Emission trading and Energy Systems Integration effects

Transcription

1 Emission trading and Energy Systems Integration effects Erik Delarue KU Leuven, Belgium Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 2 1

2 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 3 CO 2 emissions and climate change 4 2

3 CO 2 emissions and climate change 5 CO 2 emissions and climate change IPCC AR5 The physical science basis, SPM 6 3

4 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 7 International agreement? United Nations Framework Convention on Climate Change: UNFCCC Agreed at Earth Summit in Rio De Janeiro in 1992 Follow-up meetings: Conference of Parties to fill in the details COPs COP Nr 3, Dec 1997 Kyoto 8 4

5 International agreement? COP #3 December 1997 o Initialed in Kyoto o Later signed in New York o But to be valid; must be ratified by parliaments! o Entered into force on February 16, 2005 (55 & 55%) w/o the USA, since never submitted to Congress, and hence not ratified! Withdrawal of Canada in 2012 But including Russian Federation 9 International agreement? Copenhagen 2009 o Hype - Extraordinary expectations o High hopes EU from 20% to 30% EU push for binding targets for US and China US president Obama Clinton did not ratify Kyoto protocol! 10 5

6 International agreement? Copenhagen Accord o US and China, Brazil, India and South Africa Europe and conference could only take note o Ambition to limit global warming to 2 C o Countries could submit emission reduction pledges not binding Copenhagen has not lived up to the promises o Only intentional declaration to keep T at max 2 C above pre-industrial levels 11 International agreement? Durban 2011 o Again EU push for binding targets US and China could hide behind each other o Japan (Fukushima), Canada (unconventional oil and gas) and Russia (new reserves in Arctic due to warming) less willing participants o Increasingly just EU venture o Agreement to keep trying to reach an agreement No target for emissions, but target for reaching an agreement To be achieved in 2015, apply from

7 International agreement? Conference of the parties o COP15, Copenhagen, 2009 o COP16, Cancun, 2010 o COP17, Durban, 2011 o COP18, Doha, 2012 o COP19, Warsaw, 2013 o COP20, Lima, 2014 o COP21, Paris, International agreement? International agreement? o Hopes not translated in happy outcome o Path to what seems like endless summits where NGOs gather with government ministers and make profound statements, but typically achieve little relative to the scale of the challenge o Prisoner s dilemma, tragedy of the commons, free-riding Sub-optimal outcome if pursuing self-interest US and China Impact varies considerably Some might gain, e.g., Russia, access to oil and gas in Arctic 14 7

8 International agreement? US and China o Deal in November International agreement? "No challenge poses a greater threat to future generations than climate change" US President Barack Obama in his State of the Union speech January 21, 2015 His statement was met with scattered, muted applause 16 8

9 International agreement? 17 International agreement? 18 9

10 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 19 Current EU energy policy o Energy Sector o targets by 2020 RES targets 20 10

11 Current EU energy policy Energy Sector Electric power sector o The electricity generated by power plants and consumed at home, office, industry, etc. Heating & cooling o Heating our houses, hot water, heat for industry, etc. Transport o Passenger vehicles, freight transport, aviation, trains, navigation, etc. 21 Current EU energy policy Energy Sector Overall EU Energy Source: o EU-28 inland consumption primary sources EC, 2014 Total: 1682 Mtoe (2012) 22 11

12 Current EU energy policy EU targets by % -20% 100% +20% 8,5% Reduction of 23 Energy consumption, Share of renewable greenhouse gases Efficiency increase 23 energy Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 24 12

13 To limit temperature increase to 2 C above pre-industrial level EU should decrease by 30% in 2020 But Because of Copenhagen, EU sticks to -20% 25 EU: Clean A shared Energy effort between Climate sectors Change and MS GHG Target: -20% compared to % compared to % compared to 2005 Non ETS sectors -10% compared to Member State targets, stretching from -20% to +20% 26 13

14 -20% GHG wrt 1990 = -14% GHG wrt 2005 Emission Trading Scheme (ETS) -21% GHG compared to 2005 ~45% GHG, ~50% CO 2 one EU-wide system for heavy industries o power and heat sector o energy intensive industrial sectors o aviation (from 2012, within ETS) cap-and-trade system Effort Sharing Decision -10% GHG compared to 2005 ~55% GHG, ~50% CO 2 Member State targets for small emitters 27 As of January 1st 2005, EU has started EU Emission Trading Scheme () For each ton of CO 2 emission, allowance must be submitted o Can be traded on a market So-called Cap and Trade system: Amounts emitted limited but price varies CO 2 tax fixes price, but emissions unknown Not between countries but between companies! 28 14

