A New Paris Protocol? The EU’s Role in International Climate

Negotiations

Geoffrey J. Blanford, Ph.D. Ifo Institute for Economic Research, Germany

Electric Power Research Institute, USA

CLIMATE CHANGE: IMPLICATIONS FOR TECHNOLOGICAL DEVELOPMENTS AND INDUSTRIAL COMPETITIVENESS

4 November 2015, Madrid

2

Outline of Talk

• EU vision for a new climate agreement

• EU commitments for domestic reductions

• EU commitments in a global context

3

EU vision for COP21 in Paris

• Legally binding targets

• “Fair and ambitious commitments”

• Increasing ambition over time

• Transparency

Global emissions in 2050 reduced 60% from 2010

4

“Paris Protocol” vs. Kyoto Protocol, 18 years later

• Include all countries vs. Annex 1 only

• Intended Nationally Determined Contributions (INDCs)

bottom-up vs. top-down target setting

• Various instruments vs. harmonized emissions trading system

• International cooperation not explicitly codified, but could arise through multi-lateral partnerships

• More emphasis on “climate finance” to support both mitigation and adaptation measures in developing world

5

EU commitments for domestic reductions

By 2030: “at least” …

• 40% reduction in greenhouse gas emissions relative to 1990

• 27% share of renewable energy in final consumption

• 27% reduction in total energy consumption relative to BAU

• Renewable and efficiency targets are viewed as energy security measures to increase fuel diversity and decrease imports

• International crediting is viewed with skepticism

6

Member States vs. EU on Climate Goals

• Most member states agree with the overall binding target for total greenhouse gas emissions

– Germany, Denmark, Portugal are most aggressive

• Eastern European countries oppose binding targets for renewable energy and energy efficiency

• UK favors more flexible approaches, for example renewable energy target applied across the EU rather than within each member state

• Germany and others may adopt overlapping goals

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0

1000

2000

3000

4000

5000

6000

1990 1995 2000 2005 2010 2015 2020 2025 2030

Mill

ion

tCO

2-e

EU Greenhouse Gas Emissions and Targets

Electricity/Heat (CO2)

Covered Industry (CO2) Covered non-CO2

Aviation (CO2)

Other Industry (CO2)

Road/Rail Transportation (CO2)

Buildings (CO2)

Other non-CO2

45% of total ETS

Effort Sharing Decision

40% below

1990

based on EU GHG Inventory, excludes LUC

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Which sectors will do the heavy-lifting?

• Within ETS, abatement effort should be market driven

– However, other policies like renewable energy targets could override market allocation, raising costs

– Current proposals imply 32% reduction from 2012 by 2030

• Outside ETS, abatement is determined through a combination of national and EU-wide regulations, e.g. energy efficiency

– No guarantee of cost-effectiveness, flexibility

– Incentives for electrification could be distorted

– Current proposals imply 22% reduction from 2012 by 2030

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Power Sector Under the EU-ETS

0

200

400

600

800

1000

1200

1400

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Mill

ion

tons

CO

2

CCGT / GT

Hard Coal

Brown Coal

History

Cap

43%

80%

95%

Base Year Power Generation

Emissions (Modeled)

2005 level

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EU-REGEN Model of Electricity Investment/Dispatch

Scandinavia

Great Britain

France

Iberia Italy

EE-SE EE-SW

EE-NW

EE-NE

Alpine

N Germany

S

Benelux

EE = Eastern Europe Net Transfer Capacities (ENTSO-E)

> 4 GW 2 - 4 GW 1 - 2 GW < 1 GW Planned

Jointly developed by EPRI and Ifo Institute, Munich

Intertemporal optimization / equilibrium through 2050

Detailed representation of renewable profiles

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EU Generation Mix with 80% EU-ETS Target

0

1000

2000

3000

4000

5000

1990 2000 2010 2020 2030 2040 2050

TWh

CSP

PV

Wind

Gas-CCS

Gas/Oil

Coal-CCS

Hard Coal

Brown Coal

Nuclear

Bio-CCS

Bio+

CHP-Gas/Oil

Hydro

Least-cost emissions reductions: no additional national targets or

subsidies

45% renewables in 2030

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German renewable share target of 80% by 2050

