1. Carbon footprint of plants, products, companies and a possible market for green electricity certificates (GOs) Personal thoughts RECS Market Meeting Brussels, 30-31 March 2011 Vianney Schyns Utility Support Group Dept. Climate & Energy Efficiency (C&EE) USG is Utility provider for a.o. SABIC, OCI, DSM

2. Contents I.Carbon footprint –Some examples –Products, plants and companies II.Carbon footprint and GOs – taking stock –Pan-European optimisation of RES investments III.EU ETS – lessons for a possible RES market IV.Leitmotiv for a RES trading market V.Developments in global perspective –IEA: 2 o C challenge: carbon market is essential –An emerging global GHG allowances market –Renewable Energy Sources (RES)... and natural gas VI.Conclusion 2

3. I. Carbon footprint, some examples Carbon free golf tournaments (e.g. Peru, Netherlands) Website about 2011 Nissan Leaf –Cost: $32,780* Range: 100 miles (99 mpg fuel equivalent) Time to charge: 30 min. for 80%, or 8 hours for a full charge Annual charging cost: $561 Tons of CO 2 annually: 0 –Amazing website (not from Nissan), read more: http://www.thedailygreen.com/environmental-news/latest/fuel-efficient-cars- 47102201#ixzz1F3u6FOJA http://www.thedailygreen.com/environmental-news/latest/fuel-efficient-cars- 47102201#ixzz1F3u6FOJA My calculation Daihatsu Sirion 2 (a small car) –18,3 kWh/100 km (calculated from published data) –Marginal plant 0.75 ton CO 2 /MWh >> 137 gram CO 2 /km –Marginal plant 1.00 ton CO 2 /MWh >> 183 gram CO 2 /km (EUA price > fuel switch) –Fuel efficient small car can achieve 120 gram CO 2 /km –Volvo V70 D5 (diesel) achieves 190 gram CO 2 /km (real) 3

4. I. Carbon footprint of products & plants Carbon footprint of manufacturing plants & its products of e.g. aluminium, chlorine, low density polyethylene, etc. –Is an efficient plant / produced product in Germany worse than a less efficient plant / produced product in Norway, Sweden or France? I think not. –What is the benefit of an efficiency improvement of a plant in Norway, Sweden or France? Fewer CO 2 emissions of the marginal electricity plants in e.g. Germany, based on a mix of natural gas, coal & lignite, indication 0.70-0.75 ton CO 2 /MWh. –At higher EUA prices in the future: above fuel switch level (as happened already) electricity from coal & lignite always marginal, indication 0.95-1.0 ton CO 2 /MWh. Should Guarantees of Origin (GO) change the picture? –It seems not, to me, but I am interested to learn at this conference. 4

5. I. Carbon footprint of companies Electricity part of plant and product carbon footprint –Some companies buy GOs to lower the carbon footprint, many others (esp. energy intensive industries) not. –Many companies calculate with supplier or country averages. –Many companies claim footprint of CHP, then we have the issue about correcting country & E-producer footprint? –Key question: what tell GOs, country averages about company carbon footprint? No comprehensive system functioning yet –WBCSD/WRI protocol in further development. –EPED (European Platform Electricity Disclosure) progress to eliminate double counting, of course an ex-post calculation. 5

6. II. Carbon footprint and GOs: taking stock 1.Products & processes: little or no added value? 2.Companies: questionable? Concerning 1 & 2: So far CO 2 -effect of the average (for attributional footprints) and the marginal power plants (for consequential footprints) in a connected geographical region seem applicable, e.g. Europe, North America, China 3.What seems to make sense: Pan-European renewable electricity market for optimisation, with a harmonised mandatory European information (tracking) system –Huge savings necessary and possible, e.g. EWI estimated EU savings 2008-2020 for EU 2020 electricity target of € 118 billion (almost 20%) until € 174 billion (25%) –But there is a need for careful design: to avoid (new) windfall profits, to protect competitiveness of energy intensive industries 6

7. III. EU ETS in a nutshell After careful study we found out how an ETS should work –There are only 2 sustainable systems: auctioning and benchmarks multiplied with actual production (provisional production ex-post adjusted to actual); auctioning is ideal, but only if globally applied. =EU ETS has now established benchmarks (an achievement) We could have a few more in the future, e.g. for sugar, bulk polymers. Benchmarks are too soon too stringent (“top 10%” in 2013) for an effective protection of competitiveness in case we get a meaningful EUA price (often misunderstood: more stringent benchmarks are not environmentally better). =EU ETS is not yet ex-post, but there are many ex-post elements (for new entrant, significant capacity reduction, partially ceased operation) Financial compensation will be ex-post. CDM & JI are ex-post. Ex-post is the normal practice, like for paying taxes, or for Border Measures (if these ever come). 7

