National Allocation Plans and Cogeneration Dr Simon Minett, Managing Director, COGEN Europe Emissions Trading and Cogeneration, Milanoenergia 2005, 5 October 2005 Cogeneration Clean, Clever, Competitive

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

COGEN Europe European Trade Association for the Promotion of Cogeneration Representing the cogeneration sector Setting the agenda Resource and information source for policy makers Vision COGEN Europe working towards the wider use of cogeneration in Europe for a sustainable energy future Structure National Members –National Promotional Organisations - 21 Company Members –Gas and Electricity Utilities –Equipment Manufacturers and Suppliers –Consultancies –Banks, Insurance and End Users

About COGEN Europe Secretariat with seven staff members based in Brussels One focus on studies and information campaigns Advocates the interests of the CHP sector Working group on emissions trading looks at NAPs and cogeneration Key to cogeneration’s success is the CHP Directive (will set the references and thus the allocation too)

Four Important Directives PreparationTranspositionIn force in MS Cogeneration Directive Energy Services Directive Energy performance of buildings Directive Emissions Trading Directive

SOLUTIONS Cogeneration is the most efficient energy conversion technique Saves around 280 million tonnes CO 2 EU25 Reduces energy dependence by 1500 PJ/a Modernising existing stock and achieving modest growth will yield the same again

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

Principles of the ETS Covering 12,000 installations, the European emissions trading scheme (ETS) is the largest of its kind in the world The ETS gives emissions reductions a value and extra emissions a cost The ETS is the main European policy instrument for fulfilling its Kyoto obligations The ETS is designed to promote low-carbon technologies such as cogeneration (IN PRINCIPLE!)

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

NAP 1 (2005 – 2007) The first trading period is in effect since 1 January 2005 All 25 national allocation plans (NAP) are accepted by the European Commission No harmonisation across EU25 Due to the Commission scrutiny the amount of total emissions allowances has been cut by 290 million For the NAP 1 period, there are 2.2 billion allowances issued per year

NAP 1 (2005 – 2007) DISTRIBUTION OF ALLOWANCES ACROSS EU-25

The “Electricity Price Effect” Effect of CO2 cost on marginal electricity production cost Based on efficiency ratings of 36% and 50% net HHV efficiency respectively. Source: ICF Consulting cogen

Carbon Price Effect

NAP 1 (2005 – 2007) ELECTRICITY PRICE AND THE MERIT ORDER PRINCIPLE

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

NAP 2 (2008 – 2012) Time frame synchronised with the first Kyoto commitment period European legal basis for NAP 2 equal to NAP 1, as quick amendment of the ETS Directive impossible Individual Member States are free to change national allocation methods European Commission discusses inclusion of aviation sector in the middle of NAP 2

NAP 2 (2008 – 2012) Accession of Bulgaria and Romania Bilateral discussions with Canada, Norway and others TIMING ENLARGEMENT By 01/07/06: Decision on total number of allowances by each Member State By 01/10/06: European Commission approves/rejects these numbers By 01/01/07: Members States publish allocation to individual installations

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

NAP 3 (2012 – 2016) To run from January 2012 to December 2016 European Commission will “if appropriate” propose changes to the European legislation in summer 2006 Currently, the Commission carries out a review on the ETS Emphasis on: –Stable baseline years –Longer allocation periods –Deriving future allocation from past allocation –Expansion to further sectors and gases

NAP 3 (2012 – 2016) FOCUS OF COGEN Europe Level of harmonisation of allocation methods Level of harmonisation of CHP treatment Role and design of auctioning Favourable treatment for “new entrants” Definition of combustion installations Role of flexible mechanisms (JI/CDM) Role of other sectors and gases

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

The treatment of cogeneration in NAPS COGEN Europe is the only organisation carrying out a European-wide best practice review Working Group on emission trading deals with this matter Today (5 October 2005), meeting with the European Commission Final results expected by the end of 2005 Focus on ten biggest EU countries, which represent more then 80% of allocated allowance

The treatment of cogeneration in NAPS Art. 11(2) or the Austrian emissions trading law foresees: “The allocation takes the climate-friendly effects of efficient cogeneration and efficient district heating into account, as well as the promotion of these technologies as foreseen in the framework of climate change policies” The so-called “CHP premium” halves the sector- specific CO 2 reduction requirements for cogeneration plants THE EXAMPLE OF AUSTRIA (1. part)

The treatment of cogeneration in NAPS Allocation basis x specific factor without CHP premium = number of allowances THE EXAMPLE OF AUSTRIA (2. part) 10,000 t CO 2 x 0.94* = 9,400 allowances Allocation basis x specific factor with CHP premium = number of allowances 10,000 t CO 2 x 0.97* = 9,700 allowances * equals 6% reduction obligation for the sector

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

Cogeneration Directive Background Adopted in February 2004 Implementation deadline February 2006 Article 1: “Creating a framework for promotion and development of high efficiency cogeneration” Member States must report by February 2007 their progress towards increasing the share of high efficiency cogeneration European Commission can by February 2008 propose new measures, “if appropriate” Informal EU target of 18% of electricity from cogeneration by 2010 (currently 11%)

Cogeneration Directive Definition of high efficiency cogeneration All CHP plants up to 1MWe, which provide any primary energy savings (PES) Larger plants, which provide PES of at least 10% PES is normally calculated for each individual CHP plant with following formula Other PES calculation formula possible

Primary energy savings Ref.Boiler Y% Ref. Elect. X% cogen installation = Z 48 = Savings > 10% Comparison of energy consumption for cogeneration and for separate production of electricity and heat

Primary energy savings Ref.Boiler 85% Ref. Elect. 51% cogen installation = = Savings = = 25 = 20% Comparison of energy consumption for cogeneration and for separate production of electricity and heat 32 = 35 – 3 (including grid losses)

CHP Directive Conclusions Next months are very important References are too strict = No new CHP and at least 50% reduction of existing CHP Get references right = stimulation of CHP, quality assurance and new state aid possible COGEN Europe needs your help!

About COGEN Europe Principles of the emissions trading scheme NAP 1 (2005 – 2007) NAP 2 (2008 – 2012) NAP 3 (2012 – 2016) The treatment of cogeneration in NAPs CHP Directive Final remarks

The Working Group on emissions trading is open to all COGEN Europe members Permanent representation of an Italian member not secured yet Italy ranks second (number of installations) respectively fourth (number of allowances) in the ETS If you want to present your concerns to the Commission, please contact the Working Group co-ordinator:

Thank you for your attention!