emission trading, coal phase out and a just transition

Emission Trading, Coal Phase Out and a Just TransitionLessons learned from Europe

MAY 5TH, 2021

Philipp Litz

BackgroundRecent climate/carbon neutrality pledges put the question of coal phase out and just transition back into focus

New York Times (2021)

2

Xi‘s speech at UN General Assembly in September 2021→ In September 2020, Chinese President Xi

Jinping committed China to achieve carbon neutrality by 2060 at the UN General Assembly. To reach this goal, the Chinese economy will need to support a just transition from coal, especially in the coal dependent regions.

→ Both the European Union and the United Kingdom have committed themselves to reach climate neutrality by 2050. To reach this goal, several European countries (e.g., Germany, United Kingdom) have already implemented dedicated policies to phase out coal.

→ Also, the new Biden administration recently committed to climate neutrality by 2050.

European Green DealBy 2030, the renewable share in electricity will need to rise to around 70 percent and coal will be phased-out almost completely

Gross power mix EU-27, (%), 2020 vs 2030

*Ember/Agora Energiewende (2021), **Ecologic & Climact (2020)

68 %

25 %

15 %21 %

15 %13 %

2020

38 %

2 %

2 %

1 %

2030

Coal

Oil

Gas

Nuclear

Renewables

Preliminary* COM 55% mix scenario**

https://climact.com/wp-content/uploads/2020/09/2020-09-30-EU-2030-IA-analysis_Final.pdf

Emission Trading CO2 prices are currently reaching an all time high (50 €/t CO2) increasing the economic pressure even more

i

6

Average CO2 price development from 2008 – May 2021

DEHSt (2020), Ember (2021)

Coal-Gas-SwitchingNatural gas plants are now widely cheaper than lignite and hard coal plants

7

Marginal costs for natural gas, lignite and hard coal-fired power plants

Agora Energiewende (2021)

28,5

18,5 19,8 18,5

12,18,9

10,612,4

9,8 10,4

20,3

31,4 30,9

51,9

34,437,3

42,8

33,9

27,3 26,7 26,624,4 32,2

40,7 41,3

36,7

56,9

42,7 42,7

51,5

55,4

51,7

45,0

40,2

29,9

33,140,5

38,5

29,8

0

10

20

30

40

50

60

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*

Marg

inal co

st (

EU

R/M

Wh

el)

Lignite (37%) Hard coal (41%) Fossil gas (55%)

Example 1:United Kingdom

Energy consumption and power Within only a decade, the UK reduced the share of coal-fired power generation from 28% in 2010 to 2% in 2020

UK Dept. of Business, Energy and Industrial Strategy (2021)

9

Primary energy consumption by source, 2000 - 2020

Ember (2021)

Power generation by source, 2000 - 2020

0

50.000

100.000

150.000

200.000

250.000

2000 2005 2010 2015 2019

ktoe

Bioenergy/Waste Electricity Solids Gas Petroleum

2010 28%

2020 2%

0%

20%

40%

60%

80%

100%

2000 2005 2010 2015 2020

Renewables Nuclear Coal Gas Other fossil

PoliciesTo incentivize the phase out, the UK government implemented a set of different instruments

10

Overview of key policies to administrate the coal phase out in the United Kingdom

Prof. Michael Grubb, UCL (2021)

Contracts for Difference

Capacity Mechanism

Carbon floor price

Emissions Performance

Standard

4 key instruments

Low Carbon Support

Security of Supply

No new coal

Example 2: Germany

Primary energy consumption and power Since 2015, Germany has almost halved the share of coal in power generation and (still) aims to phase out coal by 2038 the latest

AG Energiebilanzen (2020)

12


AG Energiebilanzen (2020)


0

2000

4000

6000

8000

10000

12000

14000

16000

2000 2005 2010 2015 2020

PJ

Renewables Nuclear Coal Oil Natural gas Other

0%

20%

40%

60%

80%

100%

2000 2005 2010 2015 2020

Renewables Nuclear Coal Oil Gas Other

201542%

202023%

Au ho s’ figu bas d on ommission’s final po *wi hou vo ing igh s

Composition of the Coal Commission CompositionThe commission had 31 members, which represented most social and economic interests in a balanced way

Government was notpart of the Commission

2018:

~350 TWh

regions (7)

business and industry (5)

science (5)energy industry (4)

environmental associations (3)

trade unions (3)

parliament (3)*

administration (1)

