E3M Lab, ICCS
Institute of Communication and Computer
Systems of National Technical University of Athens
Patission 42, Athens 106 82, Greece
Phone: 00-30-1-7723641, 29, Fax: 00-30-1-7723630
E-mail: [email protected]
E3M-Laboratory at ICCS/NTUA
The Economic Effects of IndustryLevel Emission Trading to Reduce
Greenhouse Gasses
.
.
.
PRIMES model v.2
.
.
.
Report to DG Environment
Prepared by:
Prof. P. Capros, Dr. L. Mantzos
Athens, February 2000
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.
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Table of Contents
1.
INTRODUCTION........................................................................................................................................3
2.
MODELLING METHODOLOGY ............................................................................................................4
3.
DEFINITION OF MODEL RUN CASES .................................................................................................7
4.
ANALYSIS OF RESULTS..........................................................................................................................9
4.1.
4.2.
4.3.
5.
THE BASELINE CASE ............................................................................................................................... 9
THE REFERENCE EMISSION REDUCTION CASE ......................................................................................11
THE ECONOMIC EFFECTS OF EMISSION PERMITS TRADING ...................................................................13
CONCLUSIONS ........................................................................................................................................16
2
The Economic Effects of
Industry-Level Emission
Trading to Reduce
Greenhouse Gases
Use of the model PRIMES
1.
Introduction
According to the undertakings at the Kyoto Protocol in December 1997, the EU
should reduce its greenhouse gas (GHGs) emissions in the 2008-12 period to a level
that is 8% below their level of 1990. The Protocol allows a number of flexibility
mechanisms in the attainment of targets. These include carbon emissions savings
generated from changes in land use, such as reforestation, emissions reductions
obtained from carbon credits either from implementing projects among Annex B1
countries (i.e. joint implementation) or through emissions savings from financing
allowable projects in developing (non Annex B) countries by using the "clean
developing mechanism". Finally the protocol gives the opportunity to trade
greenhouse gas emission permits across all Annex B countries.
The application of the Kyoto Protocol and the role that the energy system of the EU
will be called upon to play in meeting Kyoto obligations is subject to significant
uncertainties related to the implementation of alternative flexibility mechanisms and
likely developments in non-CO2 greenhouse gas (GHG) emissions (significant part
of which are non energy related). It is not yet known which amount of carbon
dioxide emissions due to fossil fuel combustion will be required to be abated in the
EU territory and in each member-state territory. An economic analysis shows that
the economic cost for the EU to reach the Kyoto target will largely depend on the
amount of carbon dioxide related to fossil fuels to be abated in the EU territory.
Moreover, it is also not known how to reach in practice a least cost allocation of
such an abatement effort among the EU member-states.
From an analytical point of view but also from an implementation point of view,
emission trading is an attractive means to reach the least cost domestic abatement
effort for energy related carbon dioxide emissions, both for the EU as a whole vis-àvis the rest of Annex B countries and for the allocation in the interior of the EU.
1
Australia, Austria, Belgium, Bulgaria, Canada, Croatia, Czech Republic, Denmark, Estonia, European Community,
Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Liechtenstein, Lithuania, Luxembourg,
Monaco, Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Russian Federation, Slovakia, Slovenia, Spain,
Sweden, Switzerland, Ukraine, United Kingdom, United States of America.
3
The purpose of the study is to provide analytical information for a variety of
alternative emission trading participation schemes, regarding intra and inter-sectoral
trading both within the Member States and at the Community level. The analysis was
carried out with the use of the energy system model PRIMES that covers all EU
Member States and is disaggregated along industrial sectors, service sectors,
transports, households and energy suppliers.
The analysis starts from the case that each country implemented its specific target
under the European Council Burden Sharing Agreement individually in each
country’s territory. According to the model analysis this case does not coincide with
a least-cost allocation both for the EU as a whole and within the EU. Given a target
for the EU as a whole resulting from analysis at the level of Annex B, the model is
used to suggest a least cost allocation of the emission reduction effort among the
member-states. A series of such cases is examined, varying by the extend sectors
from different member-states participate in an emission trading system in order to
reach such a least cost allocation. Non-participating sectors face individual targets
individually. The analysis qualifies the cost-effectiveness of each trading scheme by
computing the total cost for the EU needed to reach the Kyoto target. For a trading
scheme to be more cost-effective a lower total compliance cost is needed, as
compared with other trading schemes.
Given the significant uncertainty as regards the evolution of non-CO2 GHG
emissions the Kyoto constraint for the EU was treated as if applied only on CO2
emissions coming from the combustion of fossil fuels. The horizon of the analysis
was fixed to 2010, as being the middle year of the period 2008-2012, which is the
first Kyoto commitment period. It was assumed that since the energy consumers and
producers would anticipate the emission reduction commitments they will undertake
efforts already before 2010 and will start trading in 2005 depending on the prevailing
scheme.
The second section of the report deals with issues regarding the methodology that
was followed in the context of the study as well as the key features of PRIMES
model and their implications on the obtained results. In the third section the
different emission reduction cases examined in the context of the study are defined.
The fourth section deals with the impacts of the implementation of alternative
emission trading regimes in the EU and, finally, last section draws some conclusions
from the findings of the study.
2.
Modelling Methodology
PRIMES is a modelling system that simulates a market equilibrium solution for
energy supply and demand in the European Union (EU) member states. The model
determines the equilibrium by finding the prices of each energy form such that the
quantity producers find best to supply match the quantity consumers wish to use.
The equilibrium is static (within each time period) but repeated in a time-forward
path, under dynamic relationships.
As an energy system model, the calculations in PRIMES reflect a partial equilibrium
solution and not a general equilibrium one. In other words the rest of the economy
is considered unchanged under the imposition of alternative emission reduction
4
schemes. At a general equilibrium level, system adjustments, other than those
occurring in the energy system, might induce further loss or, in some cases, gain of
welfare.
The different emission reduction schemes are applied as global or sectoral
constraints in solving the PRIMES model. The mechanism through which the
carbon constraint is attained involves the attribution of an appropriate economic
value to the reduction of emissions of carbon. Equivalently, the ability to emit
carbon obtains a scarcity value and is allocated an implicit price. There are
corresponding changes in the relative prices, reflecting the carbon emissions that
each commodity or activity involves, that economic agents, i.e. producers and
consumers of energy, face. This, of course, leads to adjustments in the behaviour of
agents. The latter tend to shift away from activities that involve emissions.
Given the technical features and design of PRIMES the imposition of a global or
sectoral emissions constraint is equivalent to the inclusion of a variable, which
reflects all the economic costs imposed by this constraint.2 This shadow variable is
the marginal abatement cost that is associated with the emission reduction constraint
and represents the economic cost of avoiding the last unit of carbon that is required
by the constraint. 3
An alternative way to think of the link between an emission reduction target and its
associated marginal abatement cost is to assume that the emission target is achieved
through the creation of a hypothetical market for emission permits in an
auctioneering regime, i.e. in such a manner that producers and consumers of energy
need to buy the right to emit CO2. Evidently buying such permits being roughly
proportional to the carbon content of the fossil energy fuels, leads consumers and
producers of energy to perceive higher prices (or usage costs) of fossil fuels.
The mechanism through which the energy system responds to the imposition of
carbon constraints is that of changes in relative energy prices. These changes reflect
the carbon content of each fuel and provide incentives to the economic agents to
reduce their "consumption" of carbon. Consequently, the resulting changes in
relative prices would effectively reflect the carbon intensity of each fuel. In such a
market, the emission target is reflected in the number of permits that are marketed.
The marginal abatement cost is then equivalent to the price of permits that the
market would establish for any given emission reduction target. Both the permit
price and the marginal abatement cost reflect the degree of difficulty that the system
faces in reaching the target.
The analysis starts from a baseline scenario, which reflects current policies and
trends without including specific effort to reduce CO2 emissions. Starting from the
baseline, for each scenario the model is run in order to compute the least cost
solution corresponding to the level of CO2 emissions in 2010, which is implied by
the emission reduction constraints that in turn are defined on the basis of the
2
The PRIMES energy system model formulates energy market equilibrium according to the mixedcomplementary mathematical methodology, which roughly corresponds to the Kuhn-Tucker conditions that
are dual to a mathematical programming problem. Consequently, the imposition of a global or sectoral
constraint on emissions is mathematically strictly equivalent to the inclusion of a shadow variable, a shadow
cost, which appropriately affects all economic costs, proportionally to their emissions.
