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Negotiated Energy AgreementsPilot Project
24th September 2003
Andrew ParishProject Coordinator
Report Launch
Structure
• Context & background
• Pilot project outcomes & projections
• Putting agreement in place
Negotiated Agreements
• SEI mandated by Climate Change Strategy• Meet requirements of Objectives 1, 3 and 4
– Sustainable use of energy– Reduce greenhouse gas emissions– Stimulate competitiveness
• Agreements negotiated within an agreed framework
Context-National Climate Change Strategy
• Irelands response to EU Kyoto commitments
• Current overshoot already 31% over target*
• All sectors affected
• Requirement for early action
• Strategy proposes Carbon tax with suitable
supporting measures
• Negotiated agreements identified as a key
instrument *EPA Sep ‘03
Firms agree to definite actions
or definite targets
Reward/Exchange as quid pro quo - Tax rebate / exemption
- Regulation
Agreements which are:-- Legally binding- Defined timetable- Flexible yet demanding- Protect competitivness
Beyond business as usual - BAUTowards best international practice -
BIP
An agreement between an individual firm, or
group of firms and the Government or its agent,
aiming to achieve substantial energy and
emissions reductions “beyond business-as-usual”
What are Negotiated Energy Agreements?
• Endorsement by SEI Board in February 2002.
• Project goals;• test viability of such a
measure;
• estimate likely impacts;
• resource requirements and transaction costs;
• calibrate industry data;
• examine industry readiness.
• 26 firms recruited - collaborative approach
• One of three agreement strands,• Individual Agreement
(Aughinish Alumina),
• Collective Agreement
(10 Pharmachem Companies)
• Technology Agreement
(15 companies in a Thermal Agreement)
Background
Volunteer to participate
Establish current situation
Compare to Best Practice
Negotiate new position
What was involved in the Pilot Study?
Company A
Best Intl Practice
Company B
Actions
Pilot project
• Action-based agreement of 4 year duration
• Identification of actions required to move firms
to Best International Practice
• Detailed energy audits carried out in all 26 firms
• Negotiation to agree economic and technical
criteria
Assumptions
• Tax rate of €17.50 per tonne CO2
• Applied downstream to electricity and fuel
• Exemption / rebate of 80% for compliance
• No phasing in of tax
Outcomes
• Agreements concluded in all 26 firms
• All actions to be implemented <5yr payback (3-
5 yrs Individual)
• baseline 1.5 -2 yrs
• Energy management improvements
• ‘Special Investigations’ - Collective
Results – audit costs
Technology
€7,000
(2.3%)of annual energy cost
Collective
€16,000
(1.5%)of annual energy cost
Individual
€90,000
(0.14%)of annual energy cost
Results – average investments
Technology*
20.6% of annual energy cost
Average payback (bundle)1.2 years
Collective
23.1% of annual energy cost
Average payback (bundle)1.4 years
Specific action paybacks from 3 months to 5 years * ex CHP
Results – CO2 savings
Technology 17.1% 17,300 tonnes Average per firm 1,150 tonnes
~14% = electrical
~17-20% = thermal
Pilot total 120,000 tonnes
Collective 16.4% 34,000 tonnes Average per firm 3,390 tonnes
Individual 5.4% 69,000 tonnes
Results – abatement costs
Technology
- €8.30 per tonne
Collective
- €12.20 per tonne
Negative abatement costs indicate economically viable investments
Looking forward
• Potential for mix of three agreement types
• Potential application Collective 150 firmsTechnology 500 firms
650 firms40% of
industrial energy use
• Potential abatement for whole sector
640,000 tonnes
Technology
240,000
€233,000
€1.20
Collective
400,000
€470,000
€0.97
Transaction costs
Indicator
Projected CO2 abatement
Annual cost(inc ¼ set up cost)
Static cost (per tonne)
Average transaction cost €1.10 per tonne CO2
Agreements in the Policy Mix
• EU Emissions Trading pilot addresses largest firms
• Electricity generators included in EU Emissions Trading Pilot
• Negotiated agreements require incentivisation by a tax - or the threat of a tax- or the reward of a rebate
• Have potential to incentivise electrical end use efficiency
are a viable instrument for climate change policy in Ireland
are a viable instrument for climate change policy in Ireland
Looking forward – Results
provide significant carbon dioxide impactsprovide significant carbon dioxide impacts
can be acceptable to industrycan be acceptable to industry
can protect competitivenesscan protect competitiveness
Negotiated Agreements:-
Putting agreements in place
Experience and expectations
The steps
• Recruit
• Establish the baseline
• Consider what’s possible
• Consider what’s reasonable
• Set it down and agree it
• Look to monitoring etc
Recruitment
• Pilot recruitment
• Individual agreements
• Collective agreements
• Technology agreements
Establish the baseline
• Investigate current practice
• Energy technologies and management
• Detailed energy audits
Some audit learning
• Need strong template
• Need full cost analysis
• Need strong company involvement
• Quality and credibility to firms…
… yet independence and
credibility to regulator
Consider what’s possible
• Gap between current and best practice
• What is best practice?
• The long list
Consider what’s reasonable
• Criteria for shortening the long list
• Technical issues
• Economic issues
On economic issues
• The parameters
• Showing real change
• Meeting everyone’s needs
Set it down and agree it
• Negotiation
• The agreement
Lessons on negotiation
• Trust, credibility, history
• Information
• Mandate
• Work
• Robustness vs efficiency
• Self reporting basis
• Verification
• Sanctions
Monitoring & compliance
Outcomes
• Agreement in all cases
• Low cost, reliable CO2
• Estimated abatement: 640 kt
• Double the impact of tax alone
• Motivation, compliance, information
Final thoughts
• Considerable learning
• A plausible model
• The core values of an agreement approach
Discussion
Distribution-number of firms
Distribution of firms by numbers
18%
78%
0%
1%3%
0%
Firms in Emissions Trading
Next 10 Largest Firms
5 typical f irms from collective pool
Most Likely pool for Sectoral Agreements
Potential Pool For Horizontal Agreements
Firms Too Small for Negotiated Agreements
Distribution-energy usage
Distribution of firms by energy usage
44%
4%1%
22%
24% 5%
Firms in Emissions Trading
Next 10 Largest Firms
5 typical firms from collective pool
Most Likely pool for Sectoral Agreements
Potential Pool For Horizontal Agreements
Firms Too Small for Negotiated Agreements
Company A
Best Intl Practice
Company B
Actions
Action-based approach