EU ETS & European Energy Market Dr Bill Kyte OBE Advisor, Sustainable Development, E.ON AG Chairman, UK Emissions Trading Group Ltd Chairman, Eurelectric.

EU ETS & EU ETS & European Energy MarketEuropean Energy Market

Dr Bill Kyte OBEAdvisor, Sustainable Development, E.ON AG

Chairman, UK Emissions Trading Group Ltd

Chairman, Eurelectric Environment & SD Committee

Energy Risk Europe London, 3 October 2006

WBCSD Scenario Unit

Energy

2050Risky

Business

July 1999

What is the Challenge?What is the Challenge?

EnergyEnergy

PopulationPopulation GrowthGrowth

EnvironmentEnvironment SocialSocial

ENERGYENERGY

What is the Challenge?What is the Challenge?

Population Rapid growth in LDCs 1.6 billion without access to electricity

Growth Rapid economic growth in Developing Countries

Environment Local impacts Climate Change

Social Access to clean water & sanitation Increasing living standards Globalisation Consumer choice

What is the Challenge?What is the Challenge?

World Perspective – two objectives

Provide the world’s energy requirements and

Prevent dangerous climate change

Scenario A1B emissions rangeScenario B2 emissions range

Acceptable limit for CO2 emissions?

15

20

25

5

10

02000 2020 2040 2060 2080 21001980

550 ppm

Large-scale high-impact

events

Higher

VeryLow

Risks to many

Risks to some

Unique and threatened systems

Large Increase

Increase

Extreme climate events

ºC

450 ppm

1000 ppm

1000 ppm

21

00

23

00

1990

6 -

5 -

4 -

3 -

2 -

1 -

0 -

450 ppm

21

00

23

00

550 ppm

21

00

2

30

0

Sou

rce:

IPC

C 2

001

CO2, GtC

Today’s energy infrastructure

700+ coal power stations 1.5 Gt

25EJ per year solar

500,000 5MW wind turbines

1000 1GW coal power stations

1000 1GW coal stations with sequestration

1000 1GW oil power stations

1000 1GW gas power stations

1000 1GW nuclear plants

1000 1GW hydro/ tidal /geothermal

50EJ non-commercial fuel

100 EJ direct fuel use(Biofuels)

500 million vehicles(Biofuels)

500 million low CO2

(Biofuels)

800 gas or oil power stations 0.7 Gt

800 million vehicles 1+ Gt

Non-commercial biomass 1 Gt

Direct burning of fuel 3-4 Gt

8.0 Gt

8 Gt carbon

309

EJ

2000

Non emmitting technologies 0 Gt

Final Energy

Non-commercialSolidsLiquids

ElectricityGas

2050 (B2-AIM) 2050 (A1B-AIM)

Meeting future energy needs

Final Energy

Non-commercialSolidsLiquids

ElectricityGas

671

EJ

1002

EJ

Intermediate growth, local solutions, less rapid technological change.

Rapid economic growth and rapid introduction of new and more efficient technologies.

15 Gt carbon

16 Gt carbon

Low energy / carbon intensity development, enabled by societal andtechnology changes.

2050 (550 ppm trajectory)

705

EJ

A much lower CO2 trajectory

9 Gt carbon

Final Energy

Non-commercialSolidsLiquids

ElectricityGas

Some options at a glance

2000

8 Gt

30

9 E

J

2050 (B2-AIM)

67

1 E

J

Intermediate growth, local solutions, less rapid technological change.

15 Gt

10

02

EJ

Rapid economic growth and rapid introduction of new and more efficient technologies.

16 Gt

2050 (A1B-AIM)

Low energy / carbon intensity development, enabled by societal andtechnology changes.

