Transcript Energy in Ireland

Negotiated Energy Agreements
Pilot Project
Report Launch
24th September 2003
Andrew Parish
Project Coordinator
Structure
• Context & background
• Pilot project outcomes & projections
• Putting agreement in place
Negotiated Agreements
• SEI mandated by Climate Change Strategy
• Meet requirements of Objectives 1, 3 and 4
–
–
–
Sustainable use of energy
Reduce greenhouse gas emissions
Stimulate competitiveness
• Agreements negotiated within an agreed framework
ContextNational Climate Change Strategy
• Irelands response to EU Kyoto commitments
• Current overshoot already 31% over target*
• All sectors affected
• Requirement for early action
• Strategy proposes Carbon tax with suitable
supporting measures
• Negotiated agreements identified as a key instrument
*EPA Sep ‘03
What are Negotiated Energy
Agreements?
An agreement between an individual firm, or group
of firms and the Government or its agent, aiming to
achieve substantial energy and emissions
reductions “beyond business-as-usual”
Firms agree to definite actions
or definite targets
Reward/Exchange as quid pro quo
Agreements which are:- Legally binding
- Defined timetable
- Flexible yet demanding
- Protect competitivness
- Tax rebate / exemption
- Regulation
Beyond business as usual - BAU
Towards best international practice - BIP
Background
• Endorsement by SEI Board
in February 2002.
• 26 firms recruited collaborative approach
• Project goals;
• One of three agreement
strands,
•
test viability of such a
measure;
•
estimate likely impacts;
•
resource requirements and
transaction costs