Assessing effects of EU ETS for Portugal – IEW 2007 Assessing the effects of the European Emissions Trading Scheme for Portugal using the TIMES_PT model Environmental Sciences and Engineering Department New University of Lisbon Portugal Sofia Simões, João Cleto, Júlia Seixas

Assessing effects of EU ETS for Portugal – IEW 2007 Overview TIMES_PT model –Structure and information sources –Energy Services Demand –Exogenous Inputs: demand and main policy assumptions –Final energy consumption in base year Simulating EU ETS –CO 2 emissions in EU ETS –National CO 2 marginal abatement curve –Simulation of EU ETS –Allocation and price scenarios Results Next steps

Assessing effects of EU ETS for Portugal – IEW 2007 Portuguese energy system Energy intensity is one the highest in EU Small improvements in energy efficiency for residential and commercial Improvements in industry - however mainly low-value energy intensive products 85% primary energy imports – rest is hydro, biomass and wind Kyoto/burden sharing target of +27% 1990 levels Most recent forecasts point to growth of GHG emissions of 47% by 2010 and 41-38% by 2020

Assessing effects of EU ETS for Portugal – IEW 2007 TIMES_PT model

Assessing effects of EU ETS for Portugal – IEW 2007 Implementation of TIMES_PT NEEDS National research project Quantifying interactions between energy and environment policy instruments E 2 POL EU research project Evaluation of total costs and benefits of energy policies and future energy systems TIMES_PT Implementation of TIMES for Portugal: (2050) NEEDS

Assessing effects of EU ETS for Portugal – IEW 2007 Model structure Primary energy supply: Refinery, imports and renewable energy Electricity generation Transport: road passengers (car – short / long distance, bus – urban / intercity, moto), road freight, rail (passengers / freight), aviation, navigation Industry: Iron & Steel; Non-Ferrous metals; Chlorine&Ammonia; Other Chemic.; Cement; Lime; Glass: Hollow/Flat; Ceramics; Pulp & Paper; Other Residential: Existing & New - Rural/ Urban /Multi appartment Commercial: Large and Small Agriculture Oil, coal, gas import prices Demand projections end-use energy services & materials Base year & New energy technologies capacity, availability, efficiency, life, costs, emission factors National primary energy potential Hydro, wind, solar, biomass Policy constraints restrictions, taxes, subsidies, … Minimise total system costs Optimal combination of energy supply and demand technologies Emissions Costs Installed capacity Final energy prices Materials and Energy flows

Assessing effects of EU ETS for Portugal – IEW 2007 – Annual Demand (DEM)Annual Demand Cement (Mt) Paper (Mt) Iron & Steel (Mt) Glass (Mt) Pkm (Million Pkm) Tkm Other Industries (PJ) Agriculture (PJ) Resid. Space Heating (PJ) Resid. Space Cooling (PJ) Water Heating (PJ) Etc. – Elasticities of final demands to macroeconomic drivers, income (ELASI) and price (ELASP)ELASIELASP – Autonomous efficiency improvement in industry (AEEI)AEEI – Base year data (DEM 2000 ) – Residential Data – Population growthPopulation growth – World energy pricesWorld energy prices – Technical progress, energy intensity and labour productivity evolution – EU-22 GDP growth target (2 to 2.5%) – Energy pricesEnergy prices – Primary Energy potential and costsPrimary Energy potential and costs – New and Existing TechnologiesNew and Existing Technologies – Policy assumption (e.g. CO2 eq emissions restrictions) Model Structure: Exogenous inputs GEM-E3 Optimization function – Energy ScenariosEnergy Scenarios – Technology profile – System costs – Emissions TIMES_PT – National Macroeconomic Drivers (DRGR) GDP growthGDP Private consumption as a proxy for disposable incomePrivate consumption Sectoral production growth: industry, services, transports and agriculture. – PRGR: Price Evolution (PRGR) GEM-E3: General Equilibrium Model for Energy-Economy-Environment Inputs Outputs Residential Demand Generation * DEM t * = Industry, Commercial, Transports and Agriculture demand generation

Assessing effects of EU ETS for Portugal – IEW ,0% Clinker, Pulp, Glass, Iron & Steel Demand *Source: Industrials Association of container glass, Saint-Gobain (flat glass) and 2000 data from Statistic National Institute (INE) Clinker Glass Pulp Iron & Steel 2,5% 1,6% 1,0% 1,5% 1,9% 1,0% 0,3% * 2000 values from NIR

Assessing effects of EU ETS for Portugal – IEW 2007 Simulating EU ETS

Assessing effects of EU ETS for Portugal – IEW 2007 EU ETS in TIMES 1)Identify emission restriction for each sector Estimate emissions from EU ETS sectors in a BASE scenario and in a Kyoto scenario Assume share of these emissions in EU ETS (glass, ceramics, combustion, lime, paper) Estimate restriction and allowance stock by comparing with Kyoto scenario 2) Create possibility to buy allowances Allocation/restriction scenarios Maintain 2000 emissions 70% of National target of 0% from % of National target of -20% from 1990 Allowances prices scenarios 10 €/t 21 €/t 40 €/t Trade itself not simulated, only buying allowances Assumed constant proportion of emissions in EU ETS over time

