A unilateral climate and supply market model 15 th IAEE European - - PowerPoint PPT Presentation

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A unilateral climate and supply market model

15th IAEE European Conference 2017

Eike Blume-Werry, Martin Koller, Martin Everts

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Agenda

Problematique Legal background The British model Climate and Supply Market Model Hintergrund Hintergrund Hintergrund Hintergrund

• Development of EU ETS allowance prices
• Problems of low allowance prices
• Legal constrains of unilateral carbon taxation models
• General Agreement on Tax and Tariffs
• The British Carbon Price Floor
• Limitations of the British model
• Requirements for unilateral carbon taxation models
• The Climate and Supply Market Model

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Due to the low allowance prices

• The role of the EU ETS as the main driver for

decarbonisation is questioned

• Negative externalities are no longer properly

internalised

• Incentives for investments in low carbon

generation technologies are missing Reforming the EU ETS has proven a difficult matter

05.09.2017 | 15th IAEE European Conference

EU ETS allowance prices are widely regarded as too low

5 10 15 20 25 30 2008 2009 2010 2011 2012 2013 2014 2015 2016

EU ETS allowance prices

EUR/tCO2

Source: EEX, ICE

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Price floors and national CO2 prices are discussed in the media

05.09.2017 | 15th IAEE European Conference

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• Electric power is classified as a ‘good’ under international

law

• General Agreement on Tax and Tariffs (GATT) non-

discrimination rules require equal treatment of ‘like’ products imported/exported from/to WTO members (Most-favoured- Nation [MFN] treatment)

• Exceptions are mentioned in Art. XX GATT
• EU state aid rules set down in the Treaty on the Functioning
• f the European Union (TFEU) have to be respected
• Compatibility with EU ETS has to be assured

05.09.2017 | 15th IAEE European Conference

Carbon taxation models have to operate within a tight legal framework

• Art. III:2 GATT

“The products of the territory

• f any contracting party

imported into the territory of any other contracting party shall not be subject, directly

• r indirectly, to internal taxes
• r other internal charges of

any kind in excess of those applied, directly or indirectly, to like domestic products.”

Source: WTO

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• Serves as a top-up of the EU ETS
• Introduced to correct market distortion created

by low EU ETS prices

• Contributes to a decline of coal generation
• Affects only producers in Great Britain; imports

are not charged

• Creates limited competitive disadvantages for

domestic electricity producers

• Cannot be applied elsewhere; island solution

05.09.2017 | 15th IAEE European Conference

The British Model only works in special circumstances

Carbon Price Floor (in real 2009 prices)

Source: HM Treasury, 2011

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Requirements for a unilateral CO2 taxation model

• Set incentives for investments low carbon generation

technologies

• Maintain or strengthen a high level of security of supply
• Come at an acceptable level of costs
• Price carbon appropriately and internalise the external

costs of CO2 emissions

• Comply with international & EU laws and regulation
• Avoid market distortions on the energy only market
• Prevent competitive disadvantages for domestic

producers and consumers

• Keep complexity and bureaucratic efforts to a minimum

Affordability Sustainability Security of Supply

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The Climate and Supply Market Model uses Guarantees of Origin

• Introduces a CO2 levy on all electricity

consumption

• Offers exemptions for consumption of CO2-

neutral electricity using Guarantees of Origin (GoO)

• Restricts exemptions to national GoO
• Requires generator to report their CO2-neutral

production and receive corresponding GoO

• Obliges electricity suppliers to either pay the CO2

levy or present GoO for every MWh delivered

• Leads to a subsequent increase of value of GoO

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EU ETS allowance prices are incorporated in the model

• Government sets a CO2 levy
• Average EEA + CH CO2 intensity is used in

the formula for legal reasons

• Model is set to become redundant by design
• CO2 levy decreases if EU ETS increases or

average CO2 intensity decreases

• GoO have no additional value in periods

where domestic CO2-neutral production exceeds consumption

• GoO remain valid for a specific time period

(e.g. 1 month)

(𝐷𝑃2 𝑚𝑓𝑤𝑧

𝐹𝑉𝑆 𝑢𝐷𝑃2 − 𝐹𝑉 𝐹𝑈𝑇 𝑞𝑠𝑗𝑑𝑓 𝐹𝑉𝑆 𝑢𝐷𝑃2 )

∗ 𝐷𝑃2 𝑗𝑜𝑢𝑓𝑜𝑡𝑗𝑢𝑧

𝑢𝐷𝑃2 𝑁𝑋ℎ

= 𝐷𝑃2 𝑚𝑓𝑤𝑧

𝐹𝑉𝑆 𝑁𝑋ℎ

Calculation Formula

(50

𝐹𝑉𝑆 𝑢𝐷𝑃2 − 5.3 𝐹𝑉𝑆 𝑢𝐷𝑃2 )

∗ 0.23

𝑢𝐷𝑃2 𝑁𝑋ℎ

= 10.3

𝐹𝑉𝑆 𝑁𝑋ℎ

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The Climate and Supply Market Model prices carbon effectively

• Requires only limited bureaucratic and

administrative efforts

• Differentiates clearly between trading of GoO and

the energy-only market

• Does not interfere in the energy-only market, EU

ETS and balance of trade

• Complies with relevant international and EU laws
• Sets incentives for investments carbon-neutral

generation technologies

• Strengthens security of supply
• Entails higher costs for consumers

CO2 levy power CO2-neutral

either

• r

GoO

€

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Conclusion

• EU ETS prices are considered too low to fulfil

the intended functions

• WTO law prevents simple unilateral carbon

taxes

• The British Carbon Price Floor is not an

adequate model for others

• GoO can be used to implement a CO2 levy
• The Climate and Supply Market Model offers

an effective and legal way of carbon pricing

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Many thanks for your attention

15th IAEE European Conference Eike Blume-Werry, eike.blumewerry@axpo.com