1. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Technology and Trading Systems A Comment Dolf Gielen Senior Analyst IEA

2. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Topics The importance of technology Issues for options/sectors Specific comments

3. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE ETP Scenarios & Strategies 2050 “The WEO scenarios are not sustainable” (Claude Mandil) ETP supplements WEO as it shows new pathways to a sustainable future Emissions can be stabilised by 2050, if proper energy policies are implemented Assumes incentive $25/t CO 2 worldwide Technology plays a key role Key technology options and policies have been identified

4. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE TECH Plus: More optimistic on progress for certain key technologies Mt CO 2 Global CO 2 Emissions 2003-2050 Baseline, ACT and TECH plus Scenarios 32 Gt CO2

5. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Map: OECD Emissions 32% below 2003 level, while emissions in Developing Countries are 65% higher CO 2 Emissions Baseline and Map Scenarios OECDDeveloping Countries -32% +65% +70% +250%

6. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Issues for Sectors

7. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Emission Reduction by Technology Area ACT Map Scenario Improved energy efficiency most important contributor to reduced emissions

8. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Energy Efficiency - A top Priority Improved energy efficiency saves about 15 Gt CO 2 by 2050 - equivalent to 60% of current emissions Improved efficiency halves expected growth in electricity demand and reduces the need for generation capacity by a third Not a pricing issue, an issue of barriers and market inefficiencies Trading systems usually do not help INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

9. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE CO 2 Emissions in Power Generation

10. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Electricity Generation Power plant efficiencies – autonomous trend CCS – not yet ready, further cost reduction needed Nuclear – not really a cost issue Renewables – cost matter, trading systems are not sufficient (learning needed) INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

11. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Manufacturing Industry Carbon leakage: more global coverage may help ETS does not capture industry complexity fully:  Commodity trade  Life cycle effects/competition (e.g. plastic waste incineration) Progress is not rewarded (revised permit allocation): n o incentive for technological change Half of world industry emissions part of AP6 (benchmarking) Sectoral approaches as alternative ? INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

12. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Specific Comments

13. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Linking ETS Linking is almost always technically possible, and some difficulties might be overstated:  Price cap issue: only countries in compliance can be sellers  Market segmentation with caps may or may not occur  Indexed vs. non-indexed targets: little difference (e.g. Spain, Greece) Linkage creates winners and losers and therefore acceptance problems Linkage difficult for key countries outside Europe (Japan) INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE

14. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE CDM/JI and Technology Transfer Technology transfer is more than installing foreign equipment Interests of technology suppliers and governments differ May work for non-CO2 (important reductions per project, low cost, limited economic relevance) Less relevant for energy related CO2 (higher cost, high economic relevance)

15. INTERNATIONAL ENERGY AGENCY AGENCE INTERNATIONALE DE L’ENERGIE Thank You dolf.gielen@iea.org