15 1. The emitter must submit a EU emission allowance (EUA) for each ton CO The EU sets a cap on the GHG emissions within the. 3. Emitters trade emissions allowances on the market. Marginal CO 2 abatement cost [ /tco 2 ] Price Cap CO 2 abatement [tco 2 /year] 29 Total amount to be reduced by the sum of both countries 30 15

16 MAC Player A MAC Player B [ /ton] [ /ton] Reduction [ton] Reduction [ton] 31 Cap decreases each year by 1.74% of the average total quantity of allowances issued annually in o To reach 21% reduction in 2020 compared to 2005 levels 32 16

17 Sector covered responsible for 45% GHG emissions EU o Power and heat sector o Energy intensive industrial sectors Oil refineries, steel works and production of iron, aluminum, metals, cement, lime, glass, ceramics, pulp, paper, cardboard, acids and bulk organic chemicals o Aviation (from 2012, within countries) > heavy energy-using installations Installations > 25 MW CO 2, N 2 O and perfluorocarbons (PFCs) EU 28 plus Iceland, Liechtenstein and Norway 33 Different Phases o o First Phase = test/pilot phase Second Phase = Kyoto period o Third Phase o Fourth period Banking o o o Transferring allowances from one period to the next Not allowed in first period Allowed as from second period Borrowing o o Using future allowances to cover current emissions Only borrowing from the next year is possible 34 17

18 Allocation of allowances ( 2012) o Allocation through National Allocation Plans (NAPs) o Grandfathering, i.e., distributed for free Allocation of allowances ( 2013) o General rule for power sector is auctioning, exceptions for East European MS until 2019 o Energy intensive industry major share grandfathered (80% in 2013), moving to more auctioning (70% in 2020) o > 40% auctioned as from 2013, full implementation by Cost pass through? o Allowances have opportunity cost, i.e., cost of not selling them on the market at the market price o CO 2 price is (should be) taken into account in (dispatch) decisions o Cost pass-through to consumers In power sector 36 18

19 International credits System Emission Trading Scheme (ETS) Clean Development Mechanisms (CDM) Joint Implementation (JI) Emission permit European Union allowances (EUA) Certified Emission Reductions (CER) Emission Reduction Units (ERU) European Union Kyoto Protocol Kyoto Protocol o o o CER and ERU can also be used to cover portion of ETS emissions Significant share allowed in period (~50% of envisaged reduction) After 2020, focus on domestic reduction 37 Carbon leakage o Transferring production to other countries with less stringent (or no) constraints on greenhouse gas emissions For reasons of costs related to EU climate policies o Official list every five years 38 19

20 price - First Phase ( ) 39 price Second Phase ( ) 40 20

21 price Second and Third 41 price Third Phase (2013 till early 2015) 42 21

22 considered as main instrument to reduce CO 2 emissions Cap respected, but price too low to serve as incentive for low-carbon investment Low prices because of o Economic recession o Inflow of international credits o Separate policies E.g., RES targets o Banking

23 Reform options Reform plans Increase demand for allowances 1. Backloading: o Extend scope of ETS to other sectors temporary withdrawal of number of allowances in the short term Decrease supply for allowances (phase 3) o Increase EU target to 30% in 2020 o Retire number of allowances 2. Market stability reserve: quantity management to stabilize o Revise linear reduction factor ETS price in the long term (phase o Limit access to international credits 4) Discretionary price management Discretionary quantity management 45 Back-loading in third phase o Short-term, temporal measure ( ) o Final approval December Allowances withdrawn (Mio EUAs) Yearly Cumulative 46 23

24 Historical and projected future profile of supply and demand up to Historical and projected future profile of supply and demand up to 2028 with back-loading 48 24

25 Market stability reserve in phase 4 o Long term, structural measure (as of 2021 or 2019?) o Legislation proposed by Commission, to be approved by Parliament and Council ETS Allowances used Allowances surplus Stability reserve 49 Abatement options o In industry Different processes Using different fuels Energy efficiency Reducing output? Carbon Capture and storage? 50 25

26 Abatement options o In electricity sector Conventional portfolio Residual load Generation costs Fuel mix, age, technical parameters, etc. Might change in the long term (years) Electricity demand minus renewables generation Might change in the medium term (months) Marginal generation costs of conventional units Might change in the short term (days) 51 Conventional portfolio Residual load Generation costs General influences/policies Cost, legislation, etc. Economic growth/ downturn, energy efficiency, electrification, RES obligation, etc. Fuel prices. Changes levelized cost Electricity price increase, Marginal costs and CO 2 cost of electricity, making lowcarbon technology more interesting reducing demand, renewables investments ranking in merit order 52 26

