Event Summary: Emissions Performance Standards and similar - alternatives to an EU renewables target?
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Event Summary

Viable alternatives to renewables targets?

Discussing carbon performance standards and decarbonisation obligations

with Climate Change Capital, the Energy Technologies Institute, Policy Exchange and E3G.

Hosted by the All Party Parliamentary Group on Climate Change (APPCCG) and Sandbag.
Sandbag Briefing: A 2030 decarbonisation target for the EU
Acronym Explanations

ETS
EU Emissions Trading Scheme, Europe's cap & trade carbon emissions market.

EPS
Emissions Performance Standard, a limit on the amount of CO2 a power station can emit per unit of energy.

CCS
Carbon Capture & Storage.

NER300
300 ETS permits set aside in the New Entrants Reserve to subsidise installations of innovative renewable energy and CCS.

RE
Renewable Energy. 

EOR
Enhanced Oil Recovery, a current extractive industry practice with links to CCS.

MACC
Marginal Abatement Cost curves summarise graphically the amount of all CO2 abatement options available, by cost
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The Panel, Chaired by Baroness Worthington
One option to avoid the potential impasse between EU Member States over Renewables targets is to have carbon performance standards for the power sector - as an Emissions Performance Standard (a maximum limit on the CO2 per kwh power plants can produce) or a Decarbonisation Obligation, where power suppliers have to steadily reduce the carbon intensity of their product. Alternatively, a CCS-investment obligation could apply to extractive industries. 
 
Could these options help decarbonise the electricity sector?
What could be the interaction of these measures with the EU Emissions Trading Scheme? 
 
In the run up to the Heads of State discussion at the EU Council in Brussels last week, a distinguished panel discussed the issues. 
Ian Temperton, Climate Change Capital
Ian Temperton, Head of Advisory at Climate Change Capital, began by focusing on the 2030 package. He made clear the renewables sector had to begin behaving like a grown-up; some renewables are now mature enough to have passed the subsidy and target level, and so Ian was happy without a renewables target. Ian was surprised that there had not been more discussion so far over how the EU GHG target would be shared between Member States.

He warned that the last tonne of coal burnt will be extremely cheap compared to all other sources of power; as demand switches to zero carbon, hydrocarbons will inevitably get cheaper. As such, they must eventually be made illegal. Ian supports a CCS-certificate system, whereby any supplier of fossil fuels to Europe would have to provide a certificates to prove a gradually increasing percentage of carbon had been sequestered elsewhere.

Sequestration can’t be reliant on utilities, which are struggling. The extractive industries are a better vehicle. An obligation of this sort would send a very clear signal to investors, and to policymakers, that they can’t get stuck halfway i.e. only switching to gas and no further.

 
George Day, Energy Technologies Institute
George Day, Head of Economic Strategy at the Energy Technologies Institutespoke about how the driver for carbon reduction could be framed as a gradually tightening obligation on suppliers, helping to reach a point of irreversibility, where the drivers are not subsidies for one industry or another, they are merely standards that are politically sanctioned across the board. George talked about how we no longer question the obligation to purify sewage before it reaches the environment, or claim that the catalytic converter obligation is a subsidy for electric cars. The cost of environmental responsibility is priced in at source. Neither Cap & Trade or a carbon tax do this. A decarb obligation could. The gradually tightening standard could be linked with stable long term targets e.g. the UK Climate Change Act, and trading could be allowed between sectors to find least cost. George questioned if the EU was the right level for the obligation, and thought it might have to be proved at national level first.
The decarbonisation obligation is powerful, because it focuses on the ends, not the means, it can be politically sustainable if linked with the Climate Change Act, and it is relatively simple and practical.
 
Simon Moore, Policy Exchange
Simon Moore, Senior Environment & Energy Research Fellow at Policy Exchange, began by summarising last week’s Policy Exchange roundtable on the EU 2030 package. The feeling was a 40% GHG target was the best that was feasible currently, and that there was a risk of prolonged negotiation over the RE target. Questions were asked over how a decarbonisation obligation could apply in a pooled electricity market.
Simon felt the idea of an Emissions Performance Standard or Decarbonisation Obligation risked being ineffective unless the ETS cap was also changed. The cap is everything in the ETS, so these supplementary proposals risk just moving emissions around the EU. He talked about how the technological neutrality of the ETS meant no one industry supported it, but that it shouldn’t be dismissed because of that. If the EU is serious about climate change, it will fix the ETS and an EPS would not be needed. The cap needs to be tightened and given a clear trajectory, and the ETS expanded to cover the rest of the economy.
 
