Baltrel Seminar, Riga, October 12, 2006 Report of Baltrel's Emissions Trading Task Force TF2 "Name o

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Baltrel Seminar, Riga, October 12, 2006Report
of Baltrel's Emissions Trading Task Force
(TF2)"Name of the work" (t.b.d. later
on)presented by Heikki Niininen, V.P. Climate
Emissions Trading, Fortum Oyj Chairman of the
Task ForceEmission Trading Task Force
membersHeikki Niininen, Fortum Corporation
(Chair) Anita Kvesko, AS Latvenergo
(Vice-chair) Janis Andersons, AS Latvenergo
Berit Flægstad, Norwegian Electricity Industry
Association (EBL) Statkraft AS Oleg Pertsovsky,
RAO UESR Anton Shcherbich, Concern "Belenergo"
Asta idlauskaite,Lietuvos Energija AB
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Content of the presentation

• Introduction
• Status of global, EU and national climate
  policies
• Climate issue and Emissions Trading from energy
  sector's point of view
• National Allocation Plans for 2008-12 trading
  period
• status and general outlook for of NAP2s
• new entrants rules in NAP2s, comparative analyses
  for hypotetical model installations, the
  development between NAP1s and NAP2s
• The impacts of linking
• linking through Kyoto mechanisms status on Kyoto
  legislation and linking directive implementation
  and the outlook
• linking between different ET schemes status and
  outlook
• Conclusions, incl. Baltrel position
• APPENDIX A National Allocation Plans for 2008-12
  in Baltrel countries
• APPENDIX B Implementation of Kyoto legislation
  and linking directive in Baltrel countries
• APPENDIX C Climate steering instruments in
  Baltrel countries (only a temporary appendix!)

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Introduction

• Baltrel's past activities related to the ET
• Terms of Reference for the Task Force
• Work description
• Work carried out between spring 2006 and
  mid-September 2006
• Some NAP2s were then only as draft versions
• Focus of the work Comparisons of different
  allocation rules in eight Baltic Sea Region EU-25
  counties and Norway, and especially
• New installations - model calculations
• comparisons between countries
• comparisons between NAP1s and NAP2s
• ...

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Status of global, EU and national climate policies

• Global level
• Kyoto period
• post 2012 period
• EU level
• EU ETS continues to be the main instrument
• other elements of the ECCP
• National level
• esp. the aspects that are important from the
  position paper point of view - then the
  overlapping and contradictory instruments (EU
  ETS, CO2 taxes, windfall profit taxes, ...) are
  of primary interest
• the raw material for this is collected in
  APPENDIX C, but this appendix is just for
  temporarily purposes, in order to see how much we
  get - TF2 member countries covered at least?

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Climate issue and ET and energy sector

• Illustrating (rather in a quantified manner) the
  importance of ET to the cost and price structures
  of energy production
• In our previous report we had a picture like this
  (see below) - shall we update it? - or something
  else?

• Example of the economic importance
• CO2 cost added on fuel cost (at different CO2
  price levels)
• Base price Fuel prices without taxes in Finland,
  summer 2003 (Note wood local fuel)
• Reflection to the power prices dependent on the
  system in any case remarkable
• The CO2 price estimates vary, but for Kyoto
  period 10-30 /t most often referred to

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National Allocation Plans for 2008-12

• Status and outlook
• Main features of NAP2s (referring to APPENDIX A
  as far as the details are concerned)
• Some main observations

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Model plant for analyses
New installation (new entrant), with fuel input
100 MW and with annual operating time 6000 h,
other features below
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Analyses results

• Comparisons of country allocations for new
  entrants
• Comparisons between NAP1 and NAP2
• Illustration possibilities look at the following
  3 slides
• ...
• Conclusions

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Harmony?Allocation to new entrants in Baltic Sea
Region Countries
A similar picture for NAP2s?
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What could this this mean in monetary terms,
annually?
A similar picture for NAP2s?

