Tens of thousands of firms will have to participate in the nationwide emissions trading scheme (ETS) from next year, and third-party agents need to verify their carbon emission levels as well as the offsets allowed on carbon mitigation projects. China is the world's biggest emitter of climate-warming greenhouse gases and it has vowed to make use of market mechanisms to bring carbon dioxide levels to a peak by around 2030, but the accuracy of its data has been questioned. Amid concerns about the independence of verification firms, China's top economic planner, the National Development and Reform Commission (NDRC), said it would ban them from trading and from managing the carbon portfolios of market participants. China has already accredited nine organizations to verify emissions reports for projects capable of generating offset credits tradable on the seven pilot regional carbon markets. But provincial governments have also allowed hundreds of local agents to assist in carbon auditing, many involved in trading. "Such agents have breached the independence of data reporting," said a carbon project developer who did not want to be named. To improve the credibility of the verifiers, the NDRC also said they should not hire staff who have worked in companies being audited at any time during the previous five years. It has not been decided how many agents will be approved. China has set a capital threshold of 5 million yuan ($760,098) for private firms, who must also have at least 10 staff members with experience in carbon-related projects. Companies consuming more than 10,000 tonnes of standard coal in any year between 2013-2015 have been obliged to submit emissions data, and the biggest emitters will join the national trading scheme in 2017. China's carbon market is likely to be the world's biggest ETS once it is launched. Officials are sticking to the 2017 launch date, though Reuters Point Carbon expects China may need another two years to develop a national market, citing legislative bottlenecks and the difficulties in integrating the existing pilot markets. Sectors to be covered by the national market include energy-intensive industries like oil, aluminum, copper, steel and cement.
With the British government looking for ways to save jobs threatened by the sale of Indian firm Tata Steel's British plants, Scottish Conservative Ian Duncan said repealing the carbon floor was one of the few tools available to it. "The carbon floor price must go," Duncan said, adding he would write to British Business Secretary Sajid Javid calling for an end to the policy in place since 2013. While cheap Chinese imports are the steel industry's primary worry, high energy prices, boosted by environmental charges, have added to their woes. Duncan's comments are seen fuelling a debate over how the EU's draft reform bill can promote a high-enough carbon price to spur green growth while maintaining industry competitiveness in the absence of a global carbon market. It runs counter to a French proposal for an EU-wide price corridor to fix what aims to be the bloc's flagship climate policy but which is floundering as oversupply depresses prices. While many in the 28-nation bloc oppose higher environmental taxes, such as coal-reliant Poland, EU sources said the French proposal was forcing a debate about how to shore up carbon prices. Benchmark carbon prices are hovering around 5 euros. "The real fix would be a minimum price of 30 euros," said Patrick Graichen of the Berlin-based think tank Agora Energiewende. British factories regulated by the ETS, including steel which accounts for some 27 percent of EU industrial pollution, pay an additional 18 pounds ($25.58) per ton of carbon dioxide emitted. Along with other energy-intensive industries, steelmakers fret the ETS reform will slash some of their free carbon permits. The Eurofer industry group warns they will be short of half of the permits they needed in 2030 under the proposal. "What the European Commission is asking is too big," Eurofer head Geert Van Poelvoorde, a senior executive at ArcelorMittal, told Reuters last month. "It pushes de-industrialization in Europe but to places where probably or most likely the CO2 emission is higher." The ETS handouts were a concession to some of the biggest employers in Europe to prevent their relocating abroad in what is known as "carbon leakage".
