1. E3G - Third Generation Environmentalism 1 Decarbonising the European power sector: Is there a role for the EU ETS? European Parliament, 31 May, 2011 Sanjeev Kumar sanjeev.kumar@e3g.org +32 499 539731

2. E3G - Third Generation Environmentalism 2 Power choices….? National policies: – Carbon taxation: UK government introduced a carbon tax on the surrender of ETS allowances. – Changing domestic market characteristics: Difficult to ensure timescale and effectiveness. – Reserve Price: Member States introduce floor prices for their ETS quota. European solutions: – Option 1: Emissions Performance Standard. Drives renewables, energy efficiency and even CCS. Additional financial support needed to develop infrastructure and demonstrate new technologies. – Options 2: Energy Efficiency and Renewables targets to 2050. Important regulatory drivers but financial support needed to develop some of the more costly solutions. These are compatible with the EU ETS as long as the ETS target is aligned to them. – Option 3: Stronger ETS via a ‘set-aside’. This gives a regulatory signal but also provides income from auction of ETS allowances.

3. E3G - Third Generation Environmentalism 3 The ‘set-aside’ of ETS allowances What? Taking allowances that are going to be auctioned from 2013. The power sector is the main buyer of allowances. How? Options for implementing the ‘set-aside’ include: – Option 1: Allowances are put in new ETS registry account for 23 years (period of the European Energy Efficiency Fund). Member States can earn extra money from the interest on these saved allowances or the registry can be used as collateral to secure cheap loans; – Option 2: Allowances are stored in a temporary registry with a view to cancellation sometime during Phase III of ETS (2013-2020); – Option 3: Allowances put in a temporary registry with a decision on cancelation taken after 2020. How many? 1.4 billon (estimate of over supply of ETS allowances due to the recession) - 722M allowances (impact of energy efficiency measures in the Energy Services Directive).

4. E3G - Third Generation Environmentalism 4 Impact of the ETS ‘set-aside’ Member States: Revenue from ETS, stronger driver for private sector to invest in low-carbon solutions and ensuring that there is consistency across the EU in moving towards decarbonisation. Industrial sectors: Generous benchmarks and carry over from Phase II (2008-2012) due to recession means they will still be sellers. Higher ETS price gives them bigger profit margins. Power sector: Regulatory certainty and incentive to investment in low carbon solutions. Innovators: Clear signal that there will be a demand for low carbon products. Employees: Creation of low-carbon markets provides current and future job opportunities. Society: EU remains committed to addressing climate change and decarbonising the power generation sector by 2050. About €30bn on health costs are saved if the power sector is decarbonised with longer livelihoods and stronger chance for peace.