• A further example calculation by the TF chairman
• Supposing power valued at 30 EUR/MWh and heat at
  20 EUR/MWh, and CO2 at 20/tCO2

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What could this this mean in monetary terms,
annually?
A similar picture for NAP2s?
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Linking through Kyoto mechanisms

• Status and outlook
• Refers also to APPENDIX B
• Conclusion on the impact of linking through the
  Kyoto mechanisms

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Linking between diffrent trading schemes

• Status and outlook
• Conclusion on the impact of linking with other ET
  systems

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Overall conlusions (1-2 slides)

• ... including also the introduction of the
  possibly revised position (briefly)

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• APPENDIX A
• National Allocation Plans for 2008-12 in Baltrel
  countries

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NAP2 description of country A

• Status of NAP2 and related legislation, estimated
  or real submission date (to the Commission)
• Total allocation in NAP2, in NAP1 and the
  corresponding BAU emissions and country's
  strategy to achieve its Kyoto target (ET and
  non-ET sector policies and utilisation of Kyoto
  credits)
• Free-of-charge and auctioning shares of the
  allocation
• Methods in allocating to the existing
  installations (grandfathering, benchmarking or
  ...) in more general terms
• Methods in allocating to the new entrants,
  focusing on energy sector (power-only and
  district heating applications, different fuels,
  etc.) - this should be more detailed so as to
  give the basis for the analyses. Make also NAP1
  and NAP2 comparison
• Rules for plant closures, replacements etc.

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Comments on the previous

• 2-3 slides per country
• should we concentrate here in the power-only and
  district heating applications ? because 1) the
  allocation rules for different industry sectors
  may vary? 2) these plants have not that much to
  do with the open energy market? Our common view
  YES
• we shouldn't take too detailed approach "outside
  energy sector and new entrants rules" (and taking
  into account the previous) - only to an extent
  that allows us to judge whether the energy sector
  is treated badly (vs. the other sectors)
• when speaking about total allocation and BAU
  emissions of the ET sector, we obviously also
  speak about country's Kyoto target? (meaning ET
  non-ET) and strategy to achieve that
• graphs? maybe they do not help on the country
  level to make an exact description? - graps will
  in any case used when we illutrate our results.
  Anyway, I tested below also this option on the
  country level
• no need to ask e.g. banking rules, because they
  are already build-in to the ET directive (banking
  allowed from 2008-12 period onwards)
• perhaps the best way of using 2-3 slides would be
  to give first a more general description of items
  1-6 on one slide and then devote the remaining
  slide volume to item 5, to give a precise
  description of energy sector's (excl. industrial
  energy) new entrants rules

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Test case Finland's NAP2 information - general

• NAP2 submission delayed until autumn 2006,
  because of the ET legislation changes must be in
  place first these are taken to the Parliament in
  August. However, serious proposals for allocation
  rules from a multi-stakeholder WG under tha
  Ministry of Trade and Industry (responsible for
  national climate policies) exist since April
• Kyoto target 71,1 MtCO2eqv/a, whereas the BAU
  would be 82,3 Mt/a. Inclusion of sinks worsens
  the situation by 0,9 Mt/a. Government's strategy
  a) ET sector will be allocated 39,6 Mt/a, with
  BAU 48,3 Mt/a b) non-ET sector will be steered to
  emit max. 33 Mt/a, with BAU 34 Mt/a and 3) govmnt
  will buy 2,4 Mt/a Kyoto credits. In NAP1 phase
  the allocation was 45,5 Mt/a (including new
  entrants reserve) and the corresponding BAU 44,2
  Mt/a.
• According to the earlier govmnt decisions both
  NAP1 and NAP2 allocations are 100 free-of-charge
• Allocation to existing installations will take
  place, as in NAP1, through grandfathering and
  will use the same emission reference period as in
  NAP1, i.e. 1998-2002 (except condensing power
  allocation 2000-2003, which reflects better the
  average Nordic hydro situation). All allocation
  figures are then multiplied by "improvement" or
  "cutting" factors, which for most of the sectors
  are relatively close to 1, but for condensing
  power 1/3 and for district heating operations
  2/3. The strong cut in these sectors is said to
  be justified because the transferability of
  allowance costs to the prices is better than in
  the process industry and industry related energy
  production
• New entrants reserve is only 5,5 of the total
  and is proposed to cover not only 2008-12 but
  also 2005-7 new entrants, because those plants do
  not have a reference period 1998-2002 (or
  2000-2003), see the previous item. NAP1 new
  entrant reserve has been defined at 1,0 Mt/a and
  NAP2 new entrants reserve at 1,2 Mt/a. The
  allocation is based on the postulated annual
  operation hours (in industrial applications
  mostly 7000 h/a and in energy production mostly
  4500 h/a) multiplied by the capacity of the
  installation multiplied by the specific emissions
  (for industry the present average of the sector
  and for energy production 73,39 gCO2/MJ for solid
  fuels and 54,76 g/MJ for liquis and gaseous
  fuels) multiplied further by the same
  "improvement" or "cutting" factors as for
  existing installations. A more detailed
  description of the allocation rules for energy
  sector will be presented on the next slide
• Plant closures and replacements .... (I will
  write this later on, takes a couple of lines)