3
One ton of CO2 emitted contains 12/44 tons of carbon. Therefore, if the marginal abatement cost is one
Euro per ton of CO2 then the corresponding value per ton of carbon is equal to 44/12 Euro.
5
examined emission-trading scheme, which is defined by the set of sectors in various
member-states that participate in the trading bubble. Non-participating sectors face
individual emission reduction targets determined from the no-trading case, in other
terms face individual marginal abatement costs that differ from the other sectors.
The model determines the allocation of effort to the sectors and member-states
participating in the trading bubble that is necessary to meet the constraint on
emission abatement imposed on the bubble.
The sectors included are energy demand sectors but also energy supply sectors.
Emissions are accounted for in a sector only if directly emitted from fossil fuel
combustion in the sector. Emissions indirectly incorporated in electricity and steam
use (including district heating) are considered in the power and heat generation
sectors. Consequently the emission reduction targets for the sector are depending to
each other, since for example a demand sector shifting fuel mix in favour of
electricity might induce higher emissions in a supply sector such as the one
generating electricity. A systems analysis model, such as PRIMES, ensures consistent
representation of these interdependencies and a correct calculation of emission
reduction allocations and marginal costs.
The analysis draws conclusions by considering the differences between the results of
each lower emissions case and the results of the baseline scenario. These differences
span the whole energy system, showing changes that are necessary to reach the lower
emission level. Such changes may concern behaviour in using energy, structural
changes in energy uses and processes, possible accelerated adoption of new
technologies, changes in the fuel mix, etc. The exploration of the series of model
solutions, varying according to the magnitude of the emission reduction level,
provides a rich set of information revealing the priority of changes that are cost
effective by sector and country, and their nature. This information can support the
design of concrete policies and measures.
The model provides simultaneous estimations of the marginal cost of avoided
emissions and of the energy system costs of these changes, by sector and member
state, either globally of for each trading bubble. Following a least cost methodology,
the marginal costs plotted against the varying levels of emission reduction, in other
words, the model-based marginal abatement cost curves, can be used as a basis for
assessing the total cost of reaching a certain global emission reduction target.
The economic interpretation of the costs for the economy arising from the marginal
cost is complex. The imposition of a carbon emission constraint induces an external
cost to the economy compared to baseline conditions. Under such a constraint, the
system bears a net loss of welfare (compared to baseline), for each ton of CO2
avoided, equal to the marginal abatement cost corresponding to that ton. Therefore,
the total loss of welfare (or compliance cost) implied by an emission constraint is
equal to the area (the integral) below the marginal abatement cost curve.
Because of the emission constraint, the economic agents bear additional costs (from
baseline) in order to obtain the same level of services obtained by using energy. In
other words, the energy system will require additional funding from the rest of the
economy. It might be also the case that the economic agents reduce the use of
energy (by substituting other services for the energy service) so as to partly alleviate
the additional costs.
6
The additional costs for the economic sectors arising from the higher costs in the
provision of the energy service do not represent a direct leakage from the economic
system. These funds are recycled within the economy in the form of additional
purchases of goods and services, usually substituting domestically produced
commodities for largely imported energy products. In general equilibrium terms, all
these effects result in a re-allocation of resources and activities within the economy.
It is expected, however, that the new allocation induce a net loss of welfare, since the
emission constraint corresponds to an external cost for the economy. For each
economic sector the effects are different and may be significant in some cases (e.g.
energy intensive industries) or negligible (even more positive) for those agents that
face an increased activity within the new allocation. However, these general
equilibrium costs or benefits globally and per sector are not included4 in the
calculations based on PRIMES.
3.
Definition of model run cases
In the context of this study a series of PRIMES model runs have been carried out.
Each model run was formulated in such a manner so as to reflect different emission
reduction trading cases with different participations of sectors and member-states in
the trading bubble.
The baseline scenario does not involve specific GHG emission reduction targets
and is a reference situation for the energy system as regards emission reductions in
the EU. The baseline case as defined in the context of this study was based on the
Shared Analysis baseline as developed with PRIMES and published in November
1999 as a special issue entitled “EU energy Outlook to 2020” (EC DG Energy).5
However, this baseline case (and all other scenarios defined in the study) has been
modified to incorporate the effects from the EU-“car manufacturers” voluntary
agreement limiting CO2 emissions from new cars gradually after 2003. It is assumed
that this agreement induces zero cost, allowing a lower total compliance costs for the
EU and the member-states.
A reference emission reduction case, also quantified by using the PRIMES
model, was then defined. In this reference case the whole Kyoto commitment is
undertaken separately by each of the EU member-states through actions within each
member-state’s territory. More specifically the reference emission reduction case
involves a reduction of energy-related CO2 emissions by 8% (in 2010 as compared to
1990) in the EU that will be the result of each member-state undertaking measure to
reduce emissions of energy-related CO2 according to the targets defined at the
Burden Sharing Agreement of March 1998.
This reference emission reduction case corresponds to no trading of emissions
within the European Union and no trading with other Annex B countries. The
emission reduction target is implemented at a global level for each member state and
4
See the use of the general equilibrium model GEM-E3 for such calculations. For example see the final
report of the “Economic Priorities” study commissioned by DG Environment.
5
See Capros P. et al. (1999) “European Union Energy Outlook to 2020”, European Commission –
Directorate General for Energy (DG-XVII), special issue of ”Energy in Europe”, catalogue number CS-2499-130-EN-C, ISBN 92-828-7533-4.
7
therefore, since a market model as PRIMES is used to quantify the case, it is
allocated to the sectors (consumers and producers of energy) at least cost but of
course separately within each member-state. In other terms, the marginal abatement
cost is equalized across the sectors of a single member-state, a situation that could be
interpreted as hypothetical emission trading under an auctioneering regime.
It is expected that the reference emission reduction case will lead to higher economic
compliance costs as compared to cases involving emission trading, since the latter
involves by definition a more efficient allocation by allowing higher degree of
freedom. As mentioned within each country separately, the reference emission
reduction case corresponds to a least cost allocation to country’s sectors. This is an
ideal situation, desirable but not necessarily reachable following a real-world policy
implementation process. If the sectoral allocation of the emission reduction target is
centrally decided within each country, this will most probably fail from reaching a
least cost allocation. A variety of non-efficient allocations may be obtained.
To illustrate the importance of reaching a least cost allocation at least within each
country, an extreme emission reduction case has been quantified with the model.
This was based on the assumption that each sector within a country must apply to
each individual sector the emission reduction target as defined for the country level
by the Burden Sharing agreement. This allocation is evidently less efficient than a
least-cost one, but has the advantage to be defined by a simple “democratic” rule
since all sectors have the same reduction target in percentage terms, irrespectively of
the sector’s compliance costs. This is of course a sort of Solomonic decision and the
corresponding model run case is termed “cheese-knife” case6. Such an emission
reduction case is expected to be the “worst case” relative to the magnitude of the
compliance costs. Although seemingly simple, the exact definition of the sectoral
targets under the “cheese-knife” case is more complex, because of the
interdependencies: e.g. demand and supply of electricity are in different but
interconnected sectors. In addition, because of economic restructuring within a
sector, this may reach dynamically (e.g. in 2010) and “spontaneously” (i.e. under
baseline conditions) an emission level lower than the emission reduction target for
the same sector, relative to the emission level of 1990. For such a case it is assumed
that the sector has no emission reduction target on top of the baseline and the other
sectors might collectively face a reduced emission reduction target.
Given the baseline scenario and the reference emission reduction case, a number of
alternative emission reduction cases are quantified by using the PRIMES model.
Each case involves a different emission trading scheme, which is defined by
considering different sets of sectors and countries participating in trading of
emission permits in order to reach a collective emission reduction target. Since a
large number of combinations is possible, the analysis focused on three different
groupings of sectors, defined as follows:
•
6
Sectoral Group S1: Power and steam generation including refineries,
steam generation from industrial boilers (energy supply sectors) and
district heating.
Following the knife used in Scandinavian countries to equally allocate a piece of cheese.
8
•
Sectoral Group S2: Energy intensive industries including iron and steel,
non-ferrous, building materials (cement, glass etc.), chemicals and paper
and pulp.
•
Sectoral Group S3: Rest of energy demand sectors including other
industrial sectors, households, tertiary and transports.
The groupings of countries were defined as follows.
