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ETS as the key driver Strong innovation policy National RES and EE schemes National carbon price floors/taxes National capacity mechanisms MARKETS ARE.

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Presentation on theme: "ETS as the key driver Strong innovation policy National RES and EE schemes National carbon price floors/taxes National capacity mechanisms MARKETS ARE."— Presentation transcript:

1 ETS as the key driver Strong innovation policy National RES and EE schemes National carbon price floors/taxes National capacity mechanisms MARKETS ARE FRAGMENTED AND POLICIES ARE START/STOP ENERGY MARKET INTEGRATION AND (MORE) PREDICTABLE POLICIES NL coal tax UK carbon price floor Today: internal energy market or x28 chaos?

2 Key failures involved in the Lost Decade case Weak carbon market until 2030 Limited financing under uncertainty hampering investment Market coordination failures delaying infrastructure Non-completion of IEM leading to low cross-border energy trade Slower pace of technology progress: learning curves and build up of supply chains Delays to energy efficiency persisting up to 2030, especially on the demand-side and in electrification What ambition, when? Power Choices Reloaded – high cost of a Lost Decade 28/11/20132

3 What’s driving price rises?

4 Global success of the ETS

5 There is no such thing as a global level playing field on energy – Europe and the US have different energy situations, so need different energy strategies Competitiveness is a whole-economy issue – Policies favouring/exempting one sector may have a negative impact on other sectors Intra-European tax/price/policy differentials result in intra-European leakage – Dutch and German steel compete in the same market but under different renewables, carbon and power prices Competitiveness, energy and climate What’s at issue?

6 Paper and pulp New technologies and new revenue streams The paper industry and climate change: roll on the green revolution A technological fix is proposed to combat global warming Nov 30th 2013 | The Economist …An effort by European pulp and paper companies to slash their emissions through technological change. This week they announced some ideas which, if adopted by the whole industry, would cut its energy use by at least a quarter and its output of CO2 by more than half by 2050. The ideas will test how far technology developed by companies can reduce global warming. …Pulp and paper is a big energy consumer—the world’s fifth-largest industrial user. …Facing demands for deep cuts in CO2 emissions, CEPI decided to see if technological change could yield more than just marginal improvements. It set up two teams of scientists and businesspeople, each under a former chief executive (of Smurfit Kappa, the fourth-largest European papermaker, and Mondi, the fifth). The teams set up a common knowledge base because the idea was to test creativity, not proprietary information. They also sought ideas from outsiders with carbon-reduction programmes, such as Tata Steel. Each team came up with four ideas. …The winning proposal would do away with all this grinding and chemical cooking. Instead, it would use things called deep eutectic solvents to dissolve wood and separate out the lignin. These solvents occur naturally: plants produce them during droughts. They would essentially turn papermaking into a biochemical business, cutting primary energy use by 40%. They would also generate useful by-products, such as pure lignin, a raw material for bulk chemicals, and a form of cellulose used in high-value chemicals. One of the requirements of the project was that the ideas should add value, not just cut cost. Most of the energy now used in making paper goes on drying the sheets. So making it without water would also cut energy consumption. The teams came up with two ways of doing that. One would separate the fibres with steam (using less water). The other would suspend the fibres in a viscous fluid and then expel the fluid by modifying the viscosity around the fibres. This idea has been pinched from penguins. To escape from seals underwater, the birds release trapped air bubbles which form a thin layer of air around their plumage, reducing friction. …At the moment these ideas exist as pilot projects or in the laboratory, but not commercially. The most important test of their usefulness is therefore yet to be passed. Even so, several lessons have emerged. The main one is that there are technological solutions to climate change.

7 Back up

8 Levels of promotion Technology Hydro Wind Biomass Biogas/Waste PV Geothermal Min Max Highly divergent promotion levels across technologies and countries * Source: Status Review of Renewable and Energy Efficiency Support Schemes in Europe

9 RES support – implicit carbon prices ItalySpainGermany Wind€ 169 /tCO2€ 86 /tCO2€ 56 /tCO2 Solar€ 925 /tCO2€ 539 /tCO2€ 574 /tCO2 Implicit carbon price = Net cost of RES CO2 emission reduction Source: Claudio Marcantonini, European University institute of Florence, Climate Policy Research Unit, October 2013 (not yet published)

10 1: EU RES target delivered through national targets and support schemes Market fragmented and distorted 2: EU RES target with EU harmonisation of support schemes (not yet clear how this would work) Market distorted but not fragmented 3: EU RES target delivered through ETS (mature RES) and innovation support (immature RES) Fully market compatible 4: No EU RES target Unlikely in light of Commission, German, and European Parliament opposition…. Four possible outcomes re the RES target

11 Step 1: The 40% GHG target will in itself deliver at least 27% RES Step 2: The Treaty does not allow the Commission to prevent Member States from having national RES policies Step 3: But the Commission can use EU market, competition, and state aids law to limit what sort of policies the Member State can use Step 4: If, during 2014-15, Member States decide that neither the 40% GHG target, nor the EU market-compatible national policy options, is sufficient to deliver 27% (or higher) RES growth, then… Step 5: The Commission would consider additional measures at EU level Step 6: Likely the Commission’s preferred measures would be a stronger ETS plus more RES innovation support Binding RES target at EU level The Commission’s strategy (reading between the lines)

12 National energy policies / EU competition law A different picture by autumn 2014? Brussels / DG COMP New EEAG for 2015 Hinkley Point state aid application EEG exemptions state aid case State aid definitions consultation Luxembourg / ECJ Alands Vindkraft case Essent case Berlin / Federal Govt EEG revision Breaking news during spring-autumn 2014!

13 Getting to the goal on ETS When can we get real changes? € carbon price 2020 20142015 2017 2016 2018 20192021 Commission track Effective ETS track Threshold carbon price which can impact opex + capex Take-off?

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