Carbon footprint of plants, products, companies and a possible market for green electricity

certificates (GOs) Personal thoughts

RECS Market Meeting

Brussels, 30-31 March 2011

Vianney SchynsUtility Support Group

Dept. Climate & Energy Efficiency (C&EE)USG is Utility provider for a.o. SABIC, OCI, DSM

Contents

I. Carbon footprint– Some examples– Products, plants and companies

II. Carbon footprint and GOs – taking stock– Pan-European optimisation of RES investments

III. EU ETS – lessons for a possible RES marketIV. Leitmotiv for a RES trading marketV. Developments in global perspective

– IEA: 2 oC challenge: carbon market is essential– An emerging global GHG allowances market– Renewable Energy Sources (RES) ... and natural gas

VI. Conclusion

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I. Carbon footprint, some examples

• Carbon free golf tournaments (e.g. Peru, Netherlands) • Website about 2011 Nissan Leaf

– Cost: $32,780*Range: 100 miles (99 mpg fuel equivalent) Time to charge: 30 min. for 80%, or 8 hours for a full chargeAnnual charging cost: $561

Tons of CO2 annually: 0

– Amazing website (not from Nissan), read more: http://www.thedailygreen.com/environmental-news/latest/fuel-efficient-cars-47102201#ixzz1F3u6FOJA

• My calculation Daihatsu Sirion 2 (a small car)– 18,3 kWh/100 km (calculated from published data)

– Marginal plant 0.75 ton CO2/MWh >> 137 gram CO2/km

– Marginal plant 1.00 ton CO2/MWh >> 183 gram CO2/km (EUA price > fuel switch)

– Fuel efficient small car can achieve 120 gram CO2/km

– Volvo V70 D5 (diesel) achieves 190 gram CO2/km (real)

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I. Carbon footprint of products & plants

• Carbon footprint of manufacturing plants & its products of e.g. aluminium, chlorine, low density polyethylene, etc.– Is an efficient plant / produced product in Germany worse than a

less efficient plant / produced product in Norway, Sweden or France? I think not.

– What is the benefit of an efficiency improvement of a plant in Norway, Sweden or France? Fewer CO2 emissions of the marginal electricity plants in e.g. Germany, based on a mix of natural gas, coal & lignite, indication 0.70-0.75 ton CO2/MWh.

– At higher EUA prices in the future: above fuel switch level (as happened already) electricity from coal & lignite always marginal, indication 0.95-1.0 ton CO2/MWh.

• Should Guarantees of Origin (GO) change the picture?– It seems not, to me, but I am interested to learn at this conference.

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I. Carbon footprint of companies

• Electricity part of plant and product carbon footprint– Some companies buy GOs to lower the carbon footprint, many

others (esp. energy intensive industries) not.– Many companies calculate with supplier or country averages.– Many companies claim footprint of CHP, then we have the issue

about correcting country & E-producer footprint?– Key question: what tell GOs, country averages about company

carbon footprint?

• No comprehensive system functioning yet– WBCSD/WRI protocol in further development.– EPED (European Platform Electricity Disclosure) progress to

eliminate double counting, of course an ex-post calculation.

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II. Carbon footprint and GOs: taking stock

1. Products & processes: little or no added value?

2. Companies: questionable?

• Concerning 1 & 2: So far CO2-effect of the average (for attributional footprints) and the marginal power plants (for consequential footprints) in a connected geographical region seem applicable, e.g. Europe, North America, China

3. What seems to make sense: Pan-European renewable electricity market for optimisation, with a harmonised mandatory European information (tracking) system

– Huge savings necessary and possible, e.g. EWI estimated EU savings 2008-2020 for EU 2020 electricity target of € 118 billion (almost 20%) until € 174 billion (25%)

– But there is a need for careful design: to avoid (new) windfall profits, to protect competitiveness of energy intensive industries

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III. EU ETS in a nutshell

• After careful study we found out how an ETS should work– There are only 2 sustainable systems: auctioning and

benchmarks multiplied with actual production (provisional production ex-post adjusted to actual); auctioning is ideal, but only if globally applied.= EU ETS has now established benchmarks (an achievement)

• We could have a few more in the future, e.g. for sugar, bulk polymers.• Benchmarks are too soon too stringent (“top 10%” in 2013) for an effective

protection of competitiveness in case we get a meaningful EUA price (often misunderstood: more stringent benchmarks are not environmentally better).

= EU ETS is not yet ex-post, but there are many ex-post elements (for new entrant, significant capacity reduction, partially ceased operation)

• Financial compensation will be ex-post.• CDM & JI are ex-post.• Ex-post is the normal practice, like for paying taxes, or for Border Measures

(if these ever come).