27 53 CO 2 price where MC coal = MC gas is switch price FC FC c g g c ACs EC EC g c c g Dependent on power plant efficiencies, fuel prices and carbon content of fuels 54 27

28 Impact of renewables 0 /ton 15 /ton 55 Impact of gas price 0 /ton 20 /ton E.g., shale gas in the US 56 28

29 CO 2 emissions in Germany o 7 NPPs closed More import nuclear from France More old coal & lignite plants operating o Influence USA on DE shale gas very cheap gas pushes coal out of merit order coal prices down In DE, coal cheaper than gas... o Renewables counteract But CO 2 emissions in EU will not rise o Cap in ETS system o Impact on ETS price

30 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 59 Renewables 20 % target for the overall share of energy from renewable sources o 10 % target for energy from renewable sources in transport Renewable energy obligation: o Not potential related! o Based on flat amount of 5.5%, and amount ~ GDP of MS o Correction for early starters o No EU-wide support scheme only possibility for selling/buying at the end on a MS level 60 30

31 Renewables BE 2.2% BG 9.4% CZ(*) 5% DK(*) 15.4% DE 5.8% EE(*) 17.1% IE 3.1% EL 6.9% ES 8.7% FR 10.3% IT 5.2% CY 2.9% LV LT 15% LU 0.9% HU 4.3% MT 0% NL 2.4% AT 23.3% PL 7.2% PT 20.5% RO(*) 16.5% SI 16% SK 6.7% FI SE(*) UK 1.3% 28.5% 34.9% 38.9% RES share in Renewables BE 2.2% 5.5% BG 9.4% 5.5% CZ(*) 5% 5.5% DK(*) 15.4% 5.5% DE 5.8% 5.5% RES share in 2005 EE(*) 17.1% 5.5% IE 3.1% 5.5% EL 6.9% 5.5% Flat rate ES 8.7% 5.5% increase of 5.5% FR 10.3% 5.5% IT 5.2% 5.5% CY 2.9% 5.5% LV 34.9% 5.5% LT 15% 5.5% LU 5.5% 0.9 HU 4.3% 5.5% MT 0% 5.5% NL 2.4% 5.5% AT 23.3% 5.5% PL 7.2% 5.5% PT 20.5% 5.5% RO(*) 16.5% 5.5% SI 16% 5.5% SK 6.7% 5.5% FI 28.5% 5.5% SE(*) UK % 38.9% 5.5% (*) Figure adjusted by early starter bonus 62 31

32 Renewables BE 2.2% 5.5% 5.3% BG 9.4% 5.5% 1.1% CZ 6.1% 5.5% 2.6% DK 17.0% 5.5% 9.1% DE 5.8% 5.5% 6.7% RES share in 2005 EE 18% 5.5% 2.4% IE 3.1% 5.5% 7.4% EL 6.9% 5.5% 5.6% Flat rate ES 8.7% 5.5% 5.8% increase of 5.5% FR 10.3% 5.5% 7.2% IT 5.2% 5.5% 6.3% Additional effort CY 2.9% 5.5% 4.6% based on GDP LV 34.9% 5.5% 1.6% per capita LT 15% 5.5% 2.5% LU 0.9% 5.5% 4.6% HU 4.3% 5.5% 3.2% MT 0% 5.5% 4.5% NL 2.4% 5.5% 6.1% AT 23.3% 5.5% 5.2% PL 7.2% 5.5% 2.3% PT 20.5% 5.5% 5% RO 17.8% 5.5% 2% SI 16% 5.5% 3.5% SK 6.7% 5.5% 1.8 % FI 28.5% 5.5% 4% SE 39.8% 5.5% 5.6% UK 1.3% 5.5% 8.2% 63 Renewables BE 2.2% 5.5% 5.3% BG 9.4% 5.5% 1.1% CZ 6.1% 5.5% % DK 17.0% 5.5% 7.5% 9.1% DE 5.8% 5.5% 6.7% RES share in 2005 EE 18% 5.5% % IE 3.1% 5.5% 7.4% EL 6.9% 5.5% 5.6% Flat rate ES 8.7% 5.5% 5.8% increase of 5.5% FR 10.3% 5.5% 7.2% IT 5.2% 5.5% 6.3% Additional effort CY 2.9% 5.5% 4.6% based on GDP LV 34.9% 5.5% 1.6% per capita LT 15% 5.5% 2.5% LU HU 0.9% 4.3% 5.5% 4.6% 5.5% 3.2% MT 0% 5.5% 4.5% NL 2.4% 5.5% 6.1% AT 23.3% 5.5% 5.2% PL 7.2% 5.5% 2.3% PT 20.5% 5.5% 5% RO 17.8% 5.5% 0.7 2% SI 16% 5.5% 3.5% SK 6.7% 5.5% 1.8 % FI 28.5% 5.5% 4% SE 39.8% 5.5% 5.6% 4.7% UK 1.3% 5.5% 8.2% Figures adjusted by early starter bonus and cap 64 32