•
Country Group EU3: Belgium, Germany and the Netherlands
•
Country Group EU7: Belgium, Denmark, Finland, France, Netherlands,
Sweden and the UK
•
Country group EU8: Group EU7 and Germany
•
Country group EU147: all EU Member-states without trading with Annex
B countries
Comparing the cheese-knife case with the reference emission reduction case
provides information on the costs occurring from a non-efficient allocation of
emission reduction targets within a country. Furthermore comparing the emission
reduction target case with cases involving additional emission trading among sectors
across countries provides information about the costs due to non-efficient allocation
of emission reduction effort among the countries. Whenever a trading bubble
extends to a larger bubble by including higher participation in terms of sectors and
countries, the compliance costs are expected to reduce, since this allows for higher
flexibility hence more efficiency. If not the new participants would have no
motivation about joining the bubble.
4.
Analysis of results
4.1.
The Baseline Case
As already mentioned the definition of the baseline scenario was based on the
Shared Analysis baseline as developed with PRIMES and published in November
1999 as a special issue entitled “EU energy Outlook to 2020” (EC DG Energy).
This baseline scenario was conceived as the most likely development of the energy
system in the future in the context of extrapolating current knowledge, policies inplace and means. It incorporated current trends and the effects of all policies in place
and in the pipeline (such as dynamic trends of technology progress, effects from
restructuring of markets as a consequence of liberalisation of electricity and steam
markets in Europe and issues related to sectoral patterns of economic growth in the
European Union) while excluding all additional actions and policies that aim at
7
There is no PRIMES model for Luxembourg and so it has been omitted from the analysis. Because of
economic restructuring it is expected that this member-state will highly reduce carbon dioxide emissions
relative to 1990.
9
further reducing CO2 emissions so as to comply with the Kyoto emission reduction
commitments.
The only difference between the Shared Analysis baseline and the baseline case as
defined in the context of this study has to deal with the issue of the, hereafter called,
EC-ACEA negotiated agreement. In 1998, a agreement was reached between the
European Commission and the European, Japanese and Korean car automobile
industry under the terms of which the industry is committed to reduce the average
CO2 emission figure for all new cars to 140 g/km by 2008.8 This compares with a
current level of emissions of about 186g/km. An intermediate target was set for
2003 up to 170g/km. The industry has also undertaken to make available to the
market cars that emit 120 g/km by 2000 and to undertake further improvements
beyond 2008 (an initial target for the average of new cars was set at 120g/km for
2012). The negotiated agreement assumes fuel quality will not hamper its
implementation.
Under the baseline case assumptions, energy requirements increase by 15.6% from
1990 to 2010. Despite the evidence of some saturation for some energy uses in the
EU there is no complete de-linking between energy and the economy under baseline
conditions. The impact of the introduction of the EU-ACEA agreement in the
baseline case is to reduce energy demand for liquid fuels by 28 Mtoe in 2010
compared to the Shared Analysis baseline. As a consequence CO2 emissions increase
by 4.1% in 1990-2010 compared to 6.7% in the Shared Analysis baseline. However,
the EU does not achieve the commitment undertaken at the Kyoto conference as
regards emissions reduction. Table 1 illustrates the evolution of CO2 emissions by
country in the baseline case.
9
Table 1: Baseline case - CO2 emissions from energy by country and sector
CO2 emissions (Mt of CO2)
1990
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
2010
55.0
53.0
104.8
121.7
52.7
53.5
51.3
72.4
352.4
376.2
951.6
800.3
70.9
106.1
30.1
41.9
388.0
418.0
153.0
201.4
39.1
64.9
201.9
266.4
50.5
60.2
566.9
557.3
3068.1
3193.3
Source: PRIMES
% change
-3.6
16.2
1.5
41.0
6.8
-15.9
49.6
39.3
7.7
31.6
66.2
32.0
19.2
-1.7
4.1
Decomposition of CO2 emissions
in 2010 (Mt of CO2)
Energy
supply
sectors
(S1)
13.4
30.1
27.9
40.8
68.3
335.8
53.6
17.4
162.5
77.5
30.9
101.4
16.5
205.8
1182.0
Energy
intensive
industries
(S2)
8.1
20.8
1.7
8.0
30.5
59.6
9.9
2.3
36.6
12.9
6.6
29.1
8.6
33.3
267.9
Other
demand
sectors
(S3)
31.4
70.9
23.9
23.6
277.5
404.9
42.6
22.1
218.9
111.0
27.4
135.9
35.1
318.2
1743.4
Difference from Shared
Analysis Baseline in
2010
Mt of CO2 % change
-1.7
-2.1
-1.0
-1.1
-12.7
-20.4
-1.4
-0.8
-11.2
-3.7
-1.5
-6.5
-2.5
-13.6
-80.2
-3.2
-1.7
-1.9
-1.6
-3.3
-2.5
-1.3
-1.9
-2.6
-1.8
-2.2
-2.4
-4.0
-2.4
-2.5
8
Much of the information on the agreement between the EU Commission and the European automobile
industry is based on information available on the latter’s web site as of the 18 of May of 1999.
9
Excluding emissions from bunkers but including emissions from the whole air transports. Emission factors,
definitions and the basic energy balances used are those published by Eurostat.
10
There are very large differences in the trends of CO2 emissions growth among EU
countries. Only three countries manage to reduce emissions below 1990 levels in
2010 under baseline assumptions namely, Austria, Germany and United Kingdom.
In Denmark a near stabilisation of CO2 emissions in 2010 to their 1990 level is
observed. In all other countries there are significant increases in emissions between
1990 and 2010 varying from 6.8% in France to more than 65% in Portugal. In six
member-states, CO2 emissions increase by more than 30% between 1990 and 2010.
The effect of the incorporation of the EU-ACEA negotiated agreement is also not
uniform across the EU member states. Emission reduction in comparison to Shared
Analysis baseline ranges from 1.3% in Greece to 4% in Sweden reflecting the
different structural characteristics of the transports sector in each member state.
These huge divergences between EU countries reflect a large number of factors
including economic growth and changing market structures. They also highlight the
difficulties involved in devising an "equitable" scheme for allocation of any
reductions in emissions.
4.2.
The Reference Emission Reduction Case
According to the undertakings at the Kyoto Protocol in December 1997, the EU
should reduce its greenhouse gas (GHGs) emissions in 2008-12 to a level that is 8%
below their level of 1990. The Reference emission reduction case focuses on the
reduction of CO2 emissions for each EU member state according to the June 1998
Post-Kyoto Burden Sharing agreement (Council conclusions). If the flexibility
instruments of the Kyoto protocol were not used, the EU commitment would be
totally implemented separately by each country within the EU with no provision for
GHG emissions trading either within the EU or internationally, or recognition of
beneficial spillover effects from the management of other priority issues such as
waste.
Table 2: The Reference Emission Reduction Case
CO2 emissions (Mt of CO2)
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
Burden
Sharing
Agreement
Change
from
Baseline
1990
2010
% change
% change
Mt CO2
55.0
104.8
52.7
51.3
352.4
951.6
70.9
30.1
388.0
153.0
39.1
201.9
50.5
566.9
3068.1
48.3
97.5
41.7
51.7
354.8
757.5
89.3
34.3
365.5
144.9
49.7
233.3
52.9
499.9
2821.4
-12.1
-6.9
-20.8
0.7
0.7
-20.4
25.9
14.1
-5.8
-5.3
27.2
15.6
4.7
-11.8
-8.0
-12.3
-6.8
-20.4
0.8
0.8
-20.4
25.9
13.9
-5.8
-5.3
28.0
15.9
4.8
-11.8
-8.0
-4.7
-24.1
-11.8
-20.7
-21.4
-42.7
-16.8
-7.6
-52.5
-56.6
-15.2
-33.1
-7.3
-57.4
-372.0
CO2 emissions reduction by sector
in 2010 (% change from Baseline)
Energy
supply
sectors
(S1)
-10.8
-25.8
-34.8
-39.7
-4.6
-7.8
-24.8
-29.3
-24.5
-32.1
-43.0
-23.9
-17.6
-13.2
-18.2
Energy
intensive
industries
(S2)
-9.7
-25.6
-6.0
-14.7
-9.6
-4.3
-4.3
-2.9
-7.3
-38.5
-6.9
-5.5
-14.4
-11.4
-10.5
Other
demand
sectors
(S3)
-7.8
-15.6
-8.2
-14.1
-5.5
-3.5
-7.2
-10.9
-4.6
-24.0
-5.5
-5.3
-9.0
-8.3
-7.4
Marginal
abatement
cost
Compliance
costs
Eur'99/tCO2
Mio Eur'99
28.4
89.3
47.9
63.5
20.6
13.5
39.0
53.5
33.3
150.7
41.1
27.7
39.7
31.9
54.3
47.9
962.7
258.0
582.5
251.6
300.6
450.3
175.9
867.9
3466.4
338.5
467.4
130.7
725.5
9026.0
Source: PRIMES
However, since a market model as PRIMES is used to quantify the case, emission
reduction is allocated to the sectors (consumers and producers of energy) of each
11
country taken separately at least cost, a situation that could be interpreted as
hypothetical emission trading within the member state under an auctioneering
regime.