Chris Littlecott, E3G
Chris Littlecott, Senior Policy Advisor at E3G, set out the situation when the ETS began. Power companies thought they had an option to gain concessions from politicians by running coal flat out, boost the ETS price, and have industry scream. Now they find industry wants concessions, even at a carbon price of  €6. Because of this, a high price may never be achieved, and the idea of CCS on coal, then gas, then industry, driven just by the ETS price, is unlikely.

CCS is a valuable technology for Europe, beyond any value given by the carbon price. It maintains industry, it’s good for technological development and employment. From one perspective, we should be prioritising gas CCS, because for each tonne of CO2 stored we got double the electricity, so it should be more cost-effective. New technology like CCS needs guarantees today, not on a predicted future ETS price. The EU is now further than ever from CCS, with the failure on NER300. A CCS target is needed, but there must be sticks as well as carrots. Just carrots means we will overpay (disinvestment decisions are as important as investment)

The budget announcement on the CPF is astonishing: introducing and then freezing a tax within two years. The debate in the Energy Market Reform bill was based around the idea that the CPF would kill old coal, so an EPS was not needed. Now just a few months later that guarantee is removed.
Bryony Worthington, Sandbag
Bryony Worthington, Director of Sandbag Climate Campaign, and shadow Minister for Energy & Climate Change in the Lords, made clear that Plan A was still to fix the ETS, but now was the time for beginning to consider a Plan B because of Europe’s evident unabated old coal problem. The UK Labour Party is already committed to a decarbonisation target if it forms the government in 2015. Bryony said the EU must legislate to its strengths; for instance with vehicle emissions standards, it produces a law that creates a harmonised European market. CCS in Canada shows other places are getting ahead of the EU, and this is driven by both EOR and a clear EPS on coal.

Summary


We were delighted all four speakers presented such thought provoking analysis and insights. One of the key questions raised was the extent to which ETS is capable of driving disinvestment decisions in coal, given that, as demand falls, coal prices are capable of tumbling, while subsidies for cleaner technologies continue to distort the EU's MAC curve in favour of more expensive carbon abatement options. It seems clear that in this scenario investment in gas will be dissuaded over coal which could have consequences for emissions in the short term, and infrastructure lock-in to coal in the longer term.

Fixing the ETS with an eye to counter coal is an option with two problems; the timescales of proposed reforms are currently out of sync with current-decade investment decisions on coal; and the difficulty of maintaining the high price of carbon needed to drive fuel switching, given the distorted MAC curve, as well as industrial emitters exposed to international competition.

It is clear that more work is needed to evaluate the extent of the 'coal problem' under the current ETS, identify the timing of key investment decisions, and explore the pros and cons of potential solutions. Sandbag has started work on these questions and will report back over the coming months.
Questions & Answers

Q&A


Henry Evans, ISIS: What will the CPF freeze mean, given that the Association of Coal Producers say even when frozen, the cost will be too high for coal to bear?
Bry suggested that, cynically, the government may be trying to just maintain the £1billion of tax revenue from coal, without fully killing it off. She worries that at that level, no gas investment might mean coal has to keep running for longer to keep the lights on. 
Chris pointed out that before the freeze, EDF had already said it would upgrade 3GW of coal, but this was a risky corporate and government strategy; more coal would likely see significant direct action to stop it.

Cian Duggan, Carbon Credentials: Should we think about removing fossil fuel subsidies before implementing an EPS?
George agreed that this was an area that needed to be grappled with, alongside the ETS and EPS discussions. 
Bry felt that the fossil fuel 'subsidies' were more an absence of tax, and that was the correct wording; we tax the North Sea oil and gas fields significantly, but is it enough? The CCS debate needs to start now, because once there's an obligation on the private sector, though they would complain, they'd find a cheap way to do it.

Dave Jones, Freelance Energy Consultant How will the Decarbonisation Obligation or similar interact with the ETS? Can they possibly operate together?
Bryony reiterated that priority had to be for wholesale reform of the ETS, but that policymakers had to be aware of the problem with unabated coal, and had to begin thinking about how to deal with it. More research was needed, and would be following, to begin to predict how these proposals would interact with the carbon market.
 
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Thanks to Neha Nijhon for event organisation and Adrien Snood on Flickr for the Westminster photo (B&W filtered and cropped; used under a Creative Commons licence). The event was held on Tuesday 18th March, in the House of Commons, London.

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