EU-ETS: Analysis of dangers WARSAW, 9 December 2008
Primum non nocere Muir Glacier, Alaska August 1941 August 2004 NSIDC/WDC for Glaciology, Boulder, compiler. 2002, updated 2006. Online glacier photograph database. Boulder, CO: National Snow and Ice Data Center. 2/35 INSTITUTE FOR SUSTAINABLE DEVELOPMENT
Presentation plan Good news Bad news Appeal to the Parliament and the Senate Our proposals The same target four times cheaper! Why not? 3/41
Good news Problems presented by Poland have eventually been noticed Tools proposed by Poland have been partially accepted; At last a dialogue has been started; 09-12-2008 4/41
Bad news The French Presidency does not want system solutions but prefers derogations; The French Presidency does not want stable and secure solutions but prefers comitology; The price of 39 /tco 2 is defined in fixed prices for 2005; We are treated as a troublesome exception; 09-12-2008 5/41
20% RES, 2% EE increase 0.69% 100% 80% 60% 40% 20% 0% Proposal of the French Presidency 26,9% 35,0% 43,2% 51,6% 60,2% 57,5% 68,9% 77,9% 100,0% 73,1% 65,0% 56,8% 48,4% 39,8% 42,5% 31,1% 22,1% 2013 2014 2015 2016 2017 2018 2019 2020 average benchmark auctioning 16,5 /MWh 164 TWh 2,7 G increase 0.69% 100% 80% 60% 40% 20% 0% Proposal of Green Effort Group 25% 25% 25% 25% 25% 25% 25% 25% 25% 75% 75% 75% 75% 75% 75% 75% 75% 75% 2013 2014 2015 2016 2017 2018 2019 2020 average benchmark auctioning 7,3 /MWh 164 TWh 09-12-2008 6/41 1,2 G
20% OZE 2% EE 100% Proposal of the French Presidency 16,5 /MWh increase 0.69% 80% 60% 40% 20% 0% 26,9% 35,0% 43,2% 51,6% 60,2% 57,5% 68,9% 77,9% 100,0% 73,1% 65,0% 56,8% 48,4% 39,8% 42,5% 31,1% 22,1% 2013 2014 2015 2016 2017 2018 2019 2020 average benchmark auctioning 164 TWh 2,7 G increase 3.29% 100% 80% 60% 40% 20% 0% Proposal of the Presidency, IW 44,02% 51,48% 58,71% 65,71% 72,50% 79,08% 85,46% 100,00% 55,98% 48,52% 41,29% 34,29% 27,50% 20,92% 14,54% 29,76% 18,4 /MWh 256 TWh 09-12-2008 7/41 70,24% 2013 2014 2015 2016 2017 2018 2019 2020 average benchmark auctioning 4,7 G
The Green Effort Group Four largest energy groups PGE, Tauron, Enea and Energa Two industrial coalitions - CO 2 Forum, and - Electricity and Gas Users Forum Together we represent: 65% production, 30% national energy consumption, 65% national CO 2 emissions, 82% Polish ETS installations. FORUM CO2 FORUM 3E 04.09.2008 8/35 8/15
Our aim? The aim of GEG is to promote the rule of environmental solidarity which is cost-effective, sustainable development based on the idea of European solidarity (i.e. effort sharing proportionally to the degree of economic development and to-date achievements in emission reduction). 100% results 25% costs 09.12.2008 9/41
GEG answer what is missing Benchmarking system cost minimisation Safety valve price tempering Fair access pro rata IPO-like mechanism Fair competition auction rings Prevention of speculation permits for producers, SWFs blocking Cost optimisation domestic offset Base year 2005 1990 Gradual introduction of the solution power sector is an industry too 10/41
Dangers 09-12-2008 11/41
100 90 80 70 60 50 40 30 20 10 0 09.12.2008 Carbonisation of the European power sector 12/41 Estonia Poland Greece Czech Republic Germany Denmark Bulgaria Romania Slovenia United Kingdom Portugal Ireland Spain Finland Hungary Netherlands Slovakia Italy Austria Belgium France Sweden Cyprus Latvia Lithuania Luxembourg Malta Other fuels Renewables Fuel mix (%) Nuclear Natural Gas Oil Coal or Lignite source: Eurostat 2006
1,1 0,9 0,8 0,7 0,7 0,7 0,6 0,6 Sector specific emission 2005 (t CO2 / MWh) Marginal price 0,5 0,5 0,5 0,5 0,5 0,5 0,5 0,4 0,4 0,4 0,3 0,3 Average EU-12: 0,65 Average EU-27: 0,41 Average EU-15: 0,37 0,2 0,2 0,2 0,1 0,1 0,1 0,0 13/41 E s to n ia P o la n d G re e c e C z e c h R e p u b lic C y p ru s M a lta Ire la n d D e n m a rk G e rm a n y R o m a n ia B u lg a ria N e th e rla n d s P o rtu g a l U n ite d K in g d o m Ita ly H u n g a ry S p a in S lo v e n ia L u x e m b o u rg F in la n d S lo v a k ia B e lg iu m A u s tria L a tv ia L ith u a n ia F ra n c e S w e d e n