News Article | April 6, 2016
European energy and European climate policies, although often portrayed as being two sides of the same coin, are still not sufficiently harmonised, writes Stefan Bößner, Research Fellow at the Stockholm Environment Institute. The EU’s new LNG and gas storage strategy serves as a prime example where EU energy security concerns work against climate protection efforts. The strategy is likely to lead to costly investments into infrastructure which may not be needed and which come at the cost of other options to enhance climate protection and energy security. The European Union often claims leadership on climate change. The EU not only saved the Kyoto Protocol by convincing Russia to join but also pushed for an ambitious climate agreement prior to the Paris Climate Conference (COP 21) last December. It is the only developed economy of comparable size that sources 26% of its energy needs from low-carbon sources and its 2030 goals to reduce emissions by 40% are among the most ambitious in the world. So far so good. But despite those ambitions, the EU is likely to miss its contribution to limit global warming to two degrees (as decided upon in the Paris Agreement). And while some member states demand to raise the EU’s climate ambitions others refuse to do so, illustrating existing frictions between EU and member state policy making. But the EU itself is not without fault either. The European Commission also pursues conflicting aims sometimes in its climate and energy policies. In principle there is no reason why climate and energy policies should not work well together. With regard to climate change policies, the EU aims to achieve a low-carbon economy by 2050 by cutting its emission by 80%-95, while its energy policy is pursued with the three pronged approach of security of supply, competitiveness and decarbonisation. The recent Energy Union project – set to streamline individual member states’ energy policies which are often pursued out of national interest instead of mutual solidarity – even calls itself a “framework strategy for a resilient energy union with a forward looking climate change policy.” However, the Commission’s recent EU strategy for liquefied natural gas (LNG) and gas storage is an example of a policy initiative that contradicts the EU’s climate ambitions as evidenced by its Communication concerning the Paris Agreement. On the one hand, the European Commission acknowledges the importance of “avoiding the ‘lock-in’ of high emissions infrastructure and assets.” One the other hand, this is exactly what might happen when one looks at the EU’s recent LNG and gas strategy. In the new strategy, the Commission praises LNG as “major opportunity” for the EU to enhance its energy security since most of Europe’s gas imports reach markets via pipelines which originate mainly in Russia, a country which has long been the source of energy and geopolitical headaches. The EU has made some significant progress (and continues to do so) in boosting its gas security by assuring pipeline reverse flow capacities or tasking member states with having emergency plans in the case of supply cuts. But import dependency on Moscow remains high and a fully integrated internal energy market unachieved. It is therefore understandable to look to other options such as LNG to satisfy European energy security needs. But while the new LNG strategy acknowledges the need to further integrate energy markets, to streamline regulation and to make use of existing gas infrastructure, it also recommends new investments based on a list of projects of common interest (PCI). And this is where it gets tricky. First, those developments would come at a certain cost. The Commission foresees a need of € 5 billion for the projects mentioned in the LNG strategy alone. Moreover, the European Network of Gas Transmission operators (ENTSOG) foresees 39 additional LNG projects up to 2025 while Gas Infrastructure Europe indicates planned LNG terminals would boost the EU’s regasification capacity to 324 bcm by 2020, which would be almost equivalent to all European gas imports in 2014 which amounted to 346 bcm. Are these investments necessary? With its current LNG import capacity of about 195 bcm the EU can already source more than 50% of its annual gas imports from LNG. Currently, the utilisation rate of this infrastructure has fallen to 14% in 2014 meaning that most of it remains unused. Nevertheless, the Baltic states, which consumed 3.6 bcm of gas in 2014, are already planning to construct an additional 11.5 bcm of annual LNG capacity while simultaneously a € 558 million pipeline is scheduled to be built between Poland and Lithuania to alleviate the region’s energy dependency on Russia. In times of recession it is questionable whether this type of investment in more assets is wise, especially if one wants to avoid lock-in of high-emission infrastructure. Second, there is great uncertainty about the future of European gas demand . For years, natural gas consumption in Europe has been