Table 2 summarises the main findings as regards the evolution of CO2 emissions in
the EU member states under the assumptions of the reference emission reduction
case, including the reduction achieved by each member state as well as the
corresponding marginal abatement cost.10 As can be seen from the table, the
marginal efforts and costs differ substantially across member states when each
country has to reduce emissions unilaterally according to the Burden Sharing
agreement. While the average marginal abatement cost at the EU level is of €99
54.3/tCO2 avoided, Germany achieves its target with a cost of €99 13.5/tCO2 while
the corresponding figure for Netherlands reaches 150.7/tCO2. In other words, if no
flexible instruments are used, it is likely that, Belgium, Finland and in particular the
Netherlands will find it very expensive to reach the emission reductions as agreed in
the Burden Sharing agreement concerning the Kyoto Protocol. On the other hand,
France and Germany are likely to find it relatively cheap to reach the reduction
targets.
Energy supply sectors are the most responsive to the introduction of the Burden
Sharing emission reduction targets, followed by energy intensive industries while
other demand sectors are rather insensitive as regards emissions reduction. However,
there are significant differences across EU member states reflecting, to a large
extent, the different dynamics in each country's energy system, the existing structure
of energy production and the prospects of industrial restructuring. The carbon
intensity of the power generation system also plays a key role in the ease with which
a country can adjust to the imposition of a carbon constraint. In addition, the
different effort required by each country under the Burden Sharing agreement results
in significant distortions as regards the contribution of the different sectors to
emissions reduction. As the low cost possibilities in energy supply sectors tend to be
exhausted, the achievement of emission reduction targets call upon demand-side
actions. For example, in the Netherlands and Belgium, in which relatively high effort
is required to reach the target of the Burden Sharing agreement, the reduction
achieved in energy supply sectors is less or equally significant to that of energy
intensive industries.
The total welfare cost (or compliance cost)11 of reaching the emission targets, as
estimated with the energy system model PRIMES, for the EU in 2010 is M€99 9026
per year. This cost represents 0.075% of EU member states GDP, annually. Within
each country the analysis with the PRIMES model assumes that a least-cost
10
The Burden Sharing Agreement has been applied separately to CO2 emissions and not to the whole range
of GHG. By implying the emission reduction targets as in the Burden Sharing agreement on 1990 CO2
emissions the resulting emission reduction from 1990 levels for the EU would be -8.7%. In that sense, a
correction factor has been applied on the emission reduction targets imposed by the Burden Sharing
agreement so that the Kyoto protocol emission reduction target (-8% from 1990 levels) to be achieved as
regards CO2 emissions. The results obtained are within tolerance limits for a numerical model. For example,
in the case of Spain the emission change computed the model agrees +15.6% instead of +15.9% as in the
Burden Sharing Agreement. However, this difference corresponds to less than 1 Mt of CO2 emitted.
11
As mentioned the welfare or compliance cost is measured as the area below the marginal abatement cost
curve for a given level of emission reduction. This curve is considered as if it represented a cost-supply curve
for the energy demand/supply sector for a service providing emission reduction. This evaluation of welfare
or compliance cost is under partial equilibrium assumptions, following the coverage of the PRIMES model.
A similar evaluation under general equilibrium would lead to different numerical values.
12
allocation of the emission reduction target to the various demand and supply sectors
is possible. Any deviation from a least cost allocation, for example because of policy
implementation failure, could entail higher compliance costs.
4.3.
The Economic Effects of Emission Permits Trading
From a policy perspective it is challenging to establish mechanisms that would lead
to a least-cost allocation of emission reduction effort between the sectors and the
EU member-states. The scope of the analysis performed in the context of the study,
using PRIMES model, was to examine alternative emission trading regimes both in
terms of sectors and regions and to evaluate their cost effectiveness in achieving the
Kyoto commitment for the EU. Table 3 illustrates the main findings for the
alternative emission reduction cases examined.
Table 3: Cost effectiveness of alternative emission trading regimes
Results of PRIMES
Emission permit trading Cases
Chesse-knife case: No trade, each sector and country
separately
-127.2%
NA
125.8
0%
NA
54.3
Traders: energy supply sectors in EU3
Traders: energy supply sectors in EU7
Traders: energy supply sectors in EU8
Traders: energy supply sectors in EU14
Traders: energy supply sectors and energy intensive
industries in EU7
Traders: energy supply sectors and energy intensive
industries in EU8
Traders: energy supply sectors and energy intensive
industries in EU14
14.2%
9.3%
18.1%
20.7%
31.2
52.5
31.2
32.3
47.2
49.2
45.6
45.3
13.9%
56.0
49.0
21.4%
32.6
43.4
24.0%
33.3
43.3
Full trading, Germany and Benelux
28.9%
32.6
34.8
Full trading, EU7
26.0%
46.4
38.4
Full trading, EU8
29.9%
32.6
33.3
Sectoral Trading
Reference emission reduction case: No trade, each country
separately (EU burden sharing agreement), but least-cost
among sectors in each country separately
Country trading
Marginal Abatement
Gains in terms of total
Cost or Permit Price in
compliance cost as
Eur'99/ tCO2
compared to the Reference
emission reduction case (
For the Average for
in %)
the whole
traders
Full trading, EU14
34.0%
32.6
32.6
Annex B Full trading
48.6%
17.7
17.7
EU14: all EU countries (excluding Luxemburg)
EU7: Belgium, Denmark, Finland, France, the Netherlands, Sweden and UK
EU8: EU7 and Germany
Source: PRIMES
The main result of the analysis is that emission trading across sectors and countries
in the EU (regardless the extend of the trading bubble) is more cost efficient than if
each country would implement the Burden Sharing agreement alone (the reference
emission reduction case). Gains in terms of total compliance costs, compared to the
reference emission reduction case, range from 9.3% up to almost 50% depending on
the emissions trading bubble. Also, reaching a least-cost allocation to the sectors of
the emission reduction effort within each country is very important. The losses in
terms of total compliance costs from a non-efficient allocation as that of the
“cheese-knife” case are –127% relative to the reference emission reduction case.
13
The introduction of a trading regime across all EU member states as well as with
other Annex B countries is the most cost effective way to reach the Kyoto target.
Total compliance costs in 2010 under Annex B full trading are 48.6% or M€99 4390
lower compared to the reference case. However, in this case EU member states
(with the exception of Germany and Austria) fail to achieve their Burden Sharing
target and become buyers of emission permits for 150 tCO2 emissions
(corresponding to 4,9% of 1990 CO2 emissions in the EU) from other Annex B
countries (mainly Ukraine and Russia) at a permit price of €99 17.7/tCO2.12 Germany
and Austria become also sellers of emission permits for 6.6 and 0.3 Mt CO2
respectively.
In the absence of emission trading to extra-EU Annex B countries, benefits from
trading compared to the reference case are reduced to M€99 3070 (or 34%). In other
words the additional benefits of Annex B trading compared to intra-EU trading
reach up to M€99 1320. In the case of full intra-EU trading, Germany, France, Spain,
UK and Austria more than achieve their Burden Sharing target and become sellers
of emission permits at a price of €99 32.6/tCO2. All other EU member states find it
more cost effective to become buyers of emission permits than to reduce emissions
according to their target. In 2010 emission permits for 70.9 Mt CO2 are negotiated
across EU member states.
Some very interesting findings were observed in the case that a partial trading bubble
is identified only between Belgium, Germany and the Netherlands while all other
countries operate on the basis of the Burden Sharing agreement. The benefits in
terms of compliance cost in comparison to the reference case are 29% or M€99 2600.
The countries that form the trading bubble (Germany being the seller of permits
while Belgium and the Netherlands being buyers) face a permit price that is identical
to that of the intra-EU trading regime (€99 32.6/tCO2) while the corresponding
average marginal abatement cost at the EU level increases by about 6.7% at €99
34.8/tCO2 avoided. In other words, forming this partial trading bubble does not
deviate a lot from the optimal trading bubble (deficits of M€99 463 in terms of
compliance costs compared to intra-EU trading) while it provides an incentive for
other EU member states to join the trading scheme (as they see the gains obtained
from partial trading) instead of trying alone to comply with their commitments.