EU-ETS expected results: 1 Efficiently and Cheaply - EU-27, EU-12, Poland The case of UK-China trade? 11% reduction for 19% increase The case of Polish redistribution Cost equal to 50-150% PIT increase Increased costs for households from 10% to 16% electricity costs CO 2 price: EU-27, EU-12, Poland 39 or 69 or 118 /tco 2? Reports by Deutsche Bank, Fortis Bank, Societe Generale, Carbon Trust no answer from EC 09.12.2008 14/41
EU-ETS expected results: 2 European energy security The case of eastern SWF funds Russian Stabilisation Fund - over 181 billion $ 01.01 2008 3.2 billion tco 2! Gazprom UK presents combined offer e.g. gas + permits, coal + permits. Social and political problems in Poland 500 thousand unemployed Emigration Polish economy s deficit in 2013: 2.3 billion 09.12.2008 15/41
Different points of view Assumptions &Forecasts Commission GEG Planned GDP average 3,7% high 5% Emission cost average 39 high 118 Energy cost Marginal Price low 10-22% high duży 300% 117% Results Commission GEG Economic impact + 4 billion - 2,3 billion Social problem none big Political problem none big 04.09.2008 16/35 16/15
Total annual cost per capita 1000 900 800 700 /(cap*a) 600 500 400 300 200 EU 27 EU 27 EU 27 100 0 lt se lv fr sk ro hu at be pt it eu eu 15 27 sl es eu eu bg nl lu uk mt ie pl cy de gr dk fi cz ee 25 12 39 /tco2 EC 69 /tco2 DB 118 /tco2 GEG 17/41
A2 Price increase for industry 0,160 0,140 0,120 0,100 0,080 0,060 0,040 0,020 /kwh 90,0% 80,0% 70,0% 60,0% 50,0% 40,0% 30,0% 20,0% 10,0% 0,000 se fr it be sk au lv lu eu 15 it eu 25 eu 27 es sl ie hu cy nl pt uk fi de ro dk cz mt eu 12 bg gr pl ee 0,0% end price base price CO2 cost increase % 09.12.2008 18/41
A3 Electricity price forecast 180,0 160,0 140,0 120,0 100,0 80,0 60,0 40,0 20,0 0,0 /tco2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 /MWH 09.12.2008 19/41 118 69 39 0
3x20 Package: success factors Fair effort division among Member States (a concept of Stockholm Environment Institute); Lack of success in EU-12 means failure in EU-27 and loss of global success; Intensive carbon leakage will destroy the Policy outer (outside the EU) and inner (to low, distributed and household emissions) 09.12.2008 20/41
Rules 09-12-2008 21/41
CO 2 dilemma environment resources economy society protection development Is there an answer? Protection or development? 09.12.2008 22/41
Environment - Resources Save resources resource depletion Save earth global warming and other emission-related dangers (IPPC) Save human kind adaptation to CC Save civilisation taking into account development of new entrants 23/41
Economy - Society Carbon leakage explain to investors Job leakage explain to trade unions Welfare leakage explain to voters Allowances leakage explain to the economy 24/41
CO 2 dilemma environment resources economy society protection development The answer is simple: 09.12.2008 Development of protection and Protection of development 25/41
European rules: I We hope that the above dangers and possibilities will lead us to pursuing the targets under a new EU ETS which will be fully harmonised with fundamental rules of the European Union and sustainable development. 09.12.2008 26/41
European rules: II Effectiveness necessity to achieve the reduction target not only in Europe but also throughout the world; Efficiency necessity to achieve the target at the lowest possible cost, particularly energy cost, in order not to strangle the competitiveness of the European economy; 09.12.2008 27/41
European rules: III Justice necessity to observe the fundamental rule of the European Union: effort sharing in commonly undertaken activities, in accordance with strengths and abilities of Member States economies; Flexibility the reductions should take place where they are most effective; thus, emission transfer from non-ets sector to ETS sector should be allowed (ERU-like credits JI-type mechanism - domestic offset) 09.12.2008 28/41
