IFIEC EUROPE – International Federation of Industrial Energy Consumers
The way forward to a more
efficient and effective EU-ETS
IFIEC Europe‘s views
Brussels, April 17th 2008
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Lessons from the ECOFYS report:
 Not just the alternative: Windfall Profits or Auctioning
 But: Free allocation is possible without windfall profits!
With the IFIEC method:
Climate
Policy
Effectiveness
• Achieving the reduction targets by setting same low-carbon
incentives
• By guaranteeing the total cap
• Thus reaching same CO2-price level
• Setting necessary price signal for evaluating investments in
efficiency improvements
• Avoiding carbon leakage
Economical
Efficiency
• At significantly lower costs for all consumers
• With the windfall profits problem completely solved
• Avoiding knowledge, job and wealth leakage
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IFIEC EUROPE – International Federation of Industrial Energy Consumers
Economical Efficiency
Small adaptation of current system – actual but not historical
production level is what counts – allows to limit the price effect to the
costs for abatement requirements
For the power price that makes a huge difference:
20,60 €/MWh
Power price uplift by auctioning
Power price with IFIEC method
Possible cost savings:
• For all consumers:
€55 bn/yr
• Thereof for industry:
€23 bn/yr
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CO2-price 40 €/t, Benchmark 0.515
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Economical Efficiency
Solving the windfall profits problem with auctioning?
60
50
Bn €
40
Extra cost for all
consumers
auctioning vs.
IFIEC method
 Windfall profit problem solved
completely by IFIEC method
 Effect of auctioning for the
functioning of the electricity
market:
30
20
10
 Windfall profit problem only
partly solved by auctioning
Thereof windfall
profits for
nuclear power
Huge funds in the hands of
a small group of large
generators for further
consolidating the market
0
CO2-price 40 €/t, Benchmark 0.515
4
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Economical Efficiency
Effect of lower electricity price in the IFIEC method on households –
assessment of a trade-off
Households save electricity costs of € 32 bn / yr*
Households will use more electricity and save less CO2
 But: households‘ electricity consumption is very price inelastic
 Assumption: 10 % price increase leads to 1 % less consumption
 That means:
• With IFIEC method 7.7 Mt CO2 not saved
• Targeted reduction measures for households at realistic 40 €/t CO2
would cost € 308 Mio = about 1 % of the cost saved in households
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*) Assumption: CO2-price 40 €/t, Benchmark 0.515
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Ecological Effectiveness
For an investment decision the possible cost advantage reached
through an efficiency improvement is what counts
 In auctioning:
- having to buy less
 In IFIEC-method:
- having to buy less, and/or
- having something to sell
 Two calculations with identical outcome !
 The underlying, additional costs for auctioning do not change this
calculation!
Same low-carbon investment incentives !
But is an investment really equally realistic in both systems???
6
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Ecological Effectiveness
The option of relocation means:
Auctioning makes investments less realistic
High auctioning cost basis

•
is distracting financial means from industry for making
investments
•
makes other global locations much more attractive
Auctioning is stimulating relocation of production
Relocation of production means:
•
Carbon leakage
•
Job leakage
•
Knowledge leakage
•
Wealth leakage
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IFIEC EUROPE – International Federation of Industrial Energy Consumers
Ecological Effectiveness
What does carbon leakage mean to the CO2 reduction target
achievement?
How to reach the target?
CO2 emissions to be reduced until 2020
with
auctioning
Fossil fuel
replaced by
RES acc. to EU
20 % target
(separate
support)
JI/CDM
remainder
from 2nd
trading
period
Carbon leakage
Further
efficiency
improvement,
fuel shift,
innovation
with IFIECmethod
Fossil fuel
replaced by
RES acc. to EU
20 % target
(separate
support)
JI/CDM
remainder
from 2nd
trading
period
Carbon leakage
CO2 emissions to be reduced until 2020
Further efficiency
improvement, fuel shift,
innovation
8
IFIEC EUROPE – International Federation of Industrial Energy Consumers
Ecological Effectiveness
What does carbon leakage mean to the CO2 reduction target
achievement?
 More carbon leakage results in lower incentives for efficiency
improvement, fuel shift and innovation
 Lowering production is not a positive measure
 Real carbon efficiency improvements are
 EU industry wants to contribute to high CO2-reductions within the EU
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IFIEC EUROPE – International Federation of Industrial Energy Consumers
Allow EU Industry to remain the global low-carbon leader !
Develop EU-ETS in a way that
 Reaches the challenging targets at reasonable cost
 Saving € 20-80 bn of costs to consumers annually
 Cuts windfall profits of fossil fuel generation plus up to €30 bn annual
windfall profits also of nuclear power producers
 Builds on efficiency improvements and innovative technologies rather
than on lowering production
 Counts on the high quality contributions of EU industry within the EU
 The IFIEC method can provide for that!
Can the EU afford to ignore an option for EU-ETS which delivers
the same CO2 reductions by setting equal incentives for lowcarbon technologies, but at significantly lower costs for all
electricity consumers?
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