Therefore a stepwise trade creation is feasible provided that the trading starts in
priority with those participants that will gain more than others when trading. For
example a less successful partial trading regime is the one set for EU7 for which the
analysis identifies higher deviation (compared to the Benelux-Germany trading
bubble) from the intra-EU trading regime both in terms of emission permits price
and in terms of compliance costs.
To further elaborate on the issue of gradually establishing a trading bubble, with
respect to the identification of priorities as regards sectoral participation to that
bubble, the analysis considers the impacts of introducing an emissions trading
regime only for energy supply sectors (or for energy supply sectors and energy
intensive industries) against the results of the full trading.
12
Based on POLES model calculations, coordinated with the model runs of PRIMES model as regards Kyoto
compliance under a regime of emission permits trading between Annex B countries, permit prices, leading
Annex B to meet the Kyoto targets, have been found to be uniform at €99 17.7/tCO2.
14
If starting from the EU Burden Sharing agreement one wants to get close to a leastcost allocation, then it is more efficient to start from involving energy supply sectors
(power and steam generators) into a permit trading system. The interesting result is
that the permit price that would result from this partial trading across energy supply
sectors of EU member states would be equivalent (€99 32.3/tCO2) to the permit
price that would prevail in a perfect intra-EU trading system. The corresponding
average marginal abatement cost at the EU level would be €99 45.3/tCO2 (about 40%
higher than that of intra-EU trading).
The power and steam generators of countries like Germany, France, Spain, UK and
Austria become sellers of emission permits while the generators in all other countries
are buyers. In total, they trade emission permits for 28 Mt CO2 in 2010. Despite the
increase in terms of marginal abatement cost for the EU in average and even though
the benefits in terms of saving compliance costs would be significantly reduced
compared to the intra-EU trading regime (20.7% or M€99 1870 from reference case)
the above result allows the argument that getting the utilities in trading is fair
because it does not entail a significant deviation from the optimum (in terms of price
of emission permits they would face). Companies in other sectors not being yet
involved in trading would then have interest in joining the trading club, since they
would gain from dealing with permit prices that would be generally lower than taxes
or levies raised specifically for them.
The incorporation of energy intensive industries in the above-defined trading regime
has positive but rather small impacts in terms of compliance costs (24% or M€99
2163 from reference case – an additional gain of M€99 295 from trading only for
energy supply sectors). The average marginal abatement cost at the EU level is €99
43.3/tCO2 or 33% higher than that of intra-EU trading. However, the permit price
for trading across energy supply sectors and energy intensive industries increases to
€99 33.3/tCO2 (+2.2% from intra-EU trading level, +6.8% from energy supply
sectors trading level). In this case the UK becomes also a buyer of emission permits.
The traded emission permits in 2010 between energy supply sectors and energy
intensive industries reach 41.9 Mt CO2.
The above findings, i.e. that a stepwise approach should be followed both in terms
of the definition of the countries and the sectors that should participate in a start-up
partial trading bubble so as to provide initiatives to non participants to join it, are
further confirmed by examining a partial trading regime for energy supply sectors of
Belgium, Germany and the Netherlands. In this case the benefits in terms of
compliance costs are limited to 14.2% or M€99 1280 from the reference case. The
average marginal abatement cost at the EU level is €99 47.2/tCO2 or 44.5% higher
than that of intra-EU trading while the price of emissions trading for the formulated
trading club is €99 31.2/tCO2. The energy supply sector of Germany is the seller of
emission permits (17.3 Mt CO2) while energy supply sectors of Belgium and the
Netherlands are buyers. In view of the significantly lower permit price formulated in
the trading bubble compared to the average marginal abatement cost, other sectors
inside the same region and in other EU member states would see that it would be
beneficial for them to participate in the trading bubble instead of losing money by
trying to achieve the emission reduction target on their own.
The results provided above rather underestimate the real impact of emissions trading
because of the assumption that in the reference emission reduction case member
states reduce their emissions within their territory at least cost (equal marginal
15
abatement cost across all energy suppliers and consumers), an assumption not likely
to hold in reality.
The potential contribution and the effects of a domestic trading regime, as defined in
the reference case, to the achievement of the country specific emission reduction
target are clearly illustrated when comparing to the cheese-knife case were it is
assumed that each sector within a country must separately achieve the country’s
target under the Burden Sharing agreement. The compliance cost in comparison to
the reference case would increase by 127.2% or M€99 11482. The corresponding
average marginal abatement cost at the EU level increases by about 230% at €99
125.8/tCO2 avoided.
The cheese-knife case is very helpful to understand the economic impact of
distortions away from least-cost as regards the allocation of effort to the different
sectors. A characteristic example is the case of Germany. In the reference emission
reduction case Germany was the country that with the most ease could achieve its
target. In the case that each sector must achieve the Burden Sharing target separately,
Germany becomes one of the countries that face very high compliance costs. The
corresponding marginal abatement cost increases to €99 135/tCO2 (10 times higher
compared to the reference case). This result is due to the evolution of the German
energy system under baseline conditions. Both energy supply sectors and energy
intensive industries achieve the Burden Sharing agreement target for 2010 in the
context of the baseline scenario (reducing emissions by 22% and 39% from 1990
levels compared to an emission reduction target of –20.4%). In the absence of
initiatives to further reduce their emissions (i.e. in the absence of a profitable trading
regime across sectors) all the additional effort required to achieve the Burden
Sharing agreement is allocated to other demand sectors (and more specifically to
households and transports sectors as other industrial sectors and tertiary sector also
achieve the emission reduction target under baseline conditions). As already
discussed in the reference case demand-side actions require very high incentives so
as to take place leading to the significant increase of compliance costs for Germany.
5.
Conclusions
The analysis carried out with PRIMES aimed at illustrating the role of emission
trading as a means for the EU of fulfilling the Kyoto commitment in the most costeffective way. Emission trading can be considered under two angles: first it is an
analytical means for calculating a least cost allocation to sectors of the collective
emission reduction effort and evaluating the cost of deviating from such a least cost,
probably as a result of policy failures; secondly it is a policy means for reaching such
a least cost allocation when starting from an arbitrary (for example grand-fathering
or auctioneering) initial distribution of emission rights to sectors. The analysis of
allocation is complex because the sectors are interdependent, as some are demanders
and others are suppliers of energy. A systems analysis model such as PRIMES, also
being a market equilibrium simulation tool, proved to valuably assess the above
issues in quantitative terms and handle the complexity of the system involving
multiple sectors and multiple countries.
Emission trading is a means of smoothing down the marginal abatement cost
differences faced by sectors and countries when considering reaching an emission
16
reduction target by their own efforts. Any means of equalizing these marginal
abatement costs across the sectors and countries, lead to higher cost-effectiveness
for the sectors and the collectivity. In principle there are three reasons explaining
why marginal abatement costs may differ:
•
The targets may differ as a result of negotiated agreement leading equal
sectors to face different emission reduction targets
•
The inherited energy system might be very different (one country based on
coal, the other country based on nuclear energy, for example) and so the
overall adjustment possibilities also differ
•
The sectors and in particular the individual companies within a sector might
differ, either in scale, or in technology level, having different energy
efficiency rates therefore having different possibilities for energy savings and
efficiency improvement.
A model like PRIMES represents a single representative company per sector except
for power and steam generation for which three stylised companies are represented.
So the model partially lacks the possibility of covering the third reason justifying
emission trading, namely the one related to differences among companies. On the
contrary the model fully covers the other two reasons, namely the distortions due to
a burden sharing agreement and the differences in energy system structure.
The benefits from emission trading demonstrated through the results of PRIMES
are exclusively due to the first two reasons. The third reason is likely to also allow for
additional economic gains from trading, however due to the operation of the single
market in the EU the differences among industrial companies in the EU might have
been smoothed out. In any case there are no data to estimate this missing part.
The analysis clearly demonstrated substantial economic gains from emission trading
in the EU and in Annex B. However, the domestic environmental effort reduces
although globally the emission reduction remains the same. The ancillary benefits
from climate change mitigation efforts (for example on other environmental issues)
might be lower when emission trading is in place.
It is clear however that a EU wide emission trading is cheaper to EU citizens with
the same environmental goal regarding climate change.
In addition, the analysis demonstrated that a step-wise implementation of emissions
trading is fair. When gradually involving new participants (sectors and countries) in
the trading bubble the analysis showed that they are likely to face a marginal
abatement cost that would be quite similar to the minimum level obtained under full
participation in trading. This means that the pioneers in trading have nothing to lose
while the non-participants have incentives from joining the trading bubble.