Hydro CHP-Gas/Oil Bio+ Bio-CCS Nuclear Brown Coal Hard Coal Coal-CCS Gas/Oil Gas-CCS Wind PV CSP Energy for Load

0

200

400

600

800

2015 2020 2025 2030 2035 2040 2045 2050

EU-ETS target only

0

200

400

600

800

2015 2020 2025 2030 2035 2040 2045 2050

EU-ETS target plus DE renewable target

Elec Price

TWh

in G

erm

any

CO2 Price

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• Europe’s mitigation targets are relatively stringent, but its share of global emissions is small (and shrinking)

• Many others have made significant pledges for 2030 timeframe, in particular the US, China, and other G20 countries

• India and other developing countries have more ambiguous targets, often conditional on international finance, but participation has been broad

• Countries without pledges amount to roughly 15% of current emissions

EU commitments in a global context

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Summary of INDC pledges

28% reduction from 2005 by 2025 USA

40% reduction from 1990 by 2030 EU

Emissions peak by 2030 China

35% reduction in carbon intensity of GDP from 2005 by 2030

India

AUS 28% reduction from 2005 by 2030 BRA 43% reduction from 2005 by 2030 CAN 30% reduction from 2005 by 2030 IDN 30% reduction from BAU by 2030 JPN 25% reduction from 2010 by 2030 KOR 37% reduction from BAU by 2030 MEX 40% reduction from BAU by 2030 NZL 30% reduction from 2005 by 2030 RUS 30% reduction from 1990 by 2030 ZAF Return to 2000 levels by 2030 TUR 21% reduction from BAU by 2030

Other G20

Most pledges are conditional on int’l finance Large former Soviet republics: UKR 60% reduction from 1990 by 2030 KAZ 25% reduction from 1990 by 2030 Large African countries: COD 17% reduction from BAU by 2030 CAF 5% reduction from BAU by 2030 ZMB 47% reduction from BAU by 2030 ETH 64% reduction from BAU by 2030 TZA 20% reduction from BAU by 2030 Large Asian countries: THA 25% reduction from BAU by 2030 VNM 25% reduction from BAU by 2030 BGD 20% reduction from BAU by 2030 Largest emitters with no pledges: BOL, IRN, SAU, SDN, PAK, EGY, NGA, MYS, VEN

Other Developing

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EU = 12% of Global Emissions

12%

2010 emissions

EU30

16

EU + USA + China = 50% of global emissions

USA China

50%

2010 emissions

EU30

18

All Major Pledges = 70% of global emissions

USA China

Other G20

2010 emissions

70%

EU30

19

0

10

20

30

40

50

60

70

80

90

1990 2000 2010 2020 2030 2040 2050

Billi

on To

ns C

O2-

e

World Emissions

World BAU

Global Emissions with INDCs and extensions to 2050

USA

EU

Other G20

China (less abatement) India and other developing (no targets)

Reductions by Region

MERGE model results

Sensitivity range around contribution from China, India, others

20

0

10

20

30

40

50

60

70

80

90

1990 2000 2010 2020 2030 2040 2050

Billi

on To

ns C

O2-

e

World Emissions

World BAU

USA

EU

Other G20

China (more abatement)

India and other developing (peak by 2040)

Reductions by Region

Global Emissions with INDCs and extensions to 2050

EU Goal for Global Emissions

MERGE model results

Sensitivity range around contribution from China, India, others

21

Summary

• Europe envisions aggressive climate action globally

• It has adopted overlapping domestic GHG targets

– National renewable goals could raise costs in electric sector

– Abatement effort across sectors may not be cost-effective

– Opportunities for additional market flexibility

• Pledges entering COP21 could result in a global peak of emissions by 2030, subject to uncertainty

• Mitigation required during 2030-2050 timeframe to meet Europe’s stated global goal will be very challenging