APEx 2005 Annual ConferenceDisney’s BoardWalk Inn, Florida

CO 2

Torger LienPresident & CEO, Nord Pool ASA

Kyoto protokollETS and EUA quota system

EUs Kyoto obligation

ETS sectorer

Other

Emissions 1990Emissions 1990

Kyoto gapKyoto gap

Emissions 2008-2012Emissions 2008-2012

Carbon credits

CERs (CDM) ERUs (JI)

Diff. reductions

ETS reductionsETS Reductions

Ways to close the Kyoto gap

Non-ETS measures (domestic)Own abatement

ETS

Residual:

Government purchases

Domestic policies & measures:• Taxes• Financial support• “command-and-control”• Negotiated agreements • Own abatement

Imports:• EU allowances (EUAs)• Credits from developing countries (CERs)• Credits from Russia/Ukraine ((ERUs)•“ Kyoto units” – Assigned amount units

Governments decide how to share the burden. Ultimately Kyoto commitment rests with governments

Allocation to individual installations

Kyoto AAUs (assigned amount units) Trinn 1

MetallKraft

VarmeMineraler Treforedling Trinn 3

Instal. 1 Instal. 2 Instal. 3 Instal. 4 Trinn 4

Husholdninger, Tjenesteyting,Mindre industri

ETS Transport Trinn 2

“Gap” ETS sector 2005-2007

EU 15

60

50

40

20

30

10

EU 1O (New)

CDM

BaU EU 25

Reductions ETS sector

Weather

Economical growth

Energy prices

Mil ton CO2

“Gap” ETS sector 2008-2012

EU 25

250

200

150

50

100

Reductions ETS sector

Demand

Import of credits

Import of credits:CDM/JI or

ETS-sector reductions

Competition over CDM/JI credits: Public fund, buyers outside Europe

Supply

Marginalcost powergeneration -Continental Europe

Coalprice

$64/ton

Carbon price

€16/ton

Gas price

$5.75/mmbtu

Carbon price€16/ton

Coal Gas

Coalprice, gasprice & carbonprice

30

25

20

10

15

5

Carbon price (€/tonn)

Gasprice/Coalprice

UK

May 2005E Continent

May 2004

E Continent

May 2005

Fuelcost, gas & coal

Development in fuel costs for coal and gas

20

22

24

26

28

30

32

34

2005

-02-

09

2005

-02-

16

2005

-02-

23

2005

-03-

02

2005

-03-

09

2005

-03-

16

2005

-03-

23

2005

-03-

30

2005

-04-

06

2005

-04-

13

2005

-04-

20

2005

-04-

27

2005

-05-

04

2005

-05-

11

2005

-05-

18

2005

-05-

25

€/M

Wh

Fuel cost gas efficiency 49%Fuel cost coal efficiency 47%

Trading EU Allowances at Nord Pool

To start in 2005 Forward contracts – physical delivered

• Ticker code: EUA (1 EUA = 1 tCO2)

• Min. lot: 1000 EUA• Starting with three contracts:

• EUADEC-05 (last trading day 1st Thursday in December 2005)• EUADEC-06 (last trading day 1st Thursday in December 2006)• EUADEC-07 (last trading day 1st Thursday in December 2007)

• Closing price set every day

Use existing infrastructure; PowerCLICK ETS, Clearing Desk Application, SECUR clearing system etc

Link to national registries for transition of EUA

EUA spot contract

EUA Prices

678910111213141516171819202122232425262728293031

31.01.05 28.02.0 31.03.05 30.04.0 31.05.05 30.06.0 31.07.05 31.08.05 30.09.0

EU

R/ t

CO

2

EUADEC-05Prices: CFI -DEC05

EUA Volumes Nord Pool and ECX

0

1000

2000

3000

4000

5000

6000

7000

6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 4142 43 44 45 46 47 48 49 50 51 52 53

NP TOTAL

ECX TOTAL

NP Exch

ECX Exch

Accumulated :NordPool: 17.438 mln tCO2 ECX : 42.298 mln tCO2

Volumes comparedOpen interst

NP: 10249

ECX: 13174Volum Nord Pool vs ECX & EEX

0

100

200

300

400

500

600

700

800

900

1000

1100

1200

2.11.05 2.25.05 3.11.05 3.25.05 4.8.05 4.22.05 5.6.05 5.20.05 6.3.05 6.17.05 7.1.05 7.15.05 7.29.05 8.12.05 8.26.05 9.9.05 9.23.05 10.7.05

10

00

tC

O2

05001.0001.5002.0002.5003.0003.5004.0004.5005.0005.5006.0006.5007.0007.5008.0008.5009.0009.50010.00010.50011.00011.50012.00012.50013.00013.50014.00014.50015.00015.50016.00016.50017.00017.50018.00018.50019.00019.50020.00020.50021.00021.50022.00022.50023.00023.50024.00024.500

ECX ex EFPNP ex otcEEXNP ex otcEEXECX ex EFP

Source: NP, EEX, IPE

0%

100%Elastic consumption

Load variation and price structure

Fuel exchange

Hydropower

Bottlenecks

No thermal power

Carbon dioxide price impact on

electricity prices

Production cost avg. coal fired power generation

0

5

10

15

20

25

30

35

44 46 48 50 52 1 3 5 7 9 11 13 15 17 19 21 23

Uke

øre

/kW

h

Karbonkostnad

Brenselskostnad

OPEX

Marginal carboncost: 13,7 øre/kWh

CO2 cost impact – the European model

Today’s fuel pricesThe cost effect in Germany is higher than in the Nordic regionToday’s carbon dixoide price yield about 45% effect in the Nordic region

Definition:Price rise/cost escalation for coal

0 %

20 %

40 %

60 %

80 %

100 %

10 20 30 40 50 60

EUR/tonne

Nordel

Germany

Actual forward and carbon dioxide prices, 2007

Strong correlation beetween forward and carbon dioxide prices• Even stronger correlation between Nord Pool and EEX power prices

0

5

10

15

20

25

30

35

February 05 March 05 April 05 May 05 June 05 July 05 August 05

EU

R/t

on

ne

25

27

29

31

33

35

37

39

41

43

45

EU

R/M

Wh

Carbon 2007 Germany 2007 Nordel

EUA/ETS sustainability

Higher power prices to household consumersGlobally competitive base industry will sufferEUA price formation fundamental or speculativeWill the consept reduce CO2 emissions globally2005-2007 is the test period. What will be the conditions for 2008-2012 period, and what will happen after 2012For how long will European poleticians be the frontiers on the account of european base industry flagging out…or will the rest of the world follow their brave initiative?

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