The analysis also showed that the sectors and countries of high priority to be
included in the pioneering trading bubble are the power/steam generation sectors
across the EU and a bubble consisting of Benelux and Germany. In all cases, the
results showed that extending the trading bubble leads to lower compliance costs for
each new participant and lower overall costs.
17
An important omission in the analysis regards the transaction costs involved in the
trading. It was assumed that the emissions right market is perfect and that no
transaction costs are incurring. In reality however the transaction costs might be
significant. The structure of these costs has two components: a fixed cost
component and a variable cost one. If the total volume of transactions in the trading
is small, it might be the case that the benefits might not be enough to recover the
fixed cost component of the transaction costs. In that case the implementation of
emission trading would not be possible. The present study does not provide insights
on this issue.
Table 4 summarises the turnover (within the EU) of the hypothetical emission
permits trading market under different emission reduction regimes.
Table 4: Annual Turnover of the emission permits trading market
Results of PRIMES
MEuro'99
Country trading
Sectoral Trading
Emission permit trading Cases
energy supply sectors trading in EU3
565
energy supply sectors trading in EU7
732
energy supply sectors trading in EU8
723
energy supply sectors trading in
EU14
energy supply sectors and energy
intensive industries trading, EU7
energy supply sectors and energy
intensive industries trading, EU8
903
924
1109
energy supply sectors and energy
intensive industries trading, EU14
1395
Full trading, Germany and Benelux
1614
Full trading, EU7
Full trading, EU8
Full trading, EU14
Annex B Full trading
2029
2102
2314
2910
EU14: all EU countries (excluding Luxemburg)
EU7: Belgium, Denmark, Finland, France, the Netherlands, Sweden and UK
EU8: EU7 and Germany
Source: PRIMES
18
The following graphs provide a schematic illustration of the conclusions presented
above.
Some buy, some sell ...
Electricity and steam trading in 2010
1500
Electricity, steam and energy intensive sectors trading in 2010
Euros 1999 mn
All sectors trading in 2010
Full Annex B trading in 2010
1000
500
0
-500
-1000
AU
BE
DK
FI
FR
GE
… but all gain
0.50
GR
IR
IT
NL
PO
SP
SV
UK
Electricity and steam trading in 2010
Electricity, steam and energy intensive sectors trading in 2010
Welfare gains as percentage
of GDP in 2010
All sectors trading in 2010
0.45
Full Annex B trading in 2010
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
19
UK
… and gains from trading are even higher
0.50
Welfare gains as percentage
of GDP in 2010
Burden Sharing compared to Cheese-Knife
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
Step-wise implementation is fair
140
for the traders
In average
Marginal Abatement Cost
per ton of CO2 (in 1999 Euros)
120
100
80
60
40
20
0
No trade (Cheese
No trade (EU
Knife)
Burden Sharing)
Electricity and
steam trading
Electricity, steam All sectors trading
and energy
intensive sectors
trading
Full Annex-B
trading
20
6.
Appendix
The following tables summarise the results obtained with PRIMES model for the
different emission reduction regimes examined in the context of the study.
Table A-1: Energy supply sectors trading for EU3
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
5.5
0.0
0.0
0.0
-17.3
0.0
0.0
0.0
11.8
0.0
0.0
0.0
0.0
0.0
Energy
supply
sectors
(S1)
0.0
6.1
0.0
0.0
0.0
-20.3
0.0
0.0
0.0
15.0
0.0
0.0
0.0
0.0
0.8
Energy
intensive
industries
(S2)
0.0
-0.5
0.0
0.0
0.0
0.8
0.0
0.0
0.0
-0.9
0.0
0.0
0.0
0.0
-0.5
Other
demand
sectors
(S3)
0.0
-0.1
0.0
0.0
0.0
2.1
0.0
0.0
0.0
-2.3
0.0
0.0
0.0
0.0
-0.3
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
5.6
0.0
0.0
0.0
-2.3
0.0
0.0
0.0
8.2
0.0
0.0
0.0
0.0
0.0
0.0
-5.5
0.0
0.0
0.0
17.3
0.0
0.0
0.0
-11.8
0.0
0.0
0.0
0.0
0.0
0.0
31.2
0.0
0.0
0.0
31.2
0.0
0.0
0.0
31.2
0.0
0.0
0.0
0.0
28.4
81.7
47.9
63.5
20.6
27.5
39.0
53.5
33.3
119.2
41.1
27.7
39.7
31.9
47.2
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-8.6
0.0
0.0
0.0
103.8
0.0
0.0
0.0
-20.9
0.0
0.0
0.0
0.0
-13.1
47.9
756.8
258.0
582.5
251.6
144.4
450.3
175.9
867.9
2548.7
338.5
467.4
130.7
725.5
7746.3
0.0
-21.4
0.0
0.0
0.0
-51.9
0.0
0.0
0.0
-26.5
0.0
0.0
0.0
0.0
-14.2
Table A-2: Energy supply sectors trading for EU7
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
3.3
-0.8
1.3
-5.7
0.0
0.0
0.0
0.0
9.4
0.0
0.0
-0.8
-6.7
0.0
Energy
supply
sectors
(S1)
0.0
3.8
-0.9
1.3
-6.1
0.0
0.0
0.0
0.0
11.9
0.0
0.0
-0.8
-7.7
1.6
Energy
intensive
industries
(S2)
0.0
-0.3
0.0
0.0
0.1
0.0
0.0
0.0
0.0
-0.7
0.0
0.0
0.0
0.2
-0.7
Other
demand
sectors
(S3)
0.0
-0.1
0.1
0.0
0.3
0.0
0.0
0.0
0.0
-1.8
0.0
0.0
0.0
0.7
-0.8
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
3.4
-1.9
2.4
-1.6
0.0
0.0
0.0
0.0
6.5
0.0
0.0
-1.4
-1.3
0.0
0.0
-3.3
0.8
-1.3
5.7
0.0
0.0
0.0
0.0
-9.4
0.0
0.0
0.8
6.7
0.0
0.0
52.5
52.5
52.5
52.5
0.0
0.0
0.0
0.0
52.5
0.0
0.0
52.5
52.5
28.4
81.1
51.7
55.0
32.0
13.5
39.0
53.5
33.3
120.2
41.1
27.7
45.6
43.4
49.2
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-9.2
8.1
-13.3
55.7
0.0
0.0
0.0
0.0
-20.2
0.0
0.0
14.8
35.9
-9.4
47.9
919.0
255.8
581.7
100.3
300.6
450.3
175.9
867.9
2912.2
338.5
467.4
125.9
640.3
8183.7
0.0
-4.5
-0.9
-0.1
-60.1
0.0
0.0
0.0
0.0
-16.0
0.0
0.0
-3.7
