by Manfred Decker, DG TREN/B/1 European Commission Directorate-General for Energy and Transport Unit B1 New (2005) Energy Baseline Presentation to National Emission Ceilings and Policy Instruments Working Group Meeting on 1. 2. 2006 by Manfred Decker, DG TREN/B/1

Modelling and scenario approach (1) 2005 Baseline to 2030 is an update of the “Trends to 2030” of 2003; Baseline reflects current trends and policies of the EU and the Member States; Baseline is also a starting point for scenarios on alternative framework conditions and policy approaches: - different framework conditions concern e.g. higher energy import prices; - alternative policy approaches are about e.g. better energy efficiency, more renewables penetration or on nuclear. Baseline and scenarios draw on PRIMES model and other more specialised models operated by a consortium led by NTUA; Model produces a complete representation of the energy economy of the EU and its 25 Member States up to 2030; plus other European countries; Baseline and the scenarios include all the items of Eurostat energy balances: - a deep disaggregation by sector and fuel for energy consumption, transformation and production and for CO2 emissions; - projections on passenger and freight transport by mode.

Modelling and scenario approach (2) Approach includes macro-economic analyses, world energy modelling (import prices from the POLES model) and in depth analyses on specific areas (e.g. renewables, transport, air pollution with RAINS); Consultation with Member states, Commission services and stakeholders; Scenarios are under preparation addressing: - better energy efficiency; - 20% renewables share target for 2020 under discussion; - revisiting 12% renewables share in 2010 scenario; - combination of renewables with high efficiency scenario; - high energy import prices dealing also with a sub-case having more oil and gas price decoupling. Scenarios on e.g. nuclear and effects of transport policies will follow; Baseline and scenarios will be updated in 2006 given the rapidly changing energy environment; More scenarios will follow with modelling focusing more on economic issues; New publication on the most interesting results is planned for the end of 2006

Assumption for the baseline Population increase is small with a stagnation from 2020 onwards; Aging and lifestyle changes lead to smaller households; their number increases by almost 25% over 30 years to 2030; GDP in EU-25 increases by 2.0% pa in 2000-2030: - rather low growth in this decade reflecting disappointing statistics in recent years; - low growth also in 2020-30 due to stagnant and rapidly aging population. Economic growth reflects fairly successful overall economic and social policies, the baseline investigates the ensuing challenges for energy and transport policies; Sectoral growth rates (for industries and services) consistent with GDP; Growth of passenger and freight transport activity in line with the results of the ASSESS study for the mid-term review of the Transport White Paper; Future weather conditions as of 2000 (warmer than long-term average); High energy import prices – reaching 58 $/bbl for oil in 2030 (in money of 2005 – in nominal terms, price in 2030 could come close to 100$)

EU-25: Baseline: Oil Import prices in $/boe in real (2005) term and nominally (with 2% pa inflation)

EU-25: Baseline: Import prices in $/boe of 2005

Policy Assumption for the baseline 2005 Baseline includes policies implemented in the Member States by the end of 2004; Tax rates in place are kept constant in real terms (grow with inflation) unless there is better knowledge (e.g. transition phases for rising tax rates); Continuation of the economic reform process (e.g. Lisbon strategy) and completion of the internal electricity and gas markets by 2010; Continuation of active policies to promote better technologies; Continued policies on energy efficiency including implementation of the fuel efficiency agreement with the car industry (ACEA/JAMA/KAMA); Nuclear phase-out as agreed in some old Member states and agreed closure of certain plants with safety concerns in new Member States Continued promotion of renewables; Modelling is based on measures to promote renewables rather than assuming that indicative targets are met; Similarly, no further strengthening of climate change policies - CO2 emissions are modelling results;

Emission trading in the baseline Incidence of emission trading is included in the baseline assuming 5€/t CO2, which reflects a multitude of diverging influences: - the permit price stands at some 25 €/t CO2, but nearly all permits have been given out for free (grandfathering); - real costs are incurred only to the extent that permits actually need to be bought for a marginal part of the activity of trading sectors; - however, holders of permits consider them increasingly as property rights (given that they could sell them instead of using them); these opportunity costs increase electricity prices; - on the other hand, as no real costs are involved for permits given out for free, the “windfall profit” from permits can be considered as a “subsidy” on capital investment (baseline has much capital expansion in power generation putting upward pressure on prices); this might be mitigated through “windfall profit”; - permit price in the market might decrease once: * emission registries in all MS are fully up and running; * more use will be made of project based Kyoto instruments (CDM and Joint Implementation); - Baseline (current trends and policies) keeps permit allocation as it is (no guess of future NAP; tightening of climate policies  matter for policy scenarios.

EU-25: Baseline: Final energy demand by sector (in mtoe)

EU-25: Baseline: GDP, freight and passenger transport activity, transport energy consumption and CO2 emissions in transport (1990=100)

EU-25: Baseline: Final energy demand by fuel mtoe

EU-25: Baseline: Electricity generation by fuel (in TWh)

EU-25: Baseline: Renewables share in power generation

EU-25: Baseline: Energy consumption by fuel and carbon and energy intensity mtoe Carbon and Energy intensity 1990=100

EU-25: Baseline: Change of energy related CO2 emissions by sector since 1990 (mill. t CO2)

Comparison with “Trends to 2030” New Baseline has higher energy import prices, lower GDP and policies up to the end of 2004 (rather than end of 2001 in “Trends”); On results, energy consumption is lower than in the “Trends” with less gas but more solid fuels (effect of high oil and gas prices favouring coal); New Baseline has slightly better results for several policy relevant indicators: - renewables share is higher than in the “Trends” (half a percentage point in 2010, 3.5 percentage points in 2030); - nuclear share is 11% in 2030 rather than 9.5% in old baseline; - import dependency in 2030 is two percentage points lower; - share of indigenous and carbon free energy sources stabilises in power generation (rather than declining as in “Trends”); - CO2 in 2010 exceeds the 1990 level by 3%, which is however higher than in the “Trends” due to high gas prices; - CO2 in 2030 is more favourable (+5% over 1990 level instead of +14%) reflecting better renewables penetration and more nuclear in the long term.

Conclusions on 2005 Baseline Despite improvements of several policy relevant indicators – compared with the previous baseline - the main challenges for energy policy persist: Energy demand keeps rising; Growing energy demand will be increasingly met by imports coming to a large extent from geopolitically unstable regions; Import dependency reaches two thirds in 2030; Renewables target for 2010 will not be met (unless substantial increase in policy efforts of Member States); Nuclear contribution in 2030 expected to fall below present levels if nuclear phase-out takes place in certain Member States as decided; CO2 emissions grow significantly to 2010 (+3% above 1990 level) and continue growing thereafter

Work plan for 2006: overview Modelling of pollutants with RAINS following completion of energy baseline Reporting on 2005 baseline (sharing results among experts and stakeholders through a report to be finalised – no new “red book” at this stage); Completion of scenarios under construction and reporting: - high oil/gas prices; - scenarios on renewables (some 20% in 2020 and 12% in 2010), energy efficiency and combination with renewables cases; Fresh scenario work on nuclear, transport and combinations of policies; Set of scenarios available for policy analysis in early 2006; New baseline in 2006 for 30 countries reflecting latest developments and stakeholder comments; Extension of baseline modelling to all countries of South-East Europe; New energy and transport scenarios starting from the 2006 baseline, including stronger focus on economic impacts.