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Technical workshop Modeling Carbon Leakage Risk in Poland Karsten Neuhoff Warsaw, 3.4.2013 Avoid job and emission leakage 50% Casting of iron Preparation of yarn 40% Allocation dependent (direct) CO2 costs / GVA Electricity (indirect) CO2 costs / GVA 10% Basic iron & steel 20% Aluminium Other inorganic basic chemicals 30% Cement Potential Maximum Value at Stake (MVAS) and Net Value at Stake (NVAS) Lime Copper Household paper Non-wovens Industrial gases Coke oven Fertilisers & Nitrogen Starches& starch products Refined petroleum 4% 2% 0% 0.2% 0.4% Malt Other textile weaving Flat glass Veneer sheets Retreading/ rebuilding tyres Rubber tyres & tubes manufact. Hollow glass Finishing of textiles Pulp & paper 0.6% 0.8% 1.0% UK GDP Value of free allocation relative to cost of emission 2009 2 Industrial activities with the highest cost increase from carbon pricing, and their contribution to UK GDP, assumed carbon price increase 20 €/t CO2, electricity price increase 10 €/MWh. Only sector with more than 0.5 Mill. tonnes CO2/EU27 added by Commission: Other organic chemicals (NACE 2414) Based on Climate Strategies work from 2007, verified with recent data Untill 2020 with free allocation, then revisit options Illustrative for UK 60% Cement 70% Clinker Cost increase relative to value added (20 €/t CO2) Value chain of concrete production 50% Concrete products (concrete products for construction; mixed concrete etc) 40% Total cost increase 30% Cost increase passed on from first production stage (clinker) 20% Cost increase from higher electricity prices 10% 0% 0 500 1000 1500 2000 2500 3000 3500 Cumulative gross value added (mio €) Source: Climate Policy after Copenhagen – The role of Carbon Pricing, Cambridge University Press 2011 3 Value chain of steel production using BOF process Cost increase relative to value added (20 €/t CO2) Illustrative for UK 50% Semi finished Iron and steel Hot rolled 40% 30% Total cost increase from CO2 pricing 20% Cost increase from passed on CO2 pricing of first production stage only 10% Total cost increase from higher electricity prices 0% 0 500 1000 1500 2000 2500 3000 Cumulative gross value added (mio €) Source: Climate Policy after Copenhagen – The role of Carbon Pricing, Cambridge University Press 2011 4 Distortions from different C-efficiency in EU countries? Source: TNO – Greenhouse gas efficiency of industrial activities in EU and Non-EU Leakage concerns differ accross sectors Potential leakage channels illustrated at the example of some potentially effected commodities Main options to address leakage for sectors with concern 7 Regenerativwirtschaft im europäischen Verbund? Karsten Neuhoff, 22.3.2012 Focus use of measures to address leakage 2. Limit scale to emissions of best available technology 4. Limit how far down the value chain 1.Limit to commodities with leakage risk 3. Limit to costs incurred from tax / allowance auction Energy intensive products • Poland currenttly net-importer from rest of Europe • Additional investment pre-empted by imports from ROE • New investment if product/process requirements change • Then likely close to demand -> Poland -> Credible vision is necessary 9 Regenerativwirtschaft im europäischen Verbund? Karsten Neuhoff, 22.3.2012 The Need for European Perspective for Investment - Other regions accelerate implementation of carbon pricing EU ETS WCI (2013) RGGI Korea PRChina Tokyo (2015?) (2013?) Taiwan (201x?) South African Carbon Tax Australian NSW ETS 2012 NZ ETS 10 Graph: Left: Michaelowa et a., right: Andreas Türk, Sonja Klinsky, Michael Karsten Neuhoff, 22.3.2012 Mehling, Xin Wang 2012, Climate Strategies Economy wide – energy prices drive efficiency 1,400 Denmark Average energy price US$/t oil equivalents 1,200 Japan Norway 1,000 Best fit constant price a elasticity of -1.0 Austria 800 Italy Germany Luxembourg Switzerland Portugal France 600 Spain Netherlands Greece 400 Sweden Finland New Zealand United States Turkey Australia Hungary Korea Slovakia Mexico United Kingdom 200 Canada Czech Republic Poland Belgium 0 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 Average energy intensity (kg oil equivalent/US $1995 GDP) 0.9 1.0 Source: Newbery, D. M. (2003). Sectoral Dimensions of Sustainable Development: Energy and Transport. Economic Survey of Europe Regenerativwirtschaft 2: 73-93 im europäischen Verbund? 11 Karsten Neuhoff, 22.3.2012 Macro impact – replacing fuel imports with local activity Fuel import costs relative to GDP (2011) 6% 5% 4% Coal import costs 3% Gas import cost Oil import cost 2% 1% 0% Poland Germany Source: Based on BP Statistical Review of World Energy June 2012 Assuming average gas price matches average oil price (most LT gas contracts track oil price with 6 months lag) 12 Karsten Neuhoff, 22.3.2012 Employment in Renewables – driver in Germany Total 382.000 (2011) Wind Power 101.000 (2011) Solar Bio Mass 125.000 (2011) 124.000 (2011) Philip Ulrich [GWS] Martin Distelkamp [GWS] Dr. Ulrike Lehr [GWS] Dr. Peter Bickel [ZSW] Andreas Püttner [ZSW] (2012) Erneuerbar beschäftigt in den Bundesländern, Bericht zur daten‐und modellgestützten 13 Karsten Neuhoff, 22.3.2012 Abschätzung der aktuellen Bruttobeschäftigung in den Bundesländern -3% -6% BelgiumFounding GermanyFounding LuxembourgFounding Denmark1973 UnitedKingdom1973 Portugal 1986 Austria1995 Sweden1995 CzechRepublic2004 Hungary2004 Lithuania2004 Poland2004 Slovenia2004 Romania2007 FranceFounding ItalyFounding NetherlandsFounding Ireland1973 Greece1981 Spain1986 Finland1995 Cyprus2004 Estonia2004 Latvia2004 Malta2004 Slovakia2004 Bulgaria2007 BelgiumFounding GermanyFounding LuxembourgFounding Denmark1973 UnitedKingdom1973 Portugal 1986 Austria1995 Sweden1995 CzechRepublic2004 Hungary2004 Lithuania2004 Poland2004 Slovenia2004 Romania2007 FranceFounding ItalyFounding NetherlandsFounding Ireland1973 Greece1981 Spain1986 Finland1995 Cyprus2004 Estonia2004 Latvia2004 Malta2004 Slovakia2004 Bulgaria2007 Benefits of an integrated European approach Founding members Joining during 20th century GDP growth 9% 1985 - 1994 1995 - 1998 Joining 2004 2007 6% 3% 0% 1999 - 2003 2004 - 2007 Vielen Dank für Ihre Aufmerksamkeit. DIW Berlin — Deutsches Institut für Wirtschaftsforschung e.V. Mohrenstraße 58, 10117 Berlin www.diw.de Redaktion Karsten Neuhoff [email protected]