33 Renewables BE BG CZ DK DE EE IE EL ES FR IT CY LV LT LU HU MT NL AT PL PT RO SI SK FI SE UK 13% 16% 13% 18% 16% 18% 20% 17% 13% 11% 13% 10% 14% 15% 14% 15% 25% 23% 23% 24% 25% 30% 31% 34% 38% 42% 49% RES share in Renewables 20% RES in energy consumption o Transport Specific 10% target o Heating & cooling o Electricity Member States have developed National renewable energy action plans (NREAP) No uniform EU-wide approach o Member States are free to chose adequate support systems to reach targets 66 33

34 Renewables Options in transport and heating & cooling limited o Bio energy o Solar thermal ~ 33 % renewable electric energy o Because of low load factor, high level of installed capacity required Often serious over production / too much electricity o Highly intermittent & non-controllable / need thermal plant back up! Thermal plants must balance very quickly 67 Renewables RES in electricity sector Several support mechanisms o Quantity based instruments Quota system Green certificates o Price based instruments Premium, feed-in tariff o Hybrid approaches o Tax incentives o 68 34

35 Renewables Source: EWEA, 2014 EU situation, Installed capacity 69 Renewables Source: EC,

36 Renewables Source: EWEA, 2014 New capacity in EU 71 Renewables Source: EWEA,

37 Renewables Source: EWEA, 2013 Fraction of energy consumption (2012) 73 Renewables Source: EC,

38 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 75 EU implementation & vision Europe s Energy and Climate goals for 2030 Key elements of the 2030 policy framework set out by the EC o A binding greenhouse gas reduction target o An EU-wide (binding?) renewable energy target o Energy efficiency (non-binding) o Reform of o Indicators for competitive, affordable and secure energy provision o New governance system 76 38

39 EU implementation & vision Europe s Energy and Climate goals for 2030 Why climate and energy framework up to 2030? o Longer term 2050 o Economic and financial crisis o Security of EU energy supplies o Predictability and reduced regulatory risk o Paris EU implementation & vision Europe s Energy and Climate goals for 2030 Current status and outlook 2020 o 18% GHG reduction between 1990 and 2012 On track to meet 2020 goal of 20% ETS sectors -21% compared to 2005 Non ETS sector have MS specific level Aggregated about -10% compared to

40 EU implementation & vision Europe s Energy and Climate goals for 2030 A binding greenhouse gas reduction target o 40% emissions reduction below the 1990 level o Domestic measures alone No more import from international credits after 2020 o o sectors Annual reduction in the cap on emissions increased from 1.74% now to 2.2% after 2020 Non-ETS sectors These emissions would need to be cut by 30% below the 2005 level 79 EU implementation & vision Europe s Energy and Climate goals for 2030 Reform of o Establish a market stability reserve at beginning of the next ETS trading period in 2021 In addition to current backloading Reserve would operate entirely according to pre-defined rules 80 40

41 EU implementation & vision Europe s Energy and Climate goals for 2030 Market Stability Reserve (MSR) Source: Point Carbon 81 EU implementation & vision Europe s Energy and Climate goals for 2030 Current status and outlook 2020 o For RES, interim targets met, but more effort required to achieve 2020 goal of 20% In 2014, ~14% of gross final energy consumption from RES (compared to 8.5% in 2005) About 23% in electricity sector (2014) 82 41

42 EU implementation & vision Europe s Energy and Climate goals for 2030 An EU-wide (binding?) renewable energy target RES to play a key role in the transition towards a competitive, secure and sustainable energy system More market-oriented approach EU-wide binding target for renewable energy of at least 27% in 2030 In electricity sector a share of RES of at least 45% in 2030 (23% today) 83 Overview CO 2 emissions and climate change International agreement? Current EU Policies o o Targets for renewables EU policies towards 2030 Reflections 84 42

43 EU implementation & vision Reflections Issues o EU CO 2 emissions OK because of De-industrialization services society & to cheaper countries carbon leakage Often less efficient + transport more carbon! Economic crisis (cfr Kyoto period ) o Carbon production versus carbon consumption o Global CO 2 emissions have gone up tremendously 85 EU implementation & vision Reflections Options? o Stable, sufficiently high carbon price Carbon tax (+border tax)? o Gas as transitional fuel? Shale gas? Avoid coal? o Subsidizing (expensive) renewables? Picking winners is typically not good idea 86 43