8. III. EU ETS revision – an ideal as “leitmotiv” for GO trade Benchmark level: “sliding path”, i.e. “top 10%” as long-term goal for around 2020 –All EU manufacturing at “top 10%” in 2020 is very difficult if not impossible Actual production (with ex-post), a huge simplification –EU ETS came under fire: =Possibility of windfall profits (CE Delft), over-allocation in crisis ( Sandbag) =Present new entrant rules cause distortions (arbitrary thresholds, auctioning for gradual growth by debottlenecking / capacity creep) =Present rules allow and even incentivise carbon leakage until 49% (49% of steel, cement and chemicals means  300 Mton CO 2 =  target)  Not achieving 20% RES target, should not burden the ETS companies Higher electricity prices by EU ETS: move from unstable financial compensation to indirect allocation Refill NER (new entrants’ reserve) when depleted “Carbon Bank” (price collar, higher EUA prices bearable with ex-post) 8

9. IV. Leitmotiv for a RES trading market with GOs Objective: minimise overall cost Trade based on an obligation: possibility is E-producer –Basis could be differentiated obligations per Member State, as now foreseen Maintaining competitiveness of European Energy Intensive Industry is crucial –GO obligations and costs should be fully decoupled from electricity prices in the market –Feed-in Tariff (FiT) moves along to GO buyer, e.g. German producer buys Danish GOs, FiT moves from Denmark to Germany –Pool for FiT is large, e.g. € 120-170 billion to be saved in period 2008-2020 9

10. V. IEA 2 o C challenge, energy efficiency, gas, CCS, RES 10

11. V. IEA 2 o C challenge: carbon price signal essential Linked carbon markets should avoid distortions between regions 11

12. V. An emerging global GHG allowances market (picture 2009) Emissions trading for countries: AAUs, CERs, ERUs Emerging emissions trading for companies: EUAs,..., CERs, ERUs 12

13. V. Renewables... competitiveness... and natural gas RES (Renewable Energy Sources) –European electricity prices 21% higher than in US & 197% higher than in China (Commission 2020 Energy Strategy) –European solar output (GWh): 10 and 57 times higher than in US and China while wind capacity (GW) is 2 and 3 times higher than US and China –European investment for generation by Solar and Wind: > € 500 bn for 2020 target of 20% renewables –European investment for transport (in gas pipelines and power grids): € 200 bn for 2020 target –Experts doubt whether the EU 20% RES target will be or can be met Natural gas –Significant switch from coal to gas for power could save European nations € 450bn ($ 596 bn; £ 377 bn) in the next two decades and cut carbon dioxide (CO 2 ) emissions (European Gas Advocacy Forum) 13

14. V. Renewables globally 14

15. V. Natural gas according to IEA, Shell and others 15

16. V. Renewables... and natural gas There were (are) economists that state: RES is cheaper, creates jobs; true when fossil and carbon get very expensive –“There is now a widespread consensus that the development of resource-efficient and green technologies will be a major driver of growth” … “But this potential to lead [Europe’s early investment in green technology] cannot be taken for granted” (EU Commission communication move beyond 20%, 26 May 2010) Surcharge electricity Germany (example) –€ 11/MWh in 2009, € 20/MWh in 2010 to an estimate of € 35 (-43)/MWh in 2011, with exemption energy-intensive industry –Similar costs for other Member States in later years Issues –Exemptions, annual struggle: who, how much? Distortions between MSs –Global Climate Agreement: either abandon subsidies or also agree on RES targets (no issue yet on UNFCCC level) –EU Commission & various parties want an pan-European market-based approach for RES (cheaper) – interaction with EU ETS 16

17. VI. Conclusion GOs do not seem meaningful for the carbon footprint of products, manufacturing plants or companies The EU 20% RES target may be difficult to achieve and will certainly cost a lot of money GO trade may be an attractive means to lower the total investments for RES –Effective protection of competitiveness of European Energy Intensive Industry is an essential prerequisite RES targets should be part of a new Global Climate Agreement 17