Curbing Climate Change by Global Trade an outline from Vattenfall Low stabilisation Scenarios Strategies, Technologies and Costs Joint Workshop of PIK and FEEM Potsdam 16-17 March 2006 Göran Svensson Vice President Vattenfall AB
The Vattenfall Group 2004 Net sales Electricity Heat M TWh TWh Nordic 4,365 88 8 Germany 7,226 76 16 Poland Total 812 3 11 12,403 167 35 Hydro Nuclear Fossil Heat 2
Vattenfall s approach to Climate Change Industrial initiatives for global actions World Economic Forum, Global Round Table for Climate Change, Alliance for Global Sustainability etc. Improvements in existing plants and systems Upgrading hydro and nuclear, upgrading district heating systems, co-combustion, waste R&D and investments for long term sustainable solutions Bio energy, off-shore wind, system operation R&D on low or zero CO 2 emitting technologies for fossil fuels Increased efficiency, CO 2 capture and storage 3
Carbon dioxide scenarios and effects on the global average temperature 4
Real long-term global governance is needed to combat CO 2 Vattenfall has proposed a global scheme covering: An outline of an adaptive global burden-sharing model The need for a global price on carbon dioxide emissions and how markets can contribute Aspects on implementation of a global market-based regime regarding carbon dioxide? 5
Overriding principles of the proposed emission allocation model (1): All countries should participate participation is a part of being a member of the global community No poor country shall be denied their right to economic development No rich country shall have to go through disruptive change Richer countries pull a larger weight (emission caps do not embrace countries until they have reached a certain economic level; poorer countries with caps get higher allocations compared to richer countries) There shall be a level playing field. The proposed framework shall aim at minimising changes in relative competitiveness 6
Overriding principles of the proposed emission allocation model (2): The system shall be robust. As new knowledge is accumulated parameters may change, but not the principles underlying the system Emission caps should be binding Emission allowances are allocated to each country in relation to its share of GGP (Gross Global Product) The final allocation to individual companies or facilities will be made at the national level The mechanism should be able to achieve wide acceptance as being fair and balanced 7
Allocation mechanism Global target cap of 550-ppm CO 2 -equivalent Deduction of emissions from developing countries that do not face any emission restrictions Remaining room for emissions is divided between all countries facing restrictions according to their share of the total global GDP Mechanisms adjusting minimum and maximum reduction 8
Two scenarios Early-peak Global emissions from fuel combustion are allowed to increase until 2025, thereafter gradually decrease towards the long-term target of 12,000 Mt CO 2 in the year 2100 Late-peak Global emissions from fuel combustion are allowed to increase until 2040, thereafter gradually decrease towards the long-term target of 8,000 Mt CO 2 in the year 2100. Countries that face restrictions get higher allocation up until 2060 compared to the early-peak scenario. 9
Emission path scenarios, % change relative to 2002 Global emission path: Change relative 2002 40,00 % 20,00 % Global increase relative 2002 peak 2025 Global increase relative 2002 peak 2040 0,00 % 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 % -20,00 % -40,00 % Early peak -60,00 % -80,00 % Late peak 10
Results Early-peak scenario Developing countries are allowed to increase their emissions in the beginning For the USA, the imposed restriction on the maximum speed of emission reductions allows relatively high level of emissions for a period while others (such as Sweden) are forced to reduce due to demanded minimum reductions In the model the emissions per GDP unit converges for all countries in the long run. 11
Results Early-peak scenario Allocation of emissions Mton CO 2 35 000 CO 2 Emissions from fuel combustion Emission peak 2025 35 000 30 000 25 000 30 000 25 000 China (Peopls rep+hong Kong) Asia Latin America 20 000 20 000 Former USSR 15 000 15 000 Non-OECD Europé Middle East 10 000 10 000 Africa OECD Pacific 5 000 0 Actual Actual 5 000 0 OECD North America OECD Europé World (cap) 19902002201520202025203020352040204520502055206020652070207520802085209020952100 12
Results Late-peak scenario USA hardly affected at all, compared to early-peak - restriction on the speed of adjustment protects USA from too drastic reductions in the first half of the period the speed of adjustment towards lower emissions will primarily be handled through the restriction on the maximum speed of adjustment rather the increasing the global cap and letting emissions grow for a longer period of time for real high emitters Substantial shift in reduction requirements for some developing countries i.e. China, India and Brazil will be allowed to continue with relatively high emissions for a longer period of time, but larger reductions in the future Fast growing developing countries and newly industrialised countries seems to gain most from the latepeak. 13
Regional allocation of emissions late-peak Mton CO 2 35 35 000 CO2 Emissions from fuel combustion Emission peak 2040 35 000 30 30 000 25 25 000 30 000 25 000 China (People's rep+hong Kong) Asia Latin America Mt CO2 20 20 000 15 15 000 20 000 15 000 Former USSR Non-OECD Europe Middle East 10 10 000 10 000 Africa OECD Pacific 5 000 5 5 000 OECD North America OECD Europe 0 Actual Actual 0 World (cap) 1990 2002 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090 2095 2100 Actual Actual 19902002201520202025203020352040204520502055206020652070207520802085209020952100 14
Results late-peak vs early-peak, Accumulated emissions Countries Accumulated emissions in early peak scenario Accumulated emissions in late peak scenario "Gain" from late peak % "gain" China 348 056 363 552 15 495 4,5 % Tanzania 3 432 2 963-469 -13,7 % Iran 25 104 26 295 1 191 4,7 % Brazil 67 657 70 855 3 198 4,7 % South Africa 17 747 18 577 830 4,7 % India 194 612 203 753 9 142 4,7 % Poland 10 526 10 449-77 -0,7 % USA 170 582 166 271-4 311-2,5 % Sweden 2 590 2 489-101 -3,9 % Korea 15 673 16 862 1 189 7,6 % Mexico 25 386 26 879 1 493 5,9 % Total above 881 365 908 946 27 581 3,1 % 15
Evaluation of policy instruments Environmental effectiveness: How effective is the program in meeting its emissions reduction target? Cost-effectiveness: Will the program design permit costeffective compliance? Administrative feasibility: Can the program be administered effectively? Distributional equity: Are the burdens shared in a fair way? Political acceptability: Will the program be politically acceptable? 16
Climate change an international problem demanding international solutions Curbing greenhouse gas emissions seems to be particularly well suited for emissions trading. The locations of the emissions are unimportant and an international trading system is therefore possible from an environmental point of view. The opportunities for cost savings are furthermore greater when the abatement costs differ more. There are strong reasons for believing that the costs of reducing greenhouse gas emissions vary widely among sources (and countries) and the cost savings will thus be larger the wider the trading scheme is. International trade can thus provide the flexibility needed to achieve the lowest-cost abatement options. This is a very important argument in favour of forming a common system. 17
Transatlantic dialogue needed On the political level, Europe and USA have diverged. This is not a sustainable situation and there is great need for a transatlantic dialogue. This responsibility lies primarily on the political system, but the business community has a vital role to play in contributing to such a dialogue. All company executives, but primarily those on either side of the Atlantic, must commit themselves to working for a global emissions trading system. Industry should unite to facilitate joint political leadership, first of all from Europe and USA, on this issue. 18
Climate Change - What must be done? A solution will only be found step by step and will thus take time Economic policy instruments are necessary aiming at cost effectiveness and fairness We need a correct price on emissions on the global scale A global emissions trading systems looks most favourable Increased R&D and with stronger focus will be needed Vattenfall is taking a leading role within industry in the international dialogue 19
Thank you for your attention 20