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1
Decarbonsing the
European Power Sector:
is there a role for the
EU ETS?
Brussels, 31 May 2011
Jos Delbeke
DG Climate Action
European Commission
2
What the EU is doing already: 2020 targets
Reduce GHG emissions by 20% (compared to 1990) EU Emissions Trading System reducing overall emissions from
industrial installations National emission targets cover other sectors: e.g. buildings,
services, agriculture, transport (except aviation)
Increase share of renewables in EU’s energy mix to 20% National targets agreed
Improve energy efficiency by 20% compared to business as usual projections – not on track
Current policies are not sufficient to achieve the long-term target of -80 to -95% GHG emissions by 2050
3
Energy Efficiency Plan
EU Heads of State on 4 Feb 2011 committed to“Take determined action to tap the considerable potential for higher energy savings of buildings, transport and products and processes.”
European Commission adopts new Energy Efficiency Plan with additional measures in order to reach 20% target by 2020Public sector to give the good example: binding targets for refurbishing public buildings + highest energy-efficiency criteria for public procurementIndustry: energy efficiency requirements for industrial equipment, energy audits, energy management systemsImprove efficiency of power and heat generationRoll out smart power grids and smart meters
4
2050 Roadmap
The first extensive global and EU analysis on how the long term target can be reached:
identifies cost-effective pathway, with intermediate milestonesidentifies key technologies guiding R&Didentifies investments needs and benefitsidentifies opportunities and trade-offsguides EU, national and regional policiesgives direction to private sector and private households for long term investments
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Ensure the achievement of 20% energy efficiency target by 2020, and in this context use the role of the emissions trading system
Give clarity for long term investments, especially in ETS sectors Define 2020 - 2030 policy framework
Upward review of 1.74% linear reduction to be considered to achieve -80% GHG emissions by 2050
Measures to protect vulnerable industries against carbon leakage in the case of fragmented action
Policy challenges and future work
6
Efficient pathway:-25% in 2020-40% in 2030-60% in 2040
A cost-efficient pathway towards 2050
80% domestic reduction in 2050 is feasiblewith currently available technologies,with behavioural change only induced through pricesIf all economic sectors contribute to a varying degree & pace.
0%
20%
40%
60%
80%
100%
1990 2000 2010 2020 2030 2040 2050
0%
20%
40%
60%
80%
100%
Current policy
Power Sector
Residential & Tertiary
Non CO2 Other Sectors
Industry
Transport
Non CO2 Agriculture
Power sector: technologies and investments
Almost completely carbon-free by 2050 from 45% low-carbon technology today
to 60% by 2020, 75% in 2030 (-54 to 68% CO2) RES, fossil fuels with CCS, nuclear
EU-ETS key driver Linear factor not sufficient to reach 2030 milestone
Further investment needs in power generation and smart grids: € 30 bn annually
Up to 2020 already significant investment in referenceIf CCS is delayed: still feasible, but higher costs
ETS – the corner stone of the EU climate policy
ETS – a cost-effective and stable instrument in a rapidly changing energy landscape
Currently the EU ETS covers some 11,000 power stations and industrial plants in 30 countries.
The number of allowances is reduced over time so that total emissions fall. In 2020 emissions will be 21% lower than in 2005.
ETS should become the main incentive for the EU-wide deployment of CCS, which plays a central role for the decarbonisation of the European Power Sector
9
As from 2013:A Broader Scope
New sectors Aluminium Basic chemical production
Aviation as from 2012 internal, incoming and outgoing flights On basis of equivalent measures in 3rd countries, incoming flights can
be exempted
More gases (nitrous oxide, PFCs)
Auctioning and Registry Security
As from 2013, full auctioning for electricity sector:• More than half of all allowances will be auctioned• Potentially some transitional free allocation to electricity producers in up to 10
new Member States
Use of Auction Revenue• Member States should use at least 50% of revenues for climate and energy
related purposes• Revision of Monitoring Mechanism Decision will include provisions for
Member States to report on use of auction revenues
Registry Security is now under control• Amendment of the Registries Regulation in 2011• In the wake of organised cyber attacks on national ETS registries, strands of
action pursued • Move to single registry in 2012 will allow harmonisation of security measures
Benchmarking
Main principle: one product – one benchmark• no modification based on which fuel is used, which technology is used,
which inputs are used• 52 benchmarks cover ~80% industrial emissions in the EU ETS
Starting point for benchmark values: EU-wide average performance of 10% most efficient installations in (sub)sector• hence an allocation methodology that “rewards” the best performers
Commission adopted Decision in April 2011
Enhanced market oversight
Next challenge – an appropriate market oversight regime The carbon market has undergone significant growth over the last years A market oversight framework appropriate for the current and future market
size is needed
Communication in December 2010 on enhanced market oversight
A comprehensive study ongoing looking at levels of market oversight and implications of introducing new measures
Several options under consideration incl. full coverage of the European carbon market by financial markets legislation (e.g. via classification of allowances as financial instruments)
Milestones over time: ETS and non-ETS sectors
Reductions compared to 2005 2030 2050
Overall -35 to -40% -77 to -81%
ETS sectors -43 to -48% -88 to -92%
Non-ETS sectors -24 to -36% -66 to -71%
Reductions compared to 1990 in %
2005 2030 2050
Overall -7% -40 to -44% -79 to -82%
Cost-effective distribution between sectors: (ranges reflect variation across scenarios)
Key driver: carbon prices
Carbon price*
0
50
100
150
200
250
300
2020 2025 2030 2035 2040 2045 2050
Reference (frag. action, ref.fossil f . prices)
Effect. Techn. (glob. action,low fossil f . prices)
Effect. Techn. (frag. action,ref. fossil f . prices)
Delay. Electr. (glob. action,low fossil f . prices)
Delay. Clim. Act. (frag.action, ref. fossil f . prices)
Delayed climate actionincreases carbon price
Higher oil price red-uces carbon price
Alternative Measures
Additional tax (UK)
Emission Performance Standards (EPS)Study of the Commission shows EPS would have little
impact
Energy efficiency standards/ Renewables targets at national level
The EU ETS is the preferred instrument compared to other alternative measure because of its stability and cost-effectiveness
1616
For further information:
http://ec.europa.eu/clima/roadmap2050/