declining. There are several reasons for this, including fierce competition from cheap coal. Some analysts foresee a bullish LNG market in the future, but one has to keep in mind that forecasts are complex matters and often don’t anticipate the future well. The International Energy Agency’s (IEA) constant underestimation of renewable energy potential serves as one example, the EU’s own overestimation of gas demand as another. If the controversial Nord Stream 2 pipeline would come on stream, it would dump additional volumes on an already tepid market which would put further doubts on the economic viability of additional LNG projects. And third, there is the environmental question. The focus on gas would not in itself be so bad, if increased use of gas would help the EU realise its climate ambitions. But this is far from being the case. As our work at the Stockholm Environment Institute (SEI) shows, the environmental benefits of gas, generally less CO intensive than coal, depend significantly on the sectors it is used in and which fuel it replaces. For example, benefits from replacing gasoline and diesel with LNG in the transport sector – as foreseen by the EU Commission’s LNG strategy – might even lead to no significant CO savings depending on local circumstances. And as long as coal and ETS prices remain low, the biggest savings potential of replacing coal fired power with gas is easier in theory than in practice. Thus, Building more gas infrastructure than absolutely needed is likely to contribute to a carbon lock-in where future fossil fuel developments are favoured over low-carbon technologies in Europe. In the wake of the Paris agreement and the realisation that more has to be done to limit global warming to 2 degrees (let alone 1.5 degrees) it is therefore doubtful whether the new European LNG and gas storage strategy will help European climate policy. What can be done to align climate and energy policy better? As a first step, the EU and its member states could move away from seeing energy security only through the gas prism. As the European Commission rightly points out, energy efficiency measures and a better integration of the European energy market with the right pricing mechanisms would already enhance EU energy security. Furthermore, increasing the share of renewable energy, while not without challenges, contributes to energy security since unlike externally imported energy sources, renewables do not depend on foreign suppliers. Europe has the legal and technical know-how to integrate intermittent renewables into the internal electricity market by increasing flexibility, facilitating cross-border trade and pro-active demand side management. In doing so, enhancing energy security would come with the added benefit of mitigating climate change and bringing energy and climate policies closer together. As a second step, member states might think about whether their mainly national energy policies really provide the needed climate protection and energy security in the long term or whether the clout of 28 nations united in solidarity is a better hedge against supply disruptions and a changing climate. After all, it was European internal market rules which challenged Russian state owned player Gazprom (still the dominant player in European gas markets) and the EU’s security of gas supply provisions have made the EU more resilient to supply shocks. A more cooperative approach to security of supply would therefore make some infrastructure investments unnecessary and save a significant amount of CO . Finally, the EU and its member states might consider that it is in their benefit if they assumed their climate leadership once again. They can regain their leadership role by consequently integrating climate change mitigation strategies into other policy areas. Europe can’t wean itself off gas in the short term and strategies have to be in place to deal with this dependency. However, when those strategies work against effective climate policies and are pursued despite other options (increasing energy efficiency, strengthen the internal energy market, boost renewable energy output) being available, they risk to neither enhance European energy security nor climate protection. Stefan Bößner is a research fellow at the Stockholm Environment Institute (SEI), Oxford office. He focuses on European climate change and energy policies as well as European and international energy transitions. For another critical look at planned LNG and gas infrastructure investment in Europe, see this report published on 3 March by E3G, RAP, WWF, Agora Energiewende and European Climate Foundation.
News Article | January 22, 2016
Image via WikipediaThe failure of Copenhagen along with the sheer complexity of ETS requires stepping back to re-consider how to achieve the aims of reducing CO2 emissions. In the post "The Fallacy of the Carbon Market" I made the point that market-based reduction methods don't have to be carbon based.Here I want to look at using a negawatt based market to reduce energy demand.