2050 (550 ppm trajectory)7

05

EJ

9 Gt

Options for change – enabling Options for change – enabling technologiestechnologies

A further shift to natural gas

Nuclear power

Renewables Bio-products Carbon capture and storage

Mass transportation

Road transport

Buildings Low energy appliances

Doing things differently

Energy conservation and efficiencyEnergy conservation and efficiency

Emission reductionEmission reduction

Requirements for One WedgeRequirements for One Wedge

Gas – 14,000 new CCGTs Coal – 800 GW with CCS (3500 Sleipners) Nuclear – 700GW (double present) Wind – 2 million 1 GW (present 40,000) Solar – 700 times current – 10 million ha Biofuel – 250 million ha (sixth world crops) Train – replace 50% of road use Road – 60 mpg average Houses – cut emissions by 25%

What is the Challenge?What is the Challenge?

EU perspective – three objectives

To provide the EU’s energy requirements; and

help prevent dangerous climate change; and

maintain EU competitiveness

The EU perspectiveThe EU perspective

Ageing infrastructure with uncertainty about investment criteria

EU responsible for only 14% global GHG emissions which will fall to 10% by 2020

Lisbon Agenda

Installed Capacity in EU-15Installed Capacity in EU-15

290 GWRetirements

2000-2030

584 GW901 GWInstalled Capacity

2030

Capacity additions over the next 30 years will be larger than today's installed capacity

607 GWNew Capacity 2000 - 2030

Installed Capacity 2000

Investment Requirements in European Investment Requirements in European Electricity Market to 2030Electricity Market to 2030

Cumulative investments of US$ 1.4 trillion

0

200

400

600

800

1000

1200

1400

1600

EU 15 Rest Europe Total Europe

$ b

illio

n

CHP Networks

Refurbishment

Distribution

Transmission

Generation

Why the EU ETS?Why the EU ETS?

To meet, in the most cost effective way, the EU 8% Kyoto GHG target

A mechanism for the EU 2oC target 15 – 30% 2020 GHG target 60 – 80% 2050 aim

To link with the global carbon market

The EU ETS SummaryThe EU ETS Summary

Carbon dioxide emissions in the industrial sector (46% of EU CO2 emissions)

Installation level – 12,000 installations Phased ‘Cap & Trade’ system

Phases: 2005-8; 2008-12; 2012-??; ….. MS set ‘caps on emissions for phase in NAP MS issue allowances to installations for phase in NAP Installations surrender allowances annually to cover

verified annual emissions Installations can trade allowances and use the Kyoto

mechanisms (JI & CDM)

Impact of EU ETSImpact of EU ETS

Lack of harmonisation ‘Burden sharing’ of Kyoto target MS NAPs very different (allocation, NER, closure)

An EU wide carbon price but fairly volatile Carbon priced into electricity Impact on energy intensive industries

Both inside EU and global

Uncertainty leading to lack of investment

Views on EU ETSViews on EU ETS

EU ETS should be scrapped But other solutions less environmentally and cost

effective than ETS

EU ETS is panacea for everything ETS best suited to large stationary, well monitored

sources

EU ETS works but: ETS is not an instant fix – sets carbon price

Improvements needed

EU ETS Post 2012EU ETS Post 2012

The EU ETS post 2012 needs: Global coverage Competitiveness Certainty Transparency Simplicity

Global CoverageGlobal Coverage

International UNFCCC, Kyoto Protocol, AP6, G8, G20

CDM & JI Flexible mechanisms must not be

constrained

Major emitting countries Only 20 countries are significant for the

next 25 years

CompetitivenessCompetitiveness

Outside the EU

Global participation in climate change mitigation

Within the EU

Level playing field within sectors

CertaintyCertainty

Predictability rather than certainty

Price can never be certain

Regulatory predictability

Medium/long-term targets based on scientific and economic assessment

TransparencyTransparency

Transparency is required in Member State:

Climate change policies

NAP

MRV

SimplicitySimplicity

Harmonisation is key to simplicity

Scope

Allocation rules

New entrant/closure rules

MRV

||Thank youThank you