31 members

13

MandateThe ‘Coal Commission’ was mandated to resolve a number of conflicts around the phase out from coal

14

Meeting climate targets

Keeping power pricesto a minimum

Ensuring security of supply

Allowing for a ‘Just Transition’

for workers and regions

Au ho s’ figu bas d on ommission’s final po

Overview on the recommendations of the Coal Commission ProposalThe Coal Commission developed comprehensive set of measures to phase out coal by 2038

1990:

~380 TWh

2018:

~350 TWh

Phase out coal

Safeguard emission mitigation

with more renewables, CHP and

cancelation of CO2-certificates

Ensure security of supply with

monitoring, reserves and new capacity

Make the power system more flexible with more grids and

storage

Maintain competitiveness of

industries and affordability for

households with power price compensations

Compensate utilities for early shut downs

Ensure a ‘Just Transition’

for employees with active labour market

policies

Conduct dialogue with resettlement

affected near lignite mines

Modernise the power

system

Alleviate hardship for thoseconcerned

DA

Supporttransformationof traditional

mining regions

B

Create new jobs and value added by investment and

modernisation of infrastructure,research and innovation

Indemnify recultivation

of lignite mines

No more new coal-fired

power plants and mines

Shut down existing plants

step by step until 2035

or 2038 the latest

CMonitor

and adjust measures

E

Monitor and report progress

in 2023, 2026, 2029 and 2032

Take additional action

if needed

15

Au ho s’ figu

Just Transition elements of the Coal CompromiseJust TransitionThe German model enables aJust Transition for region and workers in the plants and mines

Affected groups directly involved in the process of solution finding and decision making+

Substantial support for workers and regions+

Adequate amount of time for the transition to build up alternatives +

Compatibility with climate justice concepts-

16

Conclusion

Emission trading plays a key role in driving the European coal phase out, but is not a silver bullet and it is accompanied by broad set of instruments

18

Thank you for your attention!

Agora EnergiewendeAnna-Louisa-Karsch-Str.210178 Berlin

T +49 (0)30 700 1435 - 000F +49 (0)30 700 1435 - 129

www.agora-energiewende.dewww.twitter.com/AgoraEW

Please subscribe to our newsletter viawww.agora-energiewende.de

Questions or Comments? Feel free to contact me:

Agora Energiewende is a joint initiative of the Mercator Foundation and the European Climate Foundation.

[email protected]

Policy Overview The UK is a global leader in decarbonisation

20

Overview – Energy and Climate Policy Framework Overview – Coal Transition Policies

→ As an EU member state until 31 January 2020, the UK was committed to contributing to the EU NDC. Given its withdrawal from the European Union, the UK must now submit its own ambitious NDC.

→ In 2019, the UK as the first country worldwide adopted a Net-Zero target, committing to a greenhouse gas du ion of “a l as % b low l v ls by ” By the end of 2020, the UK had reduced its greenhouse gas emissions by 49%* compared to 1990 levels.

→ In 2015 ahead of the UNFCCC climate conference in Paris, the UK as one of the first countries worldwide announced its withdrawal from coal. To endorse its efforts globally, in h K and anada laun h d h “ ow ing as oal Allian ”

→ The phase-out from coal in the power sector was implemented by a mix of instruments, including a national carbon price floor additional to the European emission trading scheme plus financing schemes for renewable energies. The UK currently plans to phase out coal in the power sector by 2025 while already considering 2024.

* including COVID related effects

Greenhouse gas emissionsSince 1990 the UK reduced its greenhouse gas emissions by 49%


21

Greenhouse gas emissions, 1990 - 2020


Share in greenhouse gas emission reductions, 1990 - 2020

0

100

200

300

400

500

600

700

800

900

1990 2000 2010 2020 2030 2040 2050

Mio. t CO2 equ.

Historical Net-Zero Target

-49%59%

41%

0

100

200

300

400

500

600

700

800

900

1990 2020

Mio. t CO2 equ.

Other GHG gases / sectors CO2 in the Energy Sector

Policy OverviewChina aims to reach carbon neutrality before 2060

22


→ In its current NDC, China has pledged to peak CO2

emissions by 2030 the latest.

→ In September 2020, Chinese President Xi Jinping announced, that China would reach peak national carbon emissions even before 2030 and achieve carbon neutrality before 2060.

→ Based on the recent 14th FYP for Economic and Social Development released on March 12, China is currently designing the energy sector plan and publish the strategy around the end of 2021.

