Climate Change and Energy Package The 4th International Conference NEUF 2008 Warszawa, 6 June 2008 Piotr J. Tulej Head of Unit Energy and Environment Directorate-General Environment European Commission
Objectives agreed for 2020 20% GHG reduction compared to 1990 Independent commitment 30% GHG reduction compared to 1990 In context of international agreement 20% renewables share of final energy consumption 10% biofuels in transport, with production being sustainable second generation biofuels commercially available
Where do we stand today? In 2005: -6.5% GHG emissions compared to 1990 including outbound aviation 8.5% renewable energy mainly through large scale hydro and conventional biomass Targets are ambitious: -14% GHG compared to 2005 +11.5% renewable energy share
The package Overall Communication Revision of EU Emissions Trading System (the ETS) Effort sharing in non ETS sectors Directive on promotion of renewable energy, report on renewable energy support schemes Directive on carbon capture and storage, and Communication on demonstration plants Revised environmental state aid guidelines Accompanying integrated impact assessment
GHG Target: -20% compared to 1990-14% compared to 2005 EU ETS -21% compared to 2005 Non ETS sectors -10% compared to 2005 27 Member State targets, stretching from -20% to +20%
Approach Cost-effectiveness Fair distribution Solution: Cost-effectiveness: introduce flexibility and use market basedinstruments (EU ETS, transferability of Guarantee of Origin for renewables) Fair distribution: differentiate efforts according to GDP/capita national targets in sectors outside EU ETS national renewables targets (partially half) redistribution of auctioning rights (partially 10%)
Revision of the EU Emissions Trading System
Objectives of EU ETS review Cost-effective contribution to -20% GHG target for 2020, or to stricter target under international climate agreement Improvement of the EU ETS based on experience A clear long-term carbon price
Scope Cover all big industrial emitters: extension e.g. to chemical sectors and aluminium Extension to other GHG: nitrous oxide (fertilisers), perfluorocarbons (aluminium) Leads to new abatement opportunities, lower overall costs, and higher efficiency Potential opt-out of small emitters, if equivalent emission reduction measures in place (e.g. tax)
Cap setting New: single EU-wide cap instead of 27 caps set by Member States CO 2 allowances available in 2020: 1,720 Mt - 21% compared to 2005 emissions Linear decrease predictable trend-line to 2020 and beyond can be adjusted to stricter target Aviation to be included in line with political agreement
Allocation principles Harmonised allocation rules ensure level playing field across the EU Basic principle for allocation is auctioning: Eliminates windfall profits Simplest and most transparent allocation system Full auctioning for sectors able to pass on costs Power sector Partial free allocation to industry as a transitional measure Phased out by 2020 for normal industry Exception: possibly higher levels (up to 100%) of free allocation to industries particularly vulnerable to international competition ( carbon leakage ) to be determined in 2010 European Commission to report on carbon leakage by 2011 and make a proposal, if appropriate: To review free allocation levels and/or To introduce system to neutralise distortive effects With international agreement: total cap + linear factor adjusted, increased access to CDM credits (half of additional effort)
Auctioning and earmarking Auctioning rights distributed to Member States Relatively more rights to MS with lower GDP/capita to balance high investment costs Auctions must be non-discriminatory, open to everybody and will be carried out by Member States on the basis of harmonised rules 20% of auction revenues should be earmarked for combating climate change, promoting renewable energies and addressing social impacts
Monitoring & Reporting, Verification & Accreditation, Compliance More harmonised rules on monitoring and reporting of emissions by operators verification of reports and mutual recognition of verifiers This will enhance reliability and thus international credibility of the EU ETS Non-compliance penalties ( 100/ton CO 2 ) to increase by inflation rate to keep deterrent effect
International aspects: JI/CDM, linking Companies can already use credits from Joint Implementation and Clean Development Mechanism projects (the latter carried out in developing countries) for compliance Left-over credits from 2008-2012 can be used 2013-2020: total 1.4 billion tons for 2008-2020, one third of reduction effort over the period Greater certainty for participants on the type of projects from which credits can be used When an international agreement is reached, substantial additional use of credits will be allowed automatically, in order to meet a stricter reduction target Only credits from countries which have ratified the agreement Important incentives for global climate agreement Possible to link EU ETS not only to other national emission trading systems, but also to sub-federal and regional systems
Conclusions EU ETS Emission reduction objectives of the Community require most efficient approach A more harmonised EU ETS can exploit the benefits of emissions trading to the full The proposal ensures significant contribution by ETS to overall targets provides a predictable and reliable long-term perspective for industry to take the necessary investment decisions is sufficiently simple to be attractive for other countries to join credibly underlines EU leadership
Sharing of the efforts in non ETS sectors
Non ETS targets compared to 2005 Need to take into account the wide divergence of wealth in the EU-27 GDP/capita as criterion for differentiation (ability to pay) Limitation: between -20 and +20% Consequences : poorer Member States can continue to grow in sectors such as transport overall cost increases marginally compared to cost-effectiveness 25% 20% 15% 10% -10% -15% but significant equalisation of overall -20% effort between Member States -25% Reduction targets Non-ETS compared to 2005 5% 20%: BG 19%:RO 17%: LV 15%: LT 14%: PL 13%: SK 11%: EE 10%: HU 9%: CZ 5%: MA 3%: SL 1%: PT 0% 0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0-4%: EL -5% -5%: CY -10%: ES GDP/Cap (000 ) -13%: IT -14%: DE, FR -14%: BE -16%: AT, FI, UK, NL -17%: SE -20%: DK, IE, LU
