1. APEx 2005 Annual Conference Disney’s BoardWalk Inn, Florida CO 2 Torger Lien President & CEO, Nord Pool ASA

2. Kyoto protokoll ETS and EUA quota system

3. EUs Kyoto obligation ETS sectorer Other Emissions 1990 Kyoto gap Emissions 2008-2012 Carbon credits CERs (CDM) ERUs (JI) Diff. reductions ETS reductions ETS Reductions

4. Ways to close the Kyoto gap Non-ETS measures (domestic) Own abatement ETS Residual: Government purchases Domestic policies & measures: Taxes Financial support “command-and-control” Negotiated agreements Own abatement Imports: EU allowances (EUAs) Credits from developing countries (CERs) Credits from Russia/Ukraine ((ERUs) “ Kyoto units” – Assigned amount units Governments decide how to share the burden. Ultimately Kyoto commitment rests with governments

5. Allocation to individual installations Kyoto AAUs (assigned amount units) Trinn 1 Metall Kraft Varme MineralerTreforedling Trinn 3 Instal. 1Instal. 2Instal. 3Instal. 4 Trinn 4 Husholdninger, Tjenesteyting, Mindre industri ETSTransport Trinn 2

6. “Gap” ETS sector 2005-2007 EU 15 60 50 40 20 30 10 EU 1O (New) CDM BaU EU 25 Reductions ETS sector Weather Economical growth Energy prices Mil ton CO2

7. “Gap” ETS sector 2008-2012 EU 25 250 200 150 50 100 Reductions ETS sector Demand Import of credits Import of credits:CDM/JI or ETS-sector reductions Competition over CDM/JI credits: Public fund, buyers outside Europe Supply

8. Marginalcost powergeneration -Continental Europe Coalprice $64/ton Carbon price €16/ton Gas price $5.75/mmbtu Carbon price €16/ton Coal Gas

9. Coalprice, gasprice & carbonprice 30 25 20 10 15 5 Carbon price (€/tonn) Gasprice/Coalprice UK May 2005 E Continent May 2004 E Continent May 2005

10. Fuelcost, gas & coal

11. Trading EU Allowances at Nord Pool T o start in 2005 Forward contracts – physical delivered Ticker code: EUA (1 EUA = 1 tCO 2 ) Min. lot: 1000 EUA Starting with three contracts: EUADEC-05 (last trading day 1st Thursday in December 2005) EUADEC-06 (last trading day 1st Thursday in December 2006) EUADEC-07 (last trading day 1st Thursday in December 2007) Closing price set every day Use existing infrastructure; PowerCLICK ETS, Clearing Desk Application, SECUR clearing system etc Link to national registries for transition of EUA EUA spot contract

14. Volumes compared Open interst NP: 10249 ECX: 13174

15. 0% 100% Elastic consumption Load variation and price structureFuel exchangeHydropower Bottlenecks No thermal power Carbon dioxide price impact on electricity prices

16. Production cost avg. coal fired power generation Marginal carboncost: 13,7 øre/kWh

17. CO2 cost impact – the European model Today’s fuel prices The cost effect in Germany is higher than in the Nordic region Today’s carbon dixoide price yield about 45% effect in the Nordic region Definition: Price rise/cost escalation for coal 0 % 20 % 40 % 60 % 80 % 100 % 102030405060 EUR/tonne Nordel Germany

18. Actual forward and carbon dioxide prices, 2007 Strong correlation beetween forward and carbon dioxide prices Even stronger correlation between Nord Pool and EEX power prices 0 5 10 15 20 25 30 35 February 05March 05April 05May 05June 05July 05August 05 EUR/tonne 25 27 29 31 33 35 37 39 41 43 45 EUR/MWh Carbon2007 Germany2007 Nordel

19. EUA/ETS sustainability Higher power prices to household consumers Globally competitive base industry will suffer EUA price formation fundamental or speculative Will the consept reduce CO2 emissions globally 2005-2007 is the test period. What will be the conditions for 2008-2012 period, and what will happen after 2012 For how long will European poleticians be the frontiers on the account of european base industry flagging out…or will the rest of the world follow their brave initiative?

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