Examining the Link Between the EU Emissions Trading Scheme and Higher Energy Prices to the EU Manufa

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Examining the Link Between the EU Emissions
Trading Scheme and Higher Energy Prices to the EU
Manufacturing Sector
Peter Claes
September 14, 2006
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Executive Summary

• Need for global energy efficiency/technology
  approach
• No level playing field within and outside Europe
• Experience with Emissions Trading- Pre 2012
• Approach based on European Burden Sharing
• Coverage industrial sectors only
• National Allocation plans subsidiarity
• Political influences
• Links between CO2 and power prices

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Worldwide Approach is Needed
GHG Emissions by Region
Rest of the world
GT CO2-equivalent
Other Annex1
EU
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Facts

• Energy Efficiency Improvements

Last 35 years in Belgian Chemical industry
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Emissions Trading Scheme (ETS) Pre-2012

• Coverage industrial sectors only
• 11,500 energy intensive installations across EU
  25
• Approach based on European Burden Sharing
• Germany -21  Easy  / Eastern Europe
• France 0  Easy  / cf large nuclear park
• UK -12.5  Easy  / switch coal to gas
  power plants
• Spain 15  Challenging  / important
  growth of industrial activities
• Belgium -7.5  Challenging  / political
  decision without technical feasibility
• National Allocation plans approved by national
  authorities
• Complex/ Distortion/ Several interpretations and
  allocation rules (for existing business, new
  entrants, plant closures, scope installations
  covered )
• CO2 market is not liquid - a total of close to
  2.2 billion metric tonnes of allowances put into
  circulation annually 2005-2007
• In general, under-allocation for electricity
  sector

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Country approach distance to Kyoto target
Source REPORT FROM THE COMMISSION under Council
Decision 93/389/EEC as amended by Decision
99/296/EC for a monitoring mechanism of Community
greenhouse gas emissions, COM(2003) 735
final 28.11.2003
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EU ETS negative points

• No level Playing field within and outside EU
• Distortion by the Burden Sharing agreement
• Allocation not based on performance targets
• Creates wealth transfer without improving
  environmental effectiveness
• Electricity market not properly liberalized
• Highly oligopolistic inelastic energy demand no
  price convergence between countries very
  different primary energy sources for electricity
  production
• Windfall profits for power sector (unintended
  effect) 
• Extreme volatile carbon price (political reasons)
  and no valid price signals
• ? no investment signals (both for power sector
  and industry)
• Heavy monitoring, reporting verification
  requirements and costs

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Development of Electricity Base Load Prices Year
Ahead
Price levels of national markets did not converge
! Uniform increase of approx. 20 EUR/MWh !
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Dominance of Political Influence on CO2-Allowance
Prices
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U.S. Industrial GHG Emissions Growth Rates are
Lowest of All Sectors

• 1980 to 2003 (- 7)
• 1990 to 2003 (-1)
• 2003 emissions 1666 million metric tons of CO2
  or 29 of US total
• Why? Because we already have a market
  mechanism. Its called global competition that
  forces us to reduce energy costs to be
  competitive.
• EIA

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U.S. GHG Emissions From Other Sectors1990 to 2003

• Sector Tons Percent
• Residential up 267 22 21
• Commercial up 249 24 18
• Transportation up 306 16 32
• Electric up 491 14 39
• Million metric tons of carbon dioxide, EIA