Carbon capture and geological storage
CCS background CCS to capture CO 2, transport and store it in geological formations While energy efficiency and renewable energy are shorter-term solutions, other options are needed in longer term if we are to reach 50% GHG reduction globally in 2050 It is crucial from a global perspective CCS has been demonstrated as functioning, but not yet as an integrated process or at reasonable costs
CCS proposals Enables CCS by providing legal framework to Manage environmental risk Remove barriers in existing legislation Provisions for ensuring environmental integrity through the life-cycle of the plant (site selection up to post closure) CO 2 captured and stored will be considered not emitted under the ETS: CCS can be opted in for Phase II (2008-2012) CCS explicitly included for Phase III (2013-2020) Communication on promotion of demonstration plants
Renewable energy
EU targets 20% share of renewables in overall EU energy consumption by 2020 10% biofuel component in vehicle fuel by 2020
Renewable energy Flexibility across Member States way to reconcile fairness and cost-effectiveness in fulfilment of 20 % RE target All Member States required to do similar, additional RE effort All RE production to be verified by Guarantees of origin (GoO) Trading of GoO among Member States allowed to fulfil national obligations
Biofuels in RES Directive Each Member State has to reach 10% biofuels by 2020 (no flexibility) To count towards the target and receive subsidies, biofuels have to comply with sustainability criteria These criteria apply equally to domestic production and imports
Sustainability criteria for biofuels A minimum greenhouse gas emission reduction compared to fossil fuels Ban on certain types of land: forest, wetlands, protected areas, Application of environmental criteria inside the EU (cross-compliance criteria) Reporting obligations on environmental issues
Benefits of the package The ultimate goal: avoid the cost of climate change impacts: 5-20% of global GDP (Stern) Large scale innovation in the energy sector First mover advantage, aiming for technological leadership in low carbon technology Significant energy efficiency improvements Energy security: reduction of oil and gas import of 50 billion per year (at $61 per barrel of oil) Reduced air pollution giving significant health benefits Reduced need for air pollution control measures: 11 billion per year in 2020
Costs of the package Direct cost: increased energy and non CO 2 mitigation cost to meet both targets domestically: 0.6% of GDP in 2020, or some 90 billion Macro-economic GDP effects : GDP growth reduced by some 0.04-0.06% between 2013 and 2020, or in 2020 some GDP reduction of 0.5% of GDP compared to business as usual These are conservative estimates : oil price of $100 per barrel would reduce costs by 30 billion foreseen use of cheaper CO 2 credits through investments in Clean Development Mechanism reduces costs by a quarter does not include positive macro-economic rebound effects of re-injecting auctioning revenues back into the economy, estimated at maximum +0.15% of GDP
A clear path towards a 30% target 20% independent commitment EU ETS cap and non ETS targets as proposed JI/CDM must be managed to keep domestic effort and to give clear incentive towards international agreement International agreement: up to 30% EU ETS cap and non ETS targets adapted automatically and proportionally Increased use of JI/CDM both in EU ETS and outside ETS half of the extra effort in both cases
Concluding remarks EU showing leadership in climate change EU on a path towards a low-carbon economy Cost-efficiency and fairness at the heart of the package A blueprint for international negotiations ( common and differentiated responsibilities ) A significant effort, but future benefits far outweigh the costs Will deliver important economic, energy security and environmental co-benefits, also in the short term
Poland
Poland - targets Reduction target in sectors not covered by the EU ETS compared to 2005 Share Renewables in the final energy demand by 2020 Amount of auctioning rights received by Poland on top of the 90% distributed according to proportional 2005 EU ETS emissions +14.0% 15% 39%
Poland cost efficient achievement Cost efficient achievement of: -the RES target - GHG target Cost efficient achievement of : - the RES target - the EU ETS target Cost efficient achievement of: - the RES target - the EU ETS target Cost efficient achievement of: - the RES target - the EU ETS target Cost efficient achievement of: - the RES target - the EU ETS target Cost as % of GDP 2020 With 1. redistribution of the targets in the Non- EU ETS according to GDP/capita With 1. redistribution of the targets in the Non- EU ETS according to GDP/capita 2. redistribution of the auctioning rights With 1. redistribution of the targets in the Non- EU ETS according to GDP/capita 2. redistribution of the auctioning rights 3. JI/CDM with carbon price of 30 per tco 2 With 1. redistribution of the targets in the Non- EU ETS according to GDP/capita 2. redistribution of the auctioning rights 3. JI/CDM with carbon price of 30 per tco 2 4. redistribution of the RES targets together with full RES trade Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 EU27 0,58 0,61 0,61 0,45 0,45 PL 1,2 0,5 0,3 0,4 0,0
Poland Impacts (net) Electricity Generation (Twh/year) Coal/lignite 2005 129 2020 GHG+RES targets 1. Redistribution of the targets in the Non- EU ETS according to GDP/cap 2. Redistribution of the auctioning rights 3. JI/CDM with carbon price of 30 per tco 2 (Scenario 4) 107 Renewables 5 49 Total 142 166
Poland - Costs and GDP GDP (billion ) GDP/capita ( ) Net Costs GHG+RES (billion ) Air pollution control costs savings (billion ) 2005 244 6,386 2020 GHG+RES targets 1. redistribution of the targets in the Non- EU ETS according to GDP/cap 2. redistribution of the auctioning rights 3. JI/CDM with carbon price of 30 per tco 2 (Scenario 4) 472 12,739 +2.0-0.3 to - 0.4