Agenda 2000

CO₂ emissions trading system
(Kyoto Protocol) in the context of an open international electricity market.

Dinner-debate organised at the invitation of the
EURELECTRIC

22 March 2000, Brussels

The topic was presented by Jean-Pierre Bourdier, Director for the Environment  at Electricité de France and Chairman of the EURELECTRIC Working Group on Climate Change.

In December 1997, in Kyoto (Japan), a number of developed countries undertook to achieve a series of ambitious targets essentially via the implementation of appropriate mechanisms, the so-called Kyoto mechanisms.

The European electricity industry wanted to understand how the mechanisms might work and carried out  a simulation exercise with the help of the International Energy Agency and the Paris Bourse company which runs the Paris Stock Exchange.27% of the emissions of CO₂ – the gas which makes the greatest contribution to the greenhouse gas effect that could bring about climate change – in the European Union comes from the production of electricity. By exchanging very substantial amounts of current, the electricity producers are already reducing the amount of CO₂ released, since these exchanges, which are dictated by cost considerations, make it possible to reduce the quantities of fuels with a high carbon content burned in the power stations.

The main question was to determine how the CO₂ emissions trading system – one of the Kyoto mechanisms – would make it possible to reduce the overall cost of meeting the Kyoto undertakings.The practical aim of the simulation was to look into the advantages of the joint marketing of CO₂ and of electricity, thereby helping to refine the concept of the Kyoto mechanism which will one day have to be implemented.

The results of this exercise are clear : the implementation of this mechanism will lead to a change in the priority given to the primary sources of energy used ; it will lead to a gradual change in the structure of electricity production facilities ; it will call for  investments in production to be brought forward ; in the long term, overall emissions of CO₂ will be reduced, as will emissions of CO₂  per kWh produced.

The winners in this process will, of course, be biomass and wind power and above all natural gas.

A number of riders should be added to this conclusion because of the fact that the simulation, which required  a large number of restrictive conditions - such as the prior determination of the primary energy prices - related to a period of 10 years, which meant that nuclear power and hydro-electricity, which do not emit CO₂, could not be taken into consideration because of the long period over which their investments are made.The advantages of these technologies could have been highlighted if the simulation had been made over a longer period of time.

The electricity industry has learned some worthwhile lessons from this exercise : it very quickly assimilated this new approach, particularly the notion of taking account of a price for CO₂ attributed by the market ; it understood that in addition to trading in CO₂, the factor making it possible to achieve the Kyoto targets will be investment, whose form will thus be determined by technological choices. The electricity industry is now involved in a second simulation exercise in which the fields of the parameters are being widened in order to reflect the real conditions of the future market more accurately.

The conclusions of this new investigation will be revealed in time to make a fresh contribution to the authorities taking part in the next conference, Conference of the Parties (COP 6), which will take place in The Hague in November 2000.The very full debate which followed Mr. J.-P. Bourdier’s presentation touched on a number of topics:

• Simulations of this kind are essential stages in the process leading to the adoption of a representative and satisfactory model which in due course, will be translated into a European directive.
  
• It is impossible to implement the Kyoto mechanism on the basis of a single product (for example, electricity) and a single country; moreover, implementation at a global level would be impracticable at present. The only possibility open to us is to operate on a European scale.
  
• The most important element is to lay down ground rules for the long term and these are entirely dependent on the political vision of our governments; industry is only able to tell Europe how much more or less it will cost to restrict CO₂ emissions, depending on the method selected.
  
• For Europe and, ultimately, for the world, the question will be to decide how to move from an energy-based economy in which CO₂ continues to play the major part it does today, to a long-term economy in which energy sources that do not generate CO₂ will have a greater role than at present.
  
• In this coming transitional phase, the Kyoto protocol offers the decisive benefit – for the first time in civil industrial history – of triggering off a long-term process (reducing CO₂ in the atmosphere) through bold, short-term political decisions.
  
• With this in mind and leaving aside the trading of CO₂  emission  rights, it is universally acknowledged that the clean development mechanisms provided for by the Kyoto protocol will have to be introduced because we cannot allow countries like China and India to produce CO₂ in ever-increasing quantities whilst Europe makes ever more binding efforts to reduce its own emissions of greenhouse gases.
  
• Although we need, inter alia, to move towards transfers of technology (Kyoto Protocol), we are not yet in control of the basic elements of these transfers
  
• We need to see industry as a part of the solution to the problem and not as part of the problem; industry and governments have to work together in this area.
  
• The time when nations had an influence on the level of the price of goods they traded in Europe is long gone.
  
• In the model representing the situation in Europe, it will subsequently be necessary to include a parameter to represent trade in primary sources of energy and not just trade in electricity.
  
• The potential for energy efficiency, including at user level, merits much attention (demand-side management)
  
• Electricity generation is not the only sector which emits greenhouse gases : transport, agriculture … Are there approved models to represent their emissions? What value should be placed on the land on which installations that emit – or do not emit – greenhouses gases are built ?
  
• The transport sector is particularly worrying because its growth potential is huge and the application of clean development mechanisms would appear to be impracticable.
  
• The numerous questions raised show that the road ahead of us is full of obstacles and we are merely at the beginning. The best approach is probably to begin in those areas where progress is easiest and, in the case of world trade, with those products with a high energy content.
  
• From a business as usual point of view, Europe will be importing more and more energy – and energy with a high carbon content and thus which will generate CO_{2 -} . The situation is similar in the US and we are all familiar with the saying : The US long-term strategy is to have no long-term strategy. However, like Europe, the US is faced with the problem of energy dependency and, more precisely, with a choice :
• Of boosting nuclear energy and reducing their dependence,
• Of accepting dependence but maintaining a navy and army capable of taking back the oil wells in the Gulf.

How does Europe stand as regards these choices ?