→ Th sha of hina’s oal onsump ion d opp d o % in 2019, fulfilling the government target of the 13th Five-Year Plan (2016-2020). The latest data shows that share was further decreased to 56.8% in 2020. However, as the ov all n gy d mand xpands fas , hina’s na ional coal consumption is continuing an upward trajectory.

→ The success of a Coal Just Transition in China depends on not only sound central government regulation, but also the solid implementation of energy transition policies with the engagement of stakeholders from business, academia, government, and civil society at both the central and local levels.

Greenhouse gas emissionsIn 2020, China pledged to peak carbon emissions before 2030 and reach net-zero before 2060

Climate Action Tracker (2021)

23


Global Carbon Project (2020)

Share in carbon emission increase, 1990 - 2019

* As the Chinese pledge refers to carbon, it is assumed that in 2060 a minor base of non-CO2-emissions remain

*

0

2.500

5.000

7.500

10.000

12.500

15.000

1990 2000 2010 2020 2030 2040 2050 2060

Mio. t CO2 equ.

Historical Net-Zero Path

2020~13.500

Mio t

68%

7%15%

10%

0

2.000

4.000

6.000

8.000

10.000

12.000

1990 2019

Mio. t CO2 equ.

Coal Gas Oil Cement

Primary energy consumption and power Despite its increase in total consumption, the share of coal in the power sector dropped from 77 to 61% since 2010

BP (2020)

24


Ember (2021)


0

20

40

60

80

100

120

140

2000 2005 2010 2015 2019

EJ

Renewables Nuclear Coal Oil Natural gas

201077%

202061%

0%

20%

40%

60%

80%

100%

2000 2005 2010 2015 2020

Renewables Nuclear Coal Natural Gas Others

Coal production and employmentChina’s coal demand has been met mostly by domestic supply

IEA (2020) / NBS (2021)

25

Production and imports of coal, 2010 - 2020

CEIC (2021)

Employees in coal mining, 2000 - 2020

0

1.000

2.000

3.000

4.000

2010 2015 2020

Mio. t

Production Net Imports

5500

5000

4500

4000

3500

3000

25002000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Thousand

Policy OverviewGermany has pledged to reach climate neutrality by 2050

26


→ As an EU member state, Germany is contributing to the EU NDC. In 2019, the EU adopted a Climate Neutrality goal by 2050 and in 2030 the EU council suggested to increase the intermediate climate target to -55% compared to 1990 levels.

→ Whil G many’s a g is in lin wi h h ’s ambition, Germany’s intermediate climate targets (-55% by 2030) do not reflect yet the EU’s recent increase in ambition and would result in an increase to around -65% in 2030.

→ In 2020, a coal phase-out law and a structural change law passed German parliament., aiming for a coal phase-out in the energy sector by 2038 the latest. To comply with the ’s -55% target in 2030, a phase-out by 2030 would be necessary.

→ The instrument of choice is a managed capacity phase-out Th s ins um n s om on op of h xis ing ’s emission trading and renewable energy policies.

→ The policies are implemented on recommendation of a s ak hold ommission onsul ing in ‘Coal Commission’

* including COVID related effects

Greenhouse gas emissionsSince 1990 Germany reduced its greenhouse gas emissions by 41%

Umweltbundesamt (2021)

27


Umweltbundesamt (2021)

Share in greenhouse gas emission reductions, 1990 - 2020

0

200

400

600

800

1000

1200

1400

1990 2000 2010 2020 2030 2040 2050

Mio. t CO2 equ.

Historical Net-Zero Path

2020-41%

2030-65%

48%

21%

18%

700

800

900

1000

1100

1200

1300

1990 2020

Mio. t CO2 equ.

Energy Industry Industry Buildings Transport Agriculture Others

Coal production and employmentOn average, around 80% of Germany’s coal consumption is produced domestically

Statistik der Kohlenwirtschaft (2021)

28


Statistik der Kohlenwirtschaft (2021)


0

50

100

150

200

250

300

2000 2005 2010 2015 2020

Mio. t

Production Imports

0

20.000

40.000

60.000

80.000

100.000

2000 2005 2010 2015 2019

Employees

Coal production and employmentSince 2000, two thirds of the UK’s coal consumed was imported


29




0

20

40

60

80

2000 2005 2010 2015 2019

Mio. t

Production Net Imports

0

2.000

4.000

6.000

8.000

10.000

12.000

2000 2005 2010 2015 2019

Employees

emission trading, coal phase out and a just transition

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