The new targets of Climate Change Policy in the European Union and the cost of mitigation strategy. Giuseppe Astarita Federchimica Milano, July 9, 2014
EU Climate and Energy Legislative Framework. The Kyoto period (2008-2012) The 2020 framework (in force) The possible 2030 framework (under discussion) The 2050 Roadmap (GHG emissions: -(80 95)% vs 1990)
EUROPEAN UNION 2008-2012 GHG EMISSIONS
EU GHG Emissions (including LULUCF). (Mt CO2eq./a) EU 15 EU 28 1990 4.262 5.626 2005 4.183 5.178 2012 3.619 4.544
EU ETS AN IMPORTANT POLICY TOOL
Activities: ETS and non-ets
EU ETS: difference between distributed allowances and verified emissions
ITALY 2008-2012: GHG EMISSIONS AND KYOTO OBJECTIVE
Italy: energy consumption, GHG emissions and GDP
ITALY GHG emissions
Conditions for Kyoto objective Did Italy emit less than Kyoto objective (2012)? YES Did Italy comply with Kyoto objective (2008-2012)? NO Why: 2012 emissions (460.1 Mt CO 2 eq) are lower than Kyoto objective (483.3 Mt CO 2 eq), but the condition has to be fulfilled over 5 years (plus further parameters).
Distance from Kyoto objective
Italy: distance from Kyoto objective
2020 FRAMEWORK
Climate and Energy Package 2020 Initially proposed in 2007 and adopted by 2009, the Climate and Energy Package is a set of EU legislative measures, designed to reach three core targets by 2020 (known as the "20-20-20 by 2020"): 20% reduction in EU greenhouse gas emissions from 1990 levels; 20% increase in the share of EU energy consumption produced from renewable resources; 20% improvement in the EU's energy efficiency It contains four core legislative acts: The revised Emissions Trading System (EU ETS) Directive the Effort Sharing Decision (ESD) the Renewable Energy Directive and the Carbon Capture and Storage Directive
EU: changes after 2012
EU ETS 2013-2020
EU ETS 2013 2020 Total amount free allocations Country Free allowances Austria 164 632 091 Belgium 293 208 651 Bulgaria 77 815 802 Croatia 40 308 355 Cyprus 7 079 243 Czech Republic 175 374 741 Denmark 75 369 687 Estonia 20 190 563 Finland 163 625 051 France 644 707 515 Germany 1 248 689 189 Greece 120 927 880 Hungary 88 655 264 Iceland 10 975 310 Ireland 41 247 01
EU ETS 2013 2020 Total amount free allocations Country Free allowances Italy 664 206 420 Latvia 18 167 832 Liechtenstein 85 555 Lithuania 44 586 184 Luxembourg 10 249 008 Netherlands 369 497 778 Norway 131 326 800 Poland 422 619 164 Portugal 90 169 746 Romania 206 855 629 Slovakia 120 642 546 Slovenia 19 027 211 Spain 526 303 310 Sweden 194 457 651 United Kingdom 510 739 800
Italy: Chemical Industry and ETS About 70 sites involved, with 9 Mt/y emissions 6 Mt/y emissions with the first 10 sites However, ETS influences much more than its scope, through electricity prices, also much influenced by other climate policy tools, like incentives to renewable sources
CARBON MARKET PRICE LEVELS
EUA value
Carbon prices and ETS reform Experimented low carbon prices have triggered a discussion about EU ETS reform, with the main (Commission) purpose of price level recovery. Main Commission proposals based on definitive (set aside) or temporary (backloading) elimination of available allowances. (Chemical) Industry actions for discussion to include important "chapters" like allocation criteria (actual production instead of ex-ante) and competitiveness protection (e. g. fighting Carbon Leakage)
2030 FRAMEWORK - POSSIBLE, UNDER DISCUSSION - BASED ON JANUARY 22, 2014 PROPOSAL
2030 package: other components. Manufacturing industry contribution to GDP by 2020: 20% (from present 15-16%) Introduction of a post 2020 strategic reserve for ETS allowances Comunication on shale gas development Industrial sectors confirmed in Carbon Leakage (CL) list
EU Energy Climate policy. Considerations. EU is the only region with binding objectives (2020) No significant driving effect on other countries has yet taken place. No global agreement is expected before COP 21 (Paris, December 2015). EU contribution to global GHG emissions, now at 10-11%, is expected to be around 4-5% by 2050. Do further EU unilateral commitments make sense?