Assessing effects of EU ETS for Portugal – IEW 2007 TIMES_PT Scenarios - main policy assumption Base ScenarioKyoto Scenario Nuclear politically unacceptable Min. electricity generated from gas combined cycle (existing & new) corresponding to at least 1100 MW in No new Coal Power Plants before 2015 & no increase in coal in final sectors; new coal has CCS Min. use of Municipal Waste & Wood Waste for electricity Min. 1.1 MW wind onshore in 2005 (feed-in-tariffs) Biofuel targets for 2010 (5.75% of diesel and gasoline) Min. 39% of the electricity consumed in 2010 is from renewable sources ISP (energy carriers tax) and VAT over energy carriers No carbon sinks CO 2 emissions restrictions (27% above 1990 levels in )

Assessing effects of EU ETS for Portugal – IEW 2007 National CO 2 marginal abatement cost curve Kyoto +20% +10% 0% -10% -20% -30% +113% to +100% from 1990 in 2020 % refers to 1990 emissions

Assessing effects of EU ETS for Portugal – IEW 2007 CO 2 emissions in EU_ETS Excluded emissions from solvent use, agriculture, waste, fugitive from fuels and f-gases - 20% in % 7% 30% 43% 11% 6% 24% 48% 11% 5% 23% 49% 12% 4% 23% 48% 12% 5% 21% 50% 15% 6% 16% 50% 15% 6% 16% 49% -2% to -6% +5% to -3%0% to -5% (90%)(69%) (80%) (40-54%) (46%)

Assessing effects of EU ETS for Portugal – IEW 2007 EU ETS in TIMES_PT – buy allowances TRDSTOR Stock = no. permits Cost of permits TSTORAGE_ELCT TSTORAGE_IIST TSTORAGE_SUPT TSTORAGE_CHPT TRDCO2N ELCCO2N ELCTCO2N IISCO2N IISTCO2N IISCO2P IISTCO2P SUPCO2N SUPTCO2N SUPCO2P SUPTCO2P CHPCO2N CHPTCO2N (...)

Assessing effects of EU ETS for Portugal – IEW 2007 Results

Assessing effects of EU ETS for Portugal – IEW 2007 Bought quantities (Gg CO 2 ) eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / % nat.%ETS Nat 0% % increase price increase restriction Allowances stocks

Assessing effects of EU ETS for Portugal – IEW 2007 Buyers 2010

Assessing effects of EU ETS for Portugal – IEW 2007 Buyers 2020

Assessing effects of EU ETS for Portugal – IEW 2007 System cost variations eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / eur/t21eur/t40eur/t CO 2 as CO 2 as Nat 0% / CO 2 as Nat -20% / increase price increase restriction % change compared to Kyoto scenario

Assessing effects of EU ETS for Portugal – IEW 2007 Next steps Test other allocation criteria Verify results with sector marginal abatement curves Model with national emission ceiling Possibility to model selling allowances? Feed-in-tariffs for renewables Acidifying emissions constraints

Assessing effects of EU ETS for Portugal – IEW

Assessing effects of EU ETS for Portugal – IEW 2007 Departamento de Ciências e Engenharia do Ambiente Research work funded by the FCT/MCES and POCI 2010, supported by FEDER

Assessing effects of EU ETS for Portugal – IEW 2007 Primary Energy Potentials in TIMES_PT Reference Non Energy Extr. costs (€/GJ) (VIEWLS project) Wood Products (PJ) (+28%) Assumed a maximum growth 30% of 2000 capacity 4.89 Biogas (PJ)0.129 (+100%) GPPAA & Extrapolation of PNAC Waste Scenarios Crops for Biofuel (PJ)0.015 (+100%) Extrapolation of Renewable Energy Portugal Forum 1.30 Biofuel production (PJ)0.050 (+100%) Best guess based on 2008 expected installed capacity Municipal Waste (PJ)7.310 (+27%) Extrapolation of PNAC Waste scenarios 5.81 Industrial Waste – Sludge (PJ)0.02 (+100%) Best guess 5.81 Hydro (PJ) (+58%) Ministery of Economy 0.00 Wind onshore (GW)0.75 (+98%) Conservative assumption based on REN 0.00 Wind offshore (GW)0.02 (+100%) Best guess 0.00 Solar- heating (PJ)0.838 (+98%) Extrapolation of Renewable Energy in Portugal Forum 0.00 Solar-electricity generation (GW)0.02 (+100%) Best guess 0.00 Geothermal (PJ)0.68 (+93%) Extrapolation of Renewable Energy Portugal Forum 0.00 Waves (GW)0.05 (+100%) Cruz, J., Sarmento, A. (2004). Energia das Ondas 0.00