-11.8
-9.3
21
Table A-3: Energy supply sectors trading for EU8
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
4.6
2.2
6.0
-3.1
-20.1
0.0
0.0
0.0
9.8
0.0
0.0
0.4
0.2
0.0
Energy
supply
sectors
(S1)
0.0
5.1
2.4
6.2
-3.3
-23.5
0.0
0.0
0.0
12.4
0.0
0.0
0.4
0.2
-0.2
Energy
intensive
industries
(S2)
0.0
-0.4
0.0
-0.1
0.0
1.0
0.0
0.0
0.0
-0.7
0.0
0.0
0.0
0.0
-0.2
Other
demand
sectors
(S3)
0.0
-0.1
-0.2
-0.1
0.2
2.5
0.0
0.0
0.0
-1.9
0.0
0.0
0.0
0.0
0.4
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
4.7
5.2
11.7
-0.9
-2.7
0.0
0.0
0.0
6.7
0.0
0.0
0.8
0.0
0.0
0.0
-4.6
-2.2
-6.0
3.1
20.1
0.0
0.0
0.0
-9.8
0.0
0.0
-0.4
-0.2
0.0
0.0
31.2
31.2
31.2
31.2
31.2
0.0
0.0
0.0
31.2
0.0
0.0
31.2
31.2
28.4
81.7
35.1
41.5
23.3
27.5
39.0
53.5
33.3
119.2
41.1
27.7
36.7
31.6
45.6
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-8.6
-26.7
-34.6
13.4
103.8
0.0
0.0
0.0
-20.9
0.0
0.0
-7.7
-1.0
-16.0
47.9
722.0
231.0
476.7
221.7
82.0
450.3
175.9
867.9
2467.1
338.5
467.4
126.5
717.7
7392.8
0.0
-25.0
-10.5
-18.2
-11.9
-72.7
0.0
0.0
0.0
-28.8
0.0
0.0
-3.2
-1.1
-18.1
Table A-4: Energy supply sectors trading for EU
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
-0.5
4.5
2.1
6.1
-3.1
-22.3
0.4
1.2
0.9
9.8
2.7
-1.6
0.3
-0.5
0.0
Energy
supply
sectors
(S1)
-0.5
5.0
2.3
6.2
-3.3
-25.8
0.4
1.4
0.9
12.4
2.7
-1.8
0.3
-0.6
-0.4
Energy
intensive
industries
(S2)
0.0
-0.4
0.0
-0.1
0.0
1.0
0.0
0.0
0.0
-0.7
0.0
0.1
0.0
0.0
-0.1
Other
demand
sectors
(S3)
0.0
-0.1
-0.2
-0.1
0.2
2.5
0.0
-0.1
0.0
-1.9
0.0
0.1
0.0
0.0
0.5
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
-1.0
4.7
5.1
11.7
-0.9
-2.9
0.4
3.6
0.2
6.8
5.4
-0.7
0.5
-0.1
0.0
0.5
-4.5
-2.1
-6.1
3.1
22.3
-0.4
-1.2
-0.9
-9.8
-2.7
1.6
-0.3
0.5
0.0
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
32.3
29.8
81.4
35.9
42.2
23.6
28.5
33.7
41.0
32.5
119.2
33.7
31.1
36.9
32.1
45.3
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
5.2
-8.9
-25.1
-33.5
15.0
111.4
-13.6
-23.4
-2.4
-20.9
-18.1
12.5
-7.0
0.5
-16.6
45.0
737.2
235.1
486.4
220.4
53.0
222.6
156.4
865.2
2494.1
324.7
466.9
128.1
723.0
7158.2
-6.1
-23.4
-8.9
-16.5
-12.4
-82.4
-50.6
-11.1
-0.3
-28.0
-4.1
-0.1
-2.0
-0.3
-20.7
22
Table A-5: Energy supply and energy intensive sectors trading for EU7
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
3.6
-1.0
1.0
-7.3
0.0
0.0
0.0
0.0
11.9
0.0
0.0
-1.3
-6.8
0.0
Energy
supply
sectors
(S1)
0.0
2.4
-1.1
0.9
-14.4
0.0
0.0
0.0
0.0
9.6
0.0
0.0
-1.0
-9.5
-13.1
Energy
intensive
industries
(S2)
0.0
1.3
0.0
0.1
-2.9
0.0
0.0
0.0
0.0
2.7
0.0
0.0
-0.3
-1.6
-0.7
Other
demand
sectors
(S3)
0.0
-0.1
0.1
0.0
10.0
0.0
0.0
0.0
0.0
-0.5
0.0
0.0
0.0
4.2
13.8
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
3.7
-2.5
1.9
-2.1
0.0
0.0
0.0
0.0
8.2
0.0
0.0
-2.5
-1.4
0.0
0.0
-3.6
1.0
-1.0
7.3
0.0
0.0
0.0
0.0
-11.9
0.0
0.0
1.3
6.8
0.0
0.0
56.0
56.0
56.0
56.0
0.0
0.0
0.0
0.0
56.0
0.0
0.0
56.0
56.0
28.4
73.7
54.8
57.3
40.8
13.5
39.0
53.5
33.3
111.9
41.1
27.7
50.1
48.0
49.0
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-17.5
14.5
-9.7
98.6
0.0
0.0
0.0
0.0
-25.7
0.0
0.0
26.2
50.6
-9.7
47.9
908.1
246.9
579.1
-55.3
300.6
450.3
175.9
867.9
2742.8
338.5
467.4
120.5
577.1
7767.8
0.0
-5.7
-4.3
-0.6
-122.0
0.0
0.0
0.0
0.0
-20.9
0.0
0.0
-7.8
-20.5
-13.9
Table A-6: Energy supply and energy intensive sectors trading for EU8
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
6.7
2.3
6.9
-3.0
-31.0
0.0
0.0
0.0
14.6
0.0
0.0
0.2
3.4
0.0
Energy
supply
sectors
(S1)
0.0
4.3
2.5
6.5
9.3
-36.0
0.0
0.0
0.0
12.3
0.0
0.0
0.1
-0.4
-1.4
Energy
intensive
industries
(S2)
0.0
2.4
0.0
0.5
2.0
-1.6
0.0
0.0
0.0
3.2
0.0
0.0
0.1
-0.1
6.4
Other
demand
sectors
(S3)
0.0
0.0
-0.2
-0.1
-14.3
6.6
0.0
0.0
0.0
-0.9
0.0
0.0
0.0
3.8
-5.0
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
6.8
5.5
13.3
-0.8
-4.1
0.0
0.0
0.0
10.0
0.0
0.0
0.4
0.7
0.0
0.0
-6.7
-2.3
-6.9
3.0
31.0
0.0
0.0
0.0
-14.6
0.0
0.0
-0.2
-3.4
0.0
0.0
32.6
32.6
32.6
32.6
32.6
0.0
0.0
0.0
32.6
0.0
0.0
32.6
32.6
28.4
67.5
35.9
39.9
26.3
30.8
39.0
53.5
33.3
107.7
41.1
27.7
35.9
32.3
43.4
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-24.5
-24.9
-37.1
27.8
128.6
0.0
0.0
0.0
-28.5
0.0
0.0
-9.7
1.3
-20.0
47.9
720.8
244.5
501.7
130.3
32.5
450.3
175.9
867.9
2271.4
338.5
467.4
121.7
723.0
7093.8
0.0
-25.1
-5.2
-13.9
-48.2
-89.2
0.0
0.0
0.0
-34.5
0.0
0.0
-6.9
-0.3
-21.4
23
Table A-7: Energy supply and energy intensive sectors trading for EU8
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
-0.7
7.0
2.4
7.3
-3.0
-37.5
1.3
1.7
1.1
15.4
2.4
-0.6
0.2
3.1
0.0
Energy
supply
sectors
(S1)
-0.6
4.6
2.6
6.9
11.6
-42.6
0.5
1.6
0.0
13.0
2.3
-6.5
0.1
-0.7
-7.2
Energy
intensive
industries
(S2)
-0.1
2.5
0.0
0.5
2.4
-1.6
0.0
0.0
0.0
3.4
0.0
-0.4
0.1
-0.1
6.8
Other
demand
sectors
(S3)
0.0
0.0
-0.2
-0.1
-17.1
6.7
0.7
0.1
1.1
-1.0
0.0
6.3
0.0
3.9
0.5
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
-1.5
7.2
5.9
14.0
-0.9
-5.0
1.4
4.9
0.3
10.7
4.8
-0.3
0.3
0.6
0.0
0.7
-7.0
-2.4
-7.3
3.0
37.5
-1.3
-1.7
-1.1
-15.4
-2.4
0.6
-0.2
-3.1
0.0
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
33.3
31.1
67.6
36.5
40.4
26.7
31.6
34.2
41.0
33.3
107.8
34.3
32.5
36.2
32.7
43.3
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
9.5
-24.3
-23.8
-36.3
29.6
134.8
-12.2
-23.4
0.0
-28.5
-16.7
17.4
-8.8
2.6
-20.2
42.3
742.6
251.9
521.4
130.1
-13.9
238.7
166.6
836.9
2318.3
324.9
455.1
123.0
725.5
6863.4
-11.6
-22.9
-2.4
-10.5
-48.3
-104.6
-47.0
-5.3
-3.6