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Test case NAP2 - new entrants/energy sector

• Allocation (thermal input)(operating
  hours)(specific emission)(cutting coefficient)
• Operating hours postulated at 4500 h/a (for most
  applications), but for heavy industry 7000 h/a
• Specific emissions Gaseous and liquid fuels
  54,76 g/MJ, solid fuels 73,39 g/MJ
• Cutting coefficient for district heating 2/3,
  for condensing 1/3
• In addition, if the total allocation proves to be
  over the limit, it is the energy sector's
  allocation that will be adjusted
• For reference NAP1 allocation (the pictures
  below illustrate the comparison) was as follows
• Allocation (thermal input) (operating hours)
  (specific emission)
• Operating hours postulated at 6000 h/a
• Specific emissions Gasoil 56,0 g/MJ, solid
  fuels 74,2 g/MJ

Gas-fired
Coal-fired
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• APPENDIX B
• Implementation of Kyoto legislation and linking
  directive in Baltrel countries

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"Linking legislation" of country A

• Structure of the legislation (an example Finland
  will have a separate Act for the administration
  of Kyoto mechanisms, whereas the linking
  directive will be implemented through the
  Emissions Trading Act)
• Key features of the legislation
• Upper limit for the utilisation of Kyoto credits
  by the companies how is this defined, in which
  legislation and will it be really restrictive
  during the Kyoto period
• What are the government's plans to utilise the
  Kyoto mechanisms (KM), either as an investing
  party or a host party?
• Energy companies' activitity related to KMs

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Test case Finland's "linking legislation"

• Structure of the legislation Finland will have a
  separate Act for the administration of Kyoto
  mechanisms, which is about to be sent to the
  Parliament (June 2006), whereas the linking
  directive will be implemented through the revised
  Emissions Trading Act supposed to be sent to the
  Parliament in August 2006
• The key features of the first mentioned act
  include the division of responsibilities between
  different misnistries (JI the ministry of
  environment CDM the ministry of foreign
  affairs), register keeping principles, the
  approval procedure for the Kyoto mechamisms
  projects, ... ... (this text is only
  indicative, for testing purposes)
• Upper limit for the utilisation of Kyoto credits
  by the companies the revision of the ET Act will
  define that the limit will be set in the
  connection of the decision on NAP, made by the
  government. The limit will be based on the
  allocation, but the "improvment" or "cutting"
  factors are not taken into account. This means
  e.g. that condensing power and district heating,
  which are heavily penalised in the allocation,
  will not be disfavoured when it comes to the
  utilisation of Kyoto credit. At the moment there
  are no fixed, but only indicative figures how
  much the companies could utilise 7-8 Mt/a has
  been mentioned and that is derived from the
  supplementarity principle taking into account
  that the government will acquire 2,4 Mt/a of
  Kyoto credits
• The government plans to buy 2,4 Mt/a Kyoto
  credits and has launched in the spring a new
  acquisition programme, of which some 0,5 Mt/a
  originate from an earlier governmental JI/CDM
  pilot project.
• Energy companies' activitity related to KMs has
  been relatively limited. Two comanies are
  shareholder in World Bank's Carbon Finance funds
  and six in Testing Ground Facility - in addition
  a few other efforts are on the way, but the
  companies are silent about their plans in details

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• APPENDIX C
• Climate steering instruments in Baltrel countries
  
• (Very likely only a temporary appendix! Results
  will be summarised on slide 4)

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Climate steering istruments in country A

• The role and key features of different policy
  instruments
• e.g. RES, energy efficiency etc policies, which
  are not only and not directly devoted to CO2
  reduction but have several goals
• overlapping with ETS is obvious, but taking into
  account the multi-purpose of these policies still
  acceptable (the previous Baltrel position - can
  we now confirm that?)
• Intruments with direct overlapping and
  contradiction (with the ETS)
• CO2 taxes on power and heat production?
• windfall profit taxation?
• (summarised on slide 4 and - with conclusions -
  in the position paper)