Cost Effective Allocation of Sectoral Emission Reduction Objectives: Final Results

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Cost Effective Allocation of Sectoral Emission
Reduction Objectives Final Results
Working Group 2EUROPEAN CLIMATE CHANGE PROGRAMME

• 28 February 2001
• Matti Vainio Peter Zapfel
• DG ENV, Sustainable Development Unit

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Outline

• Purpose
• Methodological summary
• Main results
• Implications to ECCP
• Ideas for further improvement

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Purpose

• Identification of a least-cost allocation of
  greenhouse gas emission reduction objectives for
  each sector so that the EU will achieve the Kyoto
  target of -8 by 2008-12 from 1990 level with
  least cost.
• Also, identification of policies and measures
  that would lead to this (not included
  presentation).
• Backdrop if emission reductions were not
  allocated least-cost, it could cost up to 20,5
  bn per annum (see cheese slicer case in the
  analysis for emission trading)

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Methodological summary

• Solid analytical process
• non-CO2 based on best known engineering
  estimates
• CO2 using both top-down and bottom-up approaches
• Validated extensively
• Workshops in November 1999 and March 2000
• Bilateral contacts with e.g. CEPI, Eurofer,
  Cembureau, CEFIC, etc.

• CO2 based on Primes
• validated through i.a. Shared Analysis
• ACEA agreement analysed
• validated by bottom-up estimates
• Reasonable orders of magnitude have been
  established

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Methodologically advanced

• Uses a sophisticated, but transparent allocation
  rule cost-effectiveness
• Includes for CO2 two complementary approaches
• bottom-up and top-down
• and compares them
• Analyses the effect of allocation of industrial
  boilers and auto-production
• Analyses direct and indirect emissions

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Importance of cost-effectiveness
(marginal) cost
ABC ltd
XYZ ltd
Reduction of GHG emissions (Mt CO2 eq)
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All gases in EU-15
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Industry
9
Direct and indirect emissions (industry)
10
Waste
11
Agriculture
12
Households
13
Commercial and public services
14
Transport (including international aviation)
910
15
Fossil fuel extraction, transport and
distribution
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Energy supply
1150
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Reduction from power supply 152 Mt CO2 eq. from
baseline...
Note Total According to Eurostat definitions
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Reduction from power supply or 105 Mt CO2 eq.
from baseline?
Note Total According to IPCC guidelines
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Energy Supply contributions from different
measures (orders of magnitude in addition to
baseline)
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Summary of the results by sector
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Summary of the results by gas
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Top-down and bottom-up come close
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Main implications

• Compliance cost 20 per tCO2 eq. (marginal cost)
• Average costs increase 0.8-5 (energy intensive
  sectors) and 0.1-0.5 (non-intensive)
• Cost increase for energy services and related
  equipment per household 56 per annum
• Average power generation costs up by 10
• Production of energy decreases by 0,85 from
  baseline 2010
• Investment in power supply up by 2.4
• EU wide cost of 6-gas strategy 3.2 bn per annum
• instead of 6 bn of EU-wide CO2 emission trading
  or 9 bn without any trading
• without ACEA agreement cost would be 4.7 bn

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Implications to the ECCP

• Recommends reduction objectives to those gases
  that WGs are responsible for
• Identifies the significance of allocating
  emissions to particular sectors (system
  boundaries)
• E.g. do you include industrial boilers and
  auto-production under industry or power
  supply
• can bring further light to how energy saving
  measures reduce CO2 emissions (power supply
  numbers can be represented as indirect emissions
  of industry, households, services etc.)
• Suggests specific policies and measures to be
  looked at (for each WG)
• An input, that we believe is significant...
• but it is for each Working Group (and the
  Steering Committee) to decide how to use this
  input

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Closing (policy implications)
Further details http//europa.eu.int/comm/environ
ment/enveco/studies2.htm

• Energy supply sector is crucial in particular
  during 2008-2012!
• Incentives need to be right to reduce 15
• Point-of-view matters Direct/indirect emissions
• Definitions matter Eurostat, IPCC and PRIMES
• Emission trading increases chances to reach Kyoto
  target at least cost (up to 30 cheaper)
• Study gives indications of contributions of
  sectors that are not trading and thus, subject to
  other policies and measures