EU Energy Climate policy. Considerations/2. EU policy clearly based on energy costs increase, to get resources for GHG emissions reduction Other areas "careful" in avoiding climate policies with significant impact on costs. Further advantages as a result of independent circumstances for those areas, with very important results (shale gas in USA).
EU and Climate-Energy policy. Pending criticalities. Separate objectives on RES (Renewable Energy Sources) and consequent incentive policies (in particular for electricity) have hampered the transition toward energy market completion, in some cases (Italy, Germany) with very high costs for consumers (also with non uniform EU effects), and taking away the corresponding energy (now regulated) from the market. Consequences (negative): - on EU competitiveness (vs other regions) - on intra EU competitiveness (because of different impact of incentive costs, and the different distribution among economic sectors, and inside industry) - on the functioning of electricity market, with "baseload" production displacement, and insufficient rules to control the same situation - on proposals to compensate for "economic displacement" of traditional power stations, originating further costs (e.g. capacity payment)
Other negative consequences. The very strong RES development contributed (in conjunction with economic crisis) to EUA allowances surplus on ETS market. With RES costs development "outside" of ETS, the ETS allowances market price reduction (although without threatening the fixed objective of emissions reduction) prevented the possibility of making intensive sources more "accountable": - e.g. electricity production from coal, also in inefficient power stations, is cheaper than from efficient gas-fired power stations, losing occasions in limiting emissions, with incentive costs charged (with no offset) on energy consumers.
40% GHG emissions reduction by 2030. Very ambitious (and unilateral) objective Differentiated between ETS (-43% vs 2005) and non- ETS (-30% vs 2005) Due to different 2005 performance, important differences result among sectors (referring to implicit 2030 objectives: - Energy Industry -41 % - Manufacturing (MIC+Ind.Proc.) - 50 % - Chemical Ind. (MIC+Proc. Ind.) -60 % - Agriculture -38 % - Transport -14 %
CREDITS FROM INTERNATIONAL PROJECTS
Share of CDM projects in the pipeline All CDM Projects in the Pipeline in Brazil + Mexico + India + China as a fraction of all projects
Accumulated CERs issuance Accumulated issuance of CERs over time
Growth of total expected accumulated 2012 CERs Growth of total expected accumulated 2012 CERs
Top countries by issued CERs Top countries by issued CERs
Buyer countries Buyer countries
USE OF CREDITS IN EU ETS. LIMITATIONS
EU REGULATION 1123/2013 Eligibility of international credits Limitations for the use of international credits Old plants in EU ETS (with 2008-2012 free allowances) Use of credits (2008-2020) below the higher of two limits - all credits allowed 2008 2012-11% ot total 2008-2012 allocation Limits for plants in EU ETS from 2013: 4,5% of 2013-2020 verified emissions
Kyoto credits demand between private entities, EU and non EU States as at May 1, 2013
Exchange rates for CER/ERU into EUA Below expectations Tax year 2013: instead of expected quantity of up to 400 Mt (EU wide), only 132.8 Mt (one third) was exchanged. (EU Commission communication, May 2, 2014)
Exchange rates for CER/ERU into EUA General estimate. - Against a figure of 1.571 M CER/ERU available for exchange (2008 2020), only 1.178 Mt were exchanged - Balance: 393 M available for exchange - Corresponding to a financial benefit for EU companies of 1.75 billion.
VOLUNTARY CARBON MARKETS
2050 TRENDS (FROM 2013 REFERENCE SCENARIO)
EU 28: evolution of CO2 emissions
CO2 emissions. Energy and process related.
EU 28. non-co 2 GHGs of EU ETS sectors
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