News Article | April 6, 2016
As European policymakers explore pathways to decarbonise the EU economy, the heating, cooling and transport sectors are moving very much into focus. Contributing as much as 66% of Europe’s greenhouse gas emissions, these sectors have become a key challenge in unlocking Europe’s sustainability potential. However, decarbonising Europe in a cost-efficient manner remains a crucial challenge for industry, policymakers and customers in today’s energy world in view of the decentralised nature of heating and transport, as well as their high dependency on fossil fuels. A key part of the solution to this challenge can be the fuel switch to electricity. There is currently no energy carrier that can decarbonise to the same extent and scale as electricity. With the power sector fully committed to reducing GHG emissions by 80-95% by 2050, and an effective policy framework in place to ensure this goal, electricity is set to become the energy carrier of the future. As electricity becomes increasingly low carbon, replacing fossil based systems with electric technologies will provide a promising pathway to decarbonise these sectors. Reducing the fossil fuels burnt in our cars and houses has many other advantages. In urban areas in particular, electrification can have significant environmental and health benefits. Electricity in transport and heating can reduce air pollution in cities, especially when it comes to pollutants such as particulates, NOx, SOx, VOCs and ozone. The use of electric buses, trains and light trains can drastically improve air quality, traffic congestion and noise pollution. Beyond cities, electricity can also replace fossil fuels in small and medium enterprises (SMEs). This will concentrate the energy related emissions to those remaining electricity producing plants with more efficient pollution abatement systems that will primarily be used as back-up for carbon-neutral power generation. In this way, switching from direct use of fossil fuels to electricity enables energy users to meet energy needs through zero-emission energy. But electrification offers much more than just downstream decarbonisation. It can improve efficiency, strengthen security of supply and empower Europe’s energy customers. There is a widespread perception that in order to improve energy efficiency this must necessarily imply reducing electricity consumption. However, recent technological developments have completely reshaped the comparative efficiency of electricity use versus the use of other energy vectors such as gasoline, natural gas or oil. As a consequence, today we see that using more electricity can actually result in increased energy efficiency. For example, replacing an oil burner with a heat pump can, on average, lead to a saving of almost 50% in annual primary energy consumption. The numbers are just as impressive in road and rail transport. Since power can be produced from many different sources, electrification allows greater flexibility, and in return, this strengthens the security of supply. We are also seeing that electrifying final energy consumption could increase energy storage opportunities. The use of electric vehicle batteries or electric appliances (e.g. water heaters) as flexible demand and decentralised energy storage allow higher renewable penetration and increase the reliability of electricity supply. Linking the systems for heating and transport with the electricity system will unlock important benefits on both sides. Finally, all these benefits have a positive impact on the consumer. Using electric vehicle batteries or electric appliances means that customers will no longer rely on fossil fuels and their volatile prices. Moreover, the development of demand response options for consumers makes electric solutions more valuable compared to fossil fuel alternatives. Electrification empowers the final consumers by giving them the opportunity to increasingly influence their energy bills and be in control of their consumption. The technologies to enable electrification are already a reality. Many of them exist on the market or are getting ready for mass deployment (e.g. electric vehicles, heat pumps, smart technologies controlling energy consuming appliances, and direct heating based on low carbon generation). We must ensure however that these technologies live up to their potential and help transform the energy system. While there have already been some positive signals from policymakers, such as commitment to strengthen the EU ETS, much more progress is possible. Electrification helps meet Europe’s energy needs with less carbon. Using electricity for local heating in buildings and cities would not only reduce CO2 emissions, but it would also cap the emissions of the heating sector by de facto bringing them under the EU Emissions Trading System (EU ETS). Despite its huge potential, electrification, with its direct and indirect benefits, continues to suffer from a general lack of recognition or even a straight blockade of the technologies involved. One major obstacle is related to the additional energy costs placed on electricity bills, which make electricity more expensive to customers when compared to fossil fuel alternatives. It is therefore crucial to clean up the electricity bill and to develop smarter financial instruments to increase private investment in new technologies that can replace old ones. Further factors which enable electrification, such as investments in innovation and smart grids, need to be recognised so that new technologies can be pushed forward. The electrification of transport and heating is a promising pathway towards a decarbonised, competitive and energy independent Europe. However, the policy and investment choices we make today will determine whether we achieve a European scenario where we reap the potential benefits from electrification as electricity becomes increasingly decarbonised, or whether we continue to consume large quantities of fossil fuels in our buildings and means of transport for another generation. If we are serious about decarbonisation in Europe, unlocking electrification’s potential early on will multiply its benefits for society and the environment.