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III. EU ETS revision – an ideal as “leitmotiv” for GO trade • Benchmark level: “sliding path”, i.e. “top 10%” as long-term

goal for around 2020– All EU manufacturing at “top 10%” in 2020 is very difficult if not impossible

• Actual production (with ex-post), a huge simplification– EU ETS came under fire:

= Possibility of windfall profits (CE Delft), over-allocation in crisis ( Sandbag)

= Present new entrant rules cause distortions (arbitrary thresholds, auctioning for gradual growth by debottlenecking / capacity creep)

= Present rules allow and even incentivise carbon leakage until 49% (49% of steel, cement and chemicals means 300 Mton CO2 = target)

Not achieving 20% RES target, should not burden the ETS companies

• Higher electricity prices by EU ETS: move from unstable financial compensation to indirect allocation

• Refill NER (new entrants’ reserve) when depleted• “Carbon Bank” (price collar, higher EUA prices bearable with ex-post)

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IV. Leitmotiv for a RES trading market with GOs

• Objective: minimise overall cost• Trade based on an obligation: possibility is E-producer

– Basis could be differentiated obligations per Member State, as now foreseen

• Maintaining competitiveness of European Energy Intensive Industry is crucial– GO obligations and costs should be fully decoupled from electricity

prices in the market– Feed-in Tariff (FiT) moves along to GO buyer, e.g. German

producer buys Danish GOs, FiT moves from Denmark to Germany– Pool for FiT is large, e.g. € 120-170 billion to be saved in period

2008-2020

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V. IEA 2 oC challenge, energy efficiency, gas, CCS, RES

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V. IEA 2 oC challenge: carbon price signal essential

Linked carbon markets should avoid distortions between regions

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V. An emerging global GHG allowances market (picture 2009)

• Emissions trading for countries: AAUs, CERs, ERUs• Emerging emissions trading for companies: EUAs, ..., CERs, ERUs

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V. Renewables ... competitiveness ... and natural gas

• RES (Renewable Energy Sources)

– European electricity prices 21% higher than in US & 197% higher than in China (Commission 2020 Energy Strategy)

– European solar output (GWh): 10 and 57 times higher than in US and China while wind capacity (GW) is 2 and 3 times higher than US and China

– European investment for generation by Solar and Wind: > € 500 bn for 2020 target of 20% renewables

– European investment for transport (in gas pipelines and power grids): € 200 bn for 2020 target

– Experts doubt whether the EU 20% RES target will be or can be met

• Natural gas– Significant switch from coal to gas for power could save European nations

€ 450bn ($ 596 bn; £ 377 bn) in the next two decades and cut carbon dioxide (CO2) emissions (European Gas Advocacy Forum)

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V. Renewables globally

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*30 US states and DC have established mandatory Renewable targets and 6 have voluntary targets

…making Europe a leader in renewables while severely overheating the cost for European consumer

The USA* haven’t set any official targets and are one of the biggest energy consumers!!...protecting their industry??

Source: EAA; REN21

Solar electricity capacity 2020 targets

Europe 88

China9

Japan14

India17

South Korea1,3

0

10

20

30

40

50

60

70

80

90

100

GWWind electricity capacity 2020 target

Europe 196

China100

Turkey20

0

50

100

150

200

250

GWGW

The other countries official targets are less ambitious and constraining….

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V. Natural gas according to IEA, Shell and others

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V. Renewables ... and natural gas

• There were (are) economists that state: RES is cheaper, creates jobs; true when fossil and carbon get very expensive

– “There is now a widespread consensus that the development of resource-efficient and green technologies will be a major driver of growth” … “But this potential to lead [Europe’s early investment in green technology] cannot be taken for granted” (EU Commission communication move beyond 20%, 26 May 2010)

• Surcharge electricity Germany (example)– € 11/MWh in 2009, € 20/MWh in 2010 to an estimate of € 35 (-43)/MWh in 2011,

with exemption energy-intensive industry– Similar costs for other Member States in later years

• Issues– Exemptions, annual struggle: who, how much? Distortions between MSs

– Global Climate Agreement: either abandon subsidies or also agree on RES targets (no issue yet on UNFCCC level)

– EU Commission & various parties want an pan-European market-based approach for RES (cheaper) – interaction with EU ETS

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VI. Conclusion

• GOs do not seem meaningful for the carbon footprint of products, manufacturing plants or companies

• The EU 20% RES target may be difficult to achieve and will certainly cost a lot of money

• GO trade may be an attractive means to lower the total investments for RES– Effective protection of competitiveness of European Energy

Intensive Industry is an essential prerequisite

• RES targets should be part of a new Global Climate Agreement

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