 release for the corresponding fossil fuel (well to wheel) Source: McKinsey; Eucar/Concawe/JRC well-to-wheels study, 2003,

23 Enough land? Assuming yield increases and food market liberalization around 16 million ha of arable land could be available for bioenergy production in 2020 Yield increases in food and fodder production will theoretically free up land for non-food production A further liberalization of world food markets will decrease European high-cost exports, and thus free up land to be used for energy production ~6 ~ Competition between food and energy crops is only considered for land used for export production in France and Germany (still reflects the EU competition effect to a large degree since France and Germany are the main cereal exporting countries) Because of environmental considerations, parts of the released land (e.g., grasslands) will not be turned into arable land dedicated for bioenergy production 3 Land used today Set-aside land not used, fallow land Releases agriculture Land available Green-X land use The reform of the CAP is crucial Sustainability Sustainability criteria in new RE directive EU Fuel quality directive Common Agricultural Policy (CAP) Green Public Procurement policy 46 23

24 The draft RE directive The draft directive will hold sustainability criteria for biofuels- fuels from e.g. deforested land cannot count towards the fuel targets. These criteria are a combination with the criteria in the fuel quality directive. The draft directive might most likely propose to include sustainability criteria for solid biomass only per 2013, as DGTREN stated in an earlier CEPI seminar. This raises however some crucial questions. 47 Strange effects When using a tree for papermaking, green public procurement policy will ask for sustainable forest management and chain of custody certification, in order to be able to sell this product to governments. When the same tree is burned for energy no criteria (and costs) apply. When tropical rainforest is cleared for biofuel production, the biofuels do not qualify as renewable energy source because they are not sustainably produced (following the draft criteria for biofuels). If the fuels or the wood are however used for production of electricity or heat, there are no sustainability criteria and they can be widely used (?!?)

25 Direct and/or indirect criteria Greenhouse has savings benchmark Air, Soil, water standards when producing. Sustainable forest management criteria Sustainable harvest of residues Efficiency criteria for bio-energy production Efficiency criteria for biomass production Efficient use of resources Not distorting the waste hierarchy Following a raw material hierarchy Research and development Strategic Energy Technology Plan European Technology Institute Lead Market for bio-products (The bio-based knowledge economy) 7th Framework programme Joint Technology initiatives Forest Based Sector Technology Platform Biofuels Platform 50 25

26 Future possibilities for PPI Future break-though technologies can further strengthen the role of the PPI/FBI as key enabler. For the second generation biofuels the race for technology is still ongoing. Biorefineries are a key word in R&D producing biofuels, biochemicals, bio-paper. Black liquor gasification technology still needs to jump from pilot/demonstration to full scale. Waste gasification is picking up as a development as well which would allow for full service concepts to local municipalities in a combination of recycling and incineration. 51 The political choices are taken now The EU has just published the SET plan: with the aim to bring the next generation of renewable energy technologies to market competitiveness. introducing the Bio-energy Europe initiative- focus on the next generation biofuels within the context of an overall bio-energy use strategy. The European Institute of Technology is put in place. The 7th framework programme is initiating several calls right now, focusing a.o. on biorefineries. The Forest based sector Technology Platform and Biofuel technology platform are both functioning well in delivering the content to these developments

27 From pilot to plant Most of the breakthrough technologies seem to need years to become fully operational. The key question is how to jump from small scale pilot to full scale demonstration plant. Government (EU and MS) can play a crucial role here, as can new structures and innovative approaches in public private partnerships. 53 Integrated policy - recommendations 54 27

28 Enable the enabler As said the EU PPI can be a key enabler to meet bio-energy targets when the right policies are put in place. The right policies in this case means integrated policies with the many policy areas discussed today. With the policy impacts properly assessed. 55 CEPI recommendations When drafting the Renewable Energy Directive 1. An efficiency principle for using resources and producing energy. 2. A clear position on subsidy/incentive schemes 3. A goal of cost-effectiveness 4. A wide definition of Renewable Energy 5. A prior feasibility assessment and proportionality principle 6. Clear sustainability criteria and provisions

29 In summary Criteria and provisions to ensure sustainable production and use of bio-energy and to avoid conflicts between different uses of biomass. Integrated policy without unnecessary barriers that make meeting the targets even harder. The time and possibility to adapt to these crucial developments Support to enable the FBI to be the key enabler