-33.1
-4.0
-2.6
-5.9
0.0
-24.0
Table A-8: Full trading for EU3
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
13.5
0.0
0.0
0.0
-49.5
0.0
0.0
0.0
36.0
0.0
0.0
0.0
0.0
0.0
Energy
supply
sectors
(S1)
0.0
4.1
0.0
0.0
0.0
-32.7
0.0
0.0
0.0
13.0
0.0
0.0
0.0
0.0
-15.5
Energy
intensive
industries
(S2)
0.0
2.5
0.0
0.0
0.0
-1.8
0.0
0.0
0.0
3.4
0.0
0.0
0.0
0.0
4.0
Other
demand
sectors
(S3)
0.0
6.9
0.0
0.0
0.0
-15.0
0.0
0.0
0.0
19.6
0.0
0.0
0.0
0.0
11.5
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
13.8
0.0
0.0
0.0
-6.5
0.0
0.0
0.0
24.8
0.0
0.0
0.0
0.0
0.0
0.0
-13.5
0.0
0.0
0.0
49.5
0.0
0.0
0.0
-36.0
0.0
0.0
0.0
0.0
0.0
0.0
32.6
0.0
0.0
0.0
32.6
0.0
0.0
0.0
32.6
0.0
0.0
0.0
0.0
28.4
32.6
47.9
63.5
20.6
32.6
39.0
53.5
33.3
32.6
41.1
27.7
39.7
31.9
34.8
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-63.5
0.0
0.0
0.0
142.1
0.0
0.0
0.0
-78.4
0.0
0.0
0.0
0.0
-35.9
47.9
605.8
258.0
582.5
251.6
59.7
450.3
175.9
867.9
1458.9
338.5
467.4
130.7
725.5
6420.7
0.0
-37.1
0.0
0.0
0.0
-80.1
0.0
0.0
0.0
-57.9
0.0
0.0
0.0
0.0
-28.9
24
Table A-9: Full trading for EU7
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
9.8
0.4
2.8
-21.8
0.0
0.0
0.0
0.0
30.7
0.0
0.0
-1.2
-20.7
0.0
Energy
supply
sectors
(S1)
0.0
3.2
0.4
1.8
-2.7
0.0
0.0
0.0
0.0
11.3
0.0
0.0
-0.5
-8.5
5.1
Energy
intensive
industries
(S2)
0.0
1.6
0.0
0.2
-1.1
0.0
0.0
0.0
0.0
2.8
0.0
0.0
-0.1
-1.3
2.2
Other
demand
sectors
(S3)
0.0
5.0
0.0
0.7
-18.0
0.0
0.0
0.0
0.0
16.5
0.0
0.0
-0.6
-10.9
-7.2
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
10.1
1.0
5.4
-6.1
0.0
0.0
0.0
0.0
21.2
0.0
0.0
-2.3
-4.1
0.0
0.0
-9.8
-0.4
-2.8
21.8
0.0
0.0
0.0
0.0
-30.7
0.0
0.0
1.2
20.7
0.0
0.0
46.4
46.4
46.4
46.4
0.0
0.0
0.0
0.0
46.4
0.0
0.0
46.4
46.4
28.4
46.4
46.4
46.4
46.4
13.5
39.0
53.5
33.3
46.4
41.1
27.7
46.4
46.4
38.4
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-48.0
-3.0
-26.8
125.9
0.0
0.0
0.0
0.0
-69.2
0.0
0.0
17.0
45.6
-29.1
47.9
749.0
252.0
544.5
-52.6
300.6
450.3
175.9
867.9
1885.8
338.5
467.4
121.0
531.1
6679.2
0.0
-22.2
-2.3
-6.5
-120.9
0.0
0.0
0.0
0.0
-45.6
0.0
0.0
-7.5
-26.8
-26.0
Table A-10: Full trading for EU8
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
0.0
13.9
3.3
9.1
-13.8
-49.5
0.0
0.0
0.0
37.0
0.0
0.0
1.1
-1.1
0.0
Energy
supply
sectors
(S1)
0.0
4.3
2.5
7.0
-5.9
-32.7
0.0
0.0
0.0
13.4
0.0
0.0
0.3
-0.5
-11.6
Energy
intensive
industries
(S2)
0.0
2.5
0.0
0.5
-0.6
-1.8
0.0
0.0
0.0
3.5
0.0
0.0
0.2
-0.1
4.2
Other
demand
sectors
(S3)
0.0
7.1
0.8
1.6
-7.2
-15.0
0.0
0.0
0.0
20.2
0.0
0.0
0.6
-0.6
7.4
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
0.0
14.2
8.0
17.5
-3.9
-6.5
0.0
0.0
0.0
25.6
0.0
0.0
2.1
-0.2
0.0
0.0
-13.9
-3.3
-9.1
13.8
49.5
0.0
0.0
0.0
-37.0
0.0
0.0
-1.1
1.1
0.0
0.0
32.6
32.6
32.6
32.6
32.6
0.0
0.0
0.0
32.6
0.0
0.0
32.6
32.6
28.4
32.6
32.6
32.6
32.6
32.6
39.0
53.5
33.3
32.6
41.1
27.7
32.6
32.6
33.3
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
0.0
-63.5
-31.9
-48.6
58.6
142.1
0.0
0.0
0.0
-78.4
0.0
0.0
-17.9
2.2
-38.7
47.9
618.5
245.3
496.4
219.2
58.5
450.3
175.9
867.9
1493.0
338.5
467.4
128.9
721.0
6328.7
0.0
-35.8
-4.9
-14.8
-12.9
-80.5
0.0
0.0
0.0
-56.9
0.0
0.0
-1.4
-0.6
-29.9
25
Table A-11: Full trading for EU
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
-0.9
13.7
3.2
8.8
-14.4
-51.2
1.1
2.3
0.8
36.5
3.4
-3.1
1.1
-1.3
0.0
Energy
supply
sectors
(S1)
-0.5
4.2
2.4
6.8
-6.2
-33.8
0.5
1.4
0.6
13.2
2.9
-1.7
0.3
-0.5
-10.4
Energy
intensive
industries
(S2)
-0.1
2.5
0.0
0.5
-0.7
-1.9
0.1
0.0
0.0
3.4
0.1
-0.2
0.2
-0.1
3.9
Other
demand
sectors
(S3)
-0.3
7.0
0.7
1.5
-7.6
-15.5
0.6
0.9
0.2
19.9
0.4
-1.2
0.6
-0.7
6.5
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
-1.9
14.0
7.6
17.1
-4.1
-6.8
1.3
6.7
0.2
25.2
6.8
-1.3
2.1
-0.3
0.0
0.9
-13.7
-3.2
-8.8
14.4
51.2
-1.1
-2.3
-0.8
-36.5
-3.4
3.1
-1.1
1.3
0.0
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
32.6
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
15.0
-63.5
-31.9
-48.6
58.6
142.1
-16.4
-39.1
-2.1
-78.4
-20.7
17.9
-17.9
2.2
-39.9
45.7
610.7
239.8
488.4
198.3
3.9
229.0
156.6
865.2
1477.0
332.2
464.4
129.5
716.7
5957.4
-4.5
-36.6
-7.0
-16.2
-21.2
-98.7
-49.2
-11.0
-0.3
-57.4
-1.9
-0.6
-0.9
-1.2
-34.0
Table A-12: Trading among Annex B countries
Change of country specific emissions from Reference
emission reduction case (Mt CO2)
Total
AU
BE
DK
FI
FR
GE
GR
IR
IT
NL
PO
SP
SV
UK
EU14
-0.3
17.4
7.1
13.5
3.6
-6.6
3.4
4.3
21.3
42.1
10.2
12.6
3.4
18.1
150.4
Energy
supply
sectors
(S1)
-1.0
5.5
5.7
10.4
1.3
-2.0
1.6
2.8
15.8
15.8
9.1
9.7
1.1
4.9
80.8
Energy
intensive
industries
(S2)
0.3
3.5
0.1
0.8
0.3
-0.7
0.2
0.0
0.8
4.0
0.2
0.4
0.6
1.6
12.1
Other
demand
sectors
(S3)
0.5
8.4
1.3
2.2
2.0
-3.9
1.6
1.5
4.7
22.4
0.9
2.5
1.7
11.7
57.5
Emission permits trading Marginal abatement cost
Mt CO2
Price
Eur'99/tCO2
% change (+sellers /(Eur'99/tCO2)
buyers)
-0.5
17.8
16.9
26.1
1.0
-0.9
3.9
12.7
5.8
29.1
20.6
5.4
6.5
3.6
5.3
0.3
-17.4
-7.1
-13.5
-3.6
6.6
-3.4
-4.3
-21.3
-42.1
-10.2
-12.6
-3.4
-18.1
-150.4
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
17.7
Compliance cost (including
trading costs/revenues)
% change
from
reference
Mio Eur'99
% change
from
reference
-37.5
-80.2
-63.0
-72.1
-13.8
31.6
-54.5
-66.9
-46.8
-88.2
-56.9
-35.9
-55.4
-44.4
-67.3
44.0
363.7
168.1
319.6
246.5
300.2
190.4
107.1
709.1
860.1
217.0
407.7
92.6
612.5
4638.5
-8.1
-62.2
-34.8
-45.1
-2.0
-0.1
-57.7
-39.1
-18.3
-75.2
-35.9
-12.8
-29.2
-15.6
-48.6
26