Abatement under the EU ETS? Evidence from selected sectors

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1 ÖSTERREICHISCHES INSTITUT FÜR WIRTSCHAFTSFORSCHUNG AUSTRIAN INSTITUT OF ECONOMIC RESEARCH Abatement under the EU ETS? Evidence from selected sectors, Daniela Kletzan-Slamanig, Angela Koeppl 32 nd International Energy Workshop, Paris, 19 th June 213

2 PERFORMANCE OF THE EU ETS 1

3 Development of EU ETS CO 2 prices Spot price EUA 27 EUA 28 EUA 29 EUA Market uncertainty EUA 211 EUA 212 EUA 213 EUA 214 Energy prices Sale of surplus allowances due to economic crisis per t CO Revision in growth prospects / Over-supply 1 5 Verified emissions / Over-allocation January 25 July 25 January 26 July 26 January 27 July 27 January 28 July 28 January 29 July 29 January 21 July 21 January 211 July 211 January 212 July 212 January 213 No banking between phases I & II Source: Point Carbon, WIFO illustration. 2

4 Development of EU ETS CO 2 prices Spot price EUA 27 EUA 28 EUA 29 EUA Market uncertainty EUA 211 EUA 212 EUA 213 EUA 214 Energy prices Sale of surplus allowances due to economic crisis per t CO Revision in growth prospects / Over-supply 1 5 January 25 July 25 January 26 July 26 January 27 July 27 January 28 July 28 January 29 July 29 January 21 July 21 January 211 July 211 January 212 July 212 January 213 Verified emissions / Over-allocation No banking between phases I & II Source: Point Carbon, WIFO illustration. 3

5 Short and Long Positions - Method of data analysis and data sources Approach: Calculating net positions 1. Long / short position on installation level 2. Gross long / gross short position on EU, country or sector level 3. Net long / net short position on EU, country or sector level Database Installation data from the European Union Transaction Log (EUTL) assigned to sectors based on National Allocation Plans Coverage: EU-27 (excluding BG and CY) Only installations for which data on allocation and verified emissions were available for all years are considered 4

6 Stringency of the cap in Phase 1 and 2 EU level 2,5 Allocation Verified Emissions 3 Net short Net long Gross short Gross long Mt CO2 2, 1,5 1, 5 in percent of allocation P P Source: EUTL; WIFO calculations P P2 Allocation (in Mt) 1,981 1,848 1,862 1,89 1,889 1,917 1,881 Emissions (in Mt) 1,975 2,4 1,782 1,829 1,778 1,748 1,828 Surplus (in Mt) Surplus (in %) Source: EUTL; WIFO calculations 5

7 Stringency of the cap in Phase 2 Sector level Power and Heat Other Iron and Steel Cement and Lime Refineries Pulp and Paper Glass Ceramics Opt-in Non-specified EU Ceramics Iron and Steel Pulp and Paper Cement and Lime Other Glass Refineries Power and Heat Opt-in Non-specified Net short Net long Gross short Gross long in percent Source: EUTL; WIFO calculations 6

8 ABATEMENT UNDER THE EU ETS? 7

9 Method of data analysis and data sources Method: Extended Decomposition Approach (Steckel et al. 211) 1. Changes in CO 2 emissions as result of changes in Output Energy Intensity (Energy per output) CO 2 Intensity (CO 2 emissions per energy) 2. Changes resulting from changes in CO 2 intensity as a result of changes in the energy mix 2 sectors: Power and heat Pulp and paper Data sources: UNFCCC Inventory Submissions IEA Energy Balances FAO Statistics Coverage: EU-25 in the period

10 Power and Heat Decreasing trend in carbon intensity over past twenty years Only minor changes in energy efficiency until late 199s 2 28: Improvements in intensities (partly) cancelled out by increased output RES gained in importance in recent years, acceleration since 25 %-change in CO 2 emissions Transf. Output Energy Intensity CO2 Intensity CO %-change in CO 2 emissions coal oil gas nuclear res waste cf Source: UNFCCC (211), IEA; WIFO calculations. 9

11 Pulp and Paper Since 199 continuous decline in energy and carbon intensity Improvements in intensities set off by rising production until 21 Improvement of carbon intensity reflects decrease in the share of emission intensive fuels in favour of low emission fuels (biomass) Since 25 no acceleration of this long-term trend %-change in CO 2 emissions Output Energy Intensity CO2 Intensity CO %-change in CO 2 emissions coal oil gas res waste cf Source: UNFCCC (211), FAO; WIFO calculations. 1

12 Conclusions EU ETS is key element in European climate policy Despite tightening of the cap surplus of allowances also in second trading phase Trade-off between providing regulatory certainty for firms and allowing for interventions in case of unforeseeable events Realpolitik opposition to introducing market stabilisation mechanisms in EU - EP voted against back-loading of allowances Credibility of the EU s flagship climate policy instrument is seriously put into question 11

13 Thank you! 12

14 Extended Decomposition Approach 13