Proposals 09-12-2008 29/41
Green Effort Group proposals: 1 Product fuel-dependent benchmark supplemented by auctioning of CO 2 emission permits based on actual production elimination of windfall profit; Pro rata (not pro pecunia) allocation of EUAs proportional reduction of offers, similar to reductions during IPOs promotion of more efficient rather than richer participants); Introduction of the flexibility mechanism domestic offset transfer of permits from non-ets sector to ETS sector as a method of minimising CO 2 costs improved energy efficiency of the EU 09.12.2008 30/41
A4 Auctioning kgco 2 /MWh 950 Marginal price 750 550 350 150 coal oil gas reference level auction surplus 09.12.2008 31/41
A4 Fuel-dependent benchmark kgco 2 /MWh 950 750 Marginal price 550 350 150 coal oil gas benchmark auction surplus 09.12.2008 32/41
Green Effort Group proposals: 2 Access to the auctions limited only to producersbenchmark beneficiaries Introduction of a corridor mechanism (floor and roof) limiting greater fluctuations of permit prices (a kind of safety valve ); Proposal of rings/floors dependent on Member State sector carbonisation; Change of base year from 2005 to 1990; Gradual introduction of the EU ETS auctioning mechanism in the power sector (similarly to industry); 09.12.2008 33/41
Proposal of carbonisation dependent rings/floors Black weight Bulgaria 0,54 Luxemburg 0,34 Estonia 0,95 Holland 0,53 Belgium 0,24 Poland 0,94 Portugal 0,53 Slovakia 0,24 Greece 0,81 UK 0,52 Austria 0,23 Malta 0,65 Slovenia 0,52 Cyprus 0,65 Romania 0,49 White weight Italy 0,47 Latvia 0,15 Dark-grey weight Lithuania 0,08 Czech Rep. 0,62 Light-grey weight France 0,07 Ireland 0,61 Spain 0,43 Sweden 0,02 Denmark 0,60 Hungary 0,41 Germany 0,55 Finland 0,34 EU-27 0,42 04.09.2008 34/35 34/15 Source: Eurostat & calculations 2004
Conclusions NO! HOW? YES! Carbon leakage outflow of industry Job leakage explain to trade unions Welfare leakage explain to voters Adaptation to CC New infrastructure State aid GHG reduction Energy efficiency Renewable Energy Sources 35/41
Summary NO! The solution is HOW? Fair EU-ETS YES! Join Krzysztof Żmijewski 36/41
Counterarguments The target 3x20 is switch coal to gas Really? The documents speak only about emission reduction The market is there, so prices will become even Really? Other documents refer to the necessity to build transboundary connections Poland will get huge revenues from the auctions, which will help to solve problems Really? The balance shows a deficit of 2.3 billion (with the price of 39 /tco 2 ) 37/41
Thank you Prof. Krzysztof Żmijewski Coordinator, GEG krzysztof.zmijewski@interia.pl 09.12.2008 38/41
Energy and Climate Package Is a great burden to the European economy Is a challenge for the whole European community May be a way to higher efficiency, but (!) Should open new possibilities Should promote development and application of new technologies May not be a method of outsourcing our CO 2 emissions outside the EU 39/41
FORUM CO 2 The Industrial coalition of: Industrial energy users Glass manufacturers Chemical industry (incl. refineries) Steel industry Paper & fibre industry Ceramics Non-ferrous metals Utilities (heating plants, incl. CHP) Cement manufacturing Lime industry Wooden panels manufacturing
FORUM CO 2 Primary goals of FORUM CO 2 EU ETS, non-power sectors established the cooperation platform of industrial trade associations, aimed at: Better implementation of EU ETS in the installations operated by their members as well as in the country Influencing NAPII elaboration Representing the industry on the national and EU level. Analysing the impacts resulting from the EU energy and climate package Similar initiative on EU level: Alliance of Energy Intensive Industries