IEEE Power & Energy Magazine - March/April 2014 - 71
Security
of Supply
Decarbonization
Low-Carbon
Technology
Development
EU
Energy Policy
Triangle
Competitiveness
Sustainable
Development
Internal Energy Market
Import
Independency
and Fuel Diversity
Affordability
figure 9. The official EU energy policy triangle.
figure 10. The EU's "real" energy policy objectives.
Assumptions
we will call the existing ETS, which is a market-based auction system based on the polluter-pays principle. For various
reasons (including inherent design flaws, overallocation in
the first trading phases, the fact that it is permitted to bank
allowances from one phase to the next, and the demand
slump prompted by reduced industrial output and lower
power demand), the existing ets scheme is not delivering a
meaningful price signal (its price has recently been oscillating between €4 and €7 per ton of co2) and will soon be reinforced to ensure that its price signal becomes stronger (in
this regard, see the recent eU initiatives on "backloading"
and "structural reform" of the eU ets). this will usher in a
new ets scheme that is likely to be characterized by prices
in the range of €20-25 per ton of co2 by 2020.
We introduce the concept, currently implemented as part
of the existing new entrant reserve 300 (or ner 300, the
eU's carbon capture technology and innovative renewable
technologies support fund), that the co2 market can become
a central driver in technology development as part of the
decarbonization agenda if and only if the revenues it generates and collects are allocated exclusively to all the low-carbon technologies europe wants to support to decarbonize.
We postulate that this would mainly be to foster investments
and innovation in offshore wind, pV in northern europe (we
assume, in line with market trends, that pV will become
competitive in southern europe by 2020), and ccs. But as
political preferences change, one can also imagine including
energy efficiency and innovative storage projects.
alas, the ner 300 and the technology support dimension of the ets have inherent flaws. First and most obvious,
the money being collected is directly linked to the price of
co2 allowances; in other words, the scheme is exposed to
a significant price volatility that, as we have seen in the first
call for proposals, has seriously undermined the breadth of
the program. more important, the ets-a european instrument-recycles the collected revenues back to the national
governments, which are then allowed to spend them as they
wish. article 10.3 of the ets directive stipulates that member states shall determine the use of ets revenues generated
from the auctioning of allowances, though at least 50% of
such revenues should be used for the development of lowcarbon technology.
all the scenarios we have constructed are built on the following five assumptions:
✔ the first assumption is that the ongoing reform of
the european emissions trading scheme (ets) will
put the carbon market back on track so that a price
closer to €20-25 per ton of co2 is reached toward
the end of the third trading phase in 2020. it follows
from this that the ets price signal will not be able
to spur technology development for a wide range of
low-carbon technologies that will still be out of the
money and will not automatically drive investments
in new nuclear and carbon capture and storage (ccs)
capacities.
✔ the second assumption relates to res technology cost
development and posits that given the current learning
effects for onshore wind turbines, pV panels, and biomass combustion techniques, these technologies will
become cost competitive somewhere between 2020
and 2030.
✔ the third assumption is that offshore wind will not be
cost competitive before 2030 and that the ets will not
be the right instrument to support it.
✔ the fourth assumption is that ccs will be successfully demonstrated by 2020, though with a lower
number of demonstrators than originally envisaged.
commercial rollout of ccs is thus expected to begin
somewhere around 2020.
✔ the fifth assumption is that nuclear new build will
be facilitated in the second part of this decade by the
learning on first-of-a-kind nuclear reactors belonging to generation iii+, i.e., reactors incorporate evolutionary improvements in design developed during
the lifetime of previous reactor designs in terms of,
e.g., improved fuel technology, passive safety systems,
or standardized design for reduced maintenance and
capital costs.
Instruments
the mix of instruments we used in the six scenarios is a
mix of existing, reformed, and brand-new instruments. the
most fundamental instrument the eU has introduced is what
march/april 2014
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