Post-2012: the European Electricity Industry Wants to See a Genuine Global Approach

Union of the Electricity Industry, EURELECTRIC - www.eurelectric.org

The Union of the Electricity Industry-EURELECTRIC, the association which represents the European electricity industry, recognises that climate change poses a significant risk to the global environment. A key requirement for mitigating this risk is to reduce the energy and carbon intensity of national economies. The electricity industry is both responsible for a significant proportion of total CO2 emissions and critical to the delivery of improvements in energy and carbon intensity. It therefore has an integral part to play in any solution.

EURELECTRIC has for many years contributed expert analysis to the emissions trading debate, notably through our Greenhouse Gas and Energy Trading Simulations (GETS). The most recent study in the series - GETS 4 - assessed the impacts of world greenhouse gas (GHG) emissions reduction schemes to 2012 and beyond using a wide range of scenarios and sensitivities. Based on GETS 4, the European electricity industry has developed principles which we believe should govern any post-Kyoto architecture:

A genuine global approach
A global approach is key. Without a genuine global approach, the costs of reducing emissions would considerably outweigh any environmental benefit. Consequently, all industrialised countries need to agree on common objectives that address the challenge of climate change. This is imperative not only for the environment, but also to ensure fair conditions for competition. Developing countries must be encouraged to play an increasing role. The United Nations should remain as the coordinator of international negotiations and administrator of the post-2012 framework.

GETS 4 confirmed that linking schemes significantly reduce costs. Reductions of 6 - 17% in system compliance costs are projected from linking the EU emissions trading scheme to the other schemes modelled.

Longer timelines
Lack of certainty regarding future obligations after 2012 is creating excessive commercial risk. Businesses need a coherent and consistent framework in which to operate. The electricity industry, in particular, makes massive investments in power plants and networks infrastructure (according to the IEA, 750 GW of new power generation capacity needs to be built in the EU by 2030, representing an investment of €550 to 1000 billion). Clarity is, therefore, needed on goals and instruments over a time period that reflects the economic life of our investments (i.e. covering at least a 10 to 20 year period). Interim assessments, for example every 5-10 years, could be designed to monitor progress.

Emissions reduction goals
Any long-term international reduction goals, and the rate of progress towards these, must be based on sound scientific and economic analyses, on economically available mitigation and adaptation technologies, including the timeframe necessary for technological development, and on thorough consultation with stakeholders.

GETS 4 showed that compliance costs increase exponentially with the severity of targets. Increasing all targets in all schemes by 50% leads to overall system compliance costs 3 to 5 times higher.

In addition, GETS 4 demonstrated that a 2ºC target has a dramatic effect. The simulations indicate that if the EU-25 alone were to commit to its share of a 550 ppm CO2eq target in the period 2013-2022, compliance costs would treble. This would lead to a doubling of world compliance costs.

GETS 4 also proved that distribution issues are key. Redistributing 2010-2020 Kyoto reductions on a per capita basis sees a major transfer of costs from net buyers (EU-25, Japan, Canada) to net sellers (Russia, Ukraine, other eastern Europe).

Market-oriented policies
Well-designed market-based instruments have the potential to ensure compliance with balanced policy objectives at the lowest cost. In a competitive market they offer the most cost-effective path towards a lowcarbon economy. Kyoto's flexible mechanisms (i.e. emissions trading and the project-based mechanisms) should be available under simplified procedures and incorporated in the future framework. Global emissions trading can be an important policy instrument to drive technology innovation and dissemination and thus emissions reductions.

Participation of all sectors
Specific sectors should not be exempted from contributing to emissions reduction goals. All economic actors should participate, and provide solutions, in the global effort to combat climate change.

GETS 4 showed that supplementarity (i.e. based on a minimum level of domestic action) is a costly constraint as it restricts trading. High GDP projection increases system compliance costs 2-to-4-fold.

Increase R&D and technology transfer and dissemination
There is a need for accelerated and increased funding plus international coordination to develop economic low or zero-carbon solutions. Policies and measures should also be pursued to increase the use of: energy enduse efficient technologies and non- or low-emitting generation technologies, such as renewables, nuclear power, combined heat and power, high-efficiency natural gas and advanced clean coal technologies - including carbon capture and storage.

Encourage changes in consumer behaviour
Consumers and their choices make markets. Whilst those markets can give appropriate signals to consumers to modify their behaviour, governments should also implement policies and measures that will influence them to adopt more climate-friendly behaviour.

GETS 4 and other EURELECTRC papers on this topic are available at www.eurelectric.org

For more information: jscowcroft@eurelectric.org