EU ETS & EU ETS & European Energy MarketEuropean Energy Market
Dr Bill Kyte OBEAdvisor, Sustainable Development, E.ON AG
Chairman, UK Emissions Trading Group Ltd
Chairman, Eurelectric Environment & SD Committee
Energy Risk Europe London, 3 October 2006
WBCSD Scenario Unit
Energy
2050Risky
Business
July 1999
What is the Challenge?What is the Challenge?
EnergyEnergy
PopulationPopulation GrowthGrowth
EnvironmentEnvironment SocialSocial
ENERGYENERGY
What is the Challenge?What is the Challenge?
Population Rapid growth in LDCs 1.6 billion without access to electricity
Growth Rapid economic growth in Developing Countries
Environment Local impacts Climate Change
Social Access to clean water & sanitation Increasing living standards Globalisation Consumer choice
What is the Challenge?What is the Challenge?
World Perspective – two objectives
Provide the world’s energy requirements and
Prevent dangerous climate change
Scenario A1B emissions rangeScenario B2 emissions range
Acceptable limit for CO2 emissions?
15
20
25
5
10
02000 2020 2040 2060 2080 21001980
550 ppm
Large-scale high-impact
events
Higher
VeryLow
Risks to many
Risks to some
Unique and threatened systems
Large Increase
Increase
Extreme climate events
ºC
450 ppm
1000 ppm
1000 ppm
21
00
23
00
1990
6 -
5 -
4 -
3 -
2 -
1 -
0 -
450 ppm
21
00
23
00
550 ppm
21
00
2
30
0
Sou
rce:
IPC
C 2
001
CO2, GtC
Today’s energy infrastructure
700+ coal power stations 1.5 Gt
25EJ per year solar
500,000 5MW wind turbines
1000 1GW coal power stations
1000 1GW coal stations with sequestration
1000 1GW oil power stations
1000 1GW gas power stations
1000 1GW nuclear plants
1000 1GW hydro/ tidal /geothermal
50EJ non-commercial fuel
100 EJ direct fuel use(Biofuels)
500 million vehicles(Biofuels)
500 million low CO2
(Biofuels)
800 gas or oil power stations 0.7 Gt
800 million vehicles 1+ Gt
Non-commercial biomass 1 Gt
Direct burning of fuel 3-4 Gt
8.0 Gt
8 Gt carbon
309
EJ
2000
Non emmitting technologies 0 Gt
Final Energy
Non-commercialSolidsLiquids
ElectricityGas
2050 (B2-AIM) 2050 (A1B-AIM)
Meeting future energy needs
Final Energy
Non-commercialSolidsLiquids
ElectricityGas
671
EJ
1002
EJ
Intermediate growth, local solutions, less rapid technological change.
Rapid economic growth and rapid introduction of new and more efficient technologies.
15 Gt carbon
16 Gt carbon
Low energy / carbon intensity development, enabled by societal andtechnology changes.
2050 (550 ppm trajectory)
705
EJ
A much lower CO2 trajectory
9 Gt carbon
Final Energy
Non-commercialSolidsLiquids
ElectricityGas
Some options at a glance
2000
8 Gt
30
9 E
J
2050 (B2-AIM)
67
1 E
J
Intermediate growth, local solutions, less rapid technological change.
15 Gt
10
02
EJ
Rapid economic growth and rapid introduction of new and more efficient technologies.
16 Gt
2050 (A1B-AIM)
Low energy / carbon intensity development, enabled by societal andtechnology changes.
2050 (550 ppm trajectory)7
05
EJ
9 Gt
Options for change – enabling Options for change – enabling technologiestechnologies
A further shift to natural gas
Nuclear power
Renewables Bio-products Carbon capture and storage
Mass transportation
Road transport
Buildings Low energy appliances
Doing things differently
Energy conservation and efficiencyEnergy conservation and efficiency
Emission reductionEmission reduction
Requirements for One WedgeRequirements for One Wedge
Gas – 14,000 new CCGTs Coal – 800 GW with CCS (3500 Sleipners) Nuclear – 700GW (double present) Wind – 2 million 1 GW (present 40,000) Solar – 700 times current – 10 million ha Biofuel – 250 million ha (sixth world crops) Train – replace 50% of road use Road – 60 mpg average Houses – cut emissions by 25%
What is the Challenge?What is the Challenge?
EU perspective – three objectives
To provide the EU’s energy requirements; and
help prevent dangerous climate change; and
maintain EU competitiveness
The EU perspectiveThe EU perspective
Ageing infrastructure with uncertainty about investment criteria
EU responsible for only 14% global GHG emissions which will fall to 10% by 2020
Lisbon Agenda
Installed Capacity in EU-15Installed Capacity in EU-15
290 GWRetirements
2000-2030
584 GW901 GWInstalled Capacity
2030
Capacity additions over the next 30 years will be larger than today's installed capacity
607 GWNew Capacity 2000 - 2030
Installed Capacity 2000
Investment Requirements in European Investment Requirements in European Electricity Market to 2030Electricity Market to 2030
Cumulative investments of US$ 1.4 trillion
0
200
400
600
800
1000
1200
1400
1600
EU 15 Rest Europe Total Europe
$ b
illio
n
CHP Networks
Refurbishment
Distribution
Transmission
Generation
Why the EU ETS?Why the EU ETS?
To meet, in the most cost effective way, the EU 8% Kyoto GHG target
A mechanism for the EU 2oC target 15 – 30% 2020 GHG target 60 – 80% 2050 aim
To link with the global carbon market
The EU ETS SummaryThe EU ETS Summary
Carbon dioxide emissions in the industrial sector (46% of EU CO2 emissions)
Installation level – 12,000 installations Phased ‘Cap & Trade’ system
Phases: 2005-8; 2008-12; 2012-??; ….. MS set ‘caps on emissions for phase in NAP MS issue allowances to installations for phase in NAP Installations surrender allowances annually to cover
verified annual emissions Installations can trade allowances and use the Kyoto
mechanisms (JI & CDM)
Impact of EU ETSImpact of EU ETS
Lack of harmonisation ‘Burden sharing’ of Kyoto target MS NAPs very different (allocation, NER, closure)
An EU wide carbon price but fairly volatile Carbon priced into electricity Impact on energy intensive industries
Both inside EU and global
Uncertainty leading to lack of investment
Views on EU ETSViews on EU ETS
EU ETS should be scrapped But other solutions less environmentally and cost
effective than ETS
EU ETS is panacea for everything ETS best suited to large stationary, well monitored
sources
EU ETS works but: ETS is not an instant fix – sets carbon price
Improvements needed
EU ETS Post 2012EU ETS Post 2012
The EU ETS post 2012 needs: Global coverage Competitiveness Certainty Transparency Simplicity
Global CoverageGlobal Coverage
International UNFCCC, Kyoto Protocol, AP6, G8, G20
CDM & JI Flexible mechanisms must not be
constrained
Major emitting countries Only 20 countries are significant for the
next 25 years
CompetitivenessCompetitiveness
Outside the EU
Global participation in climate change mitigation
Within the EU
Level playing field within sectors
CertaintyCertainty
Predictability rather than certainty
Price can never be certain
Regulatory predictability
Medium/long-term targets based on scientific and economic assessment
TransparencyTransparency
Transparency is required in Member State:
Climate change policies
NAP
MRV
SimplicitySimplicity
Harmonisation is key to simplicity
Scope
Allocation rules
New entrant/closure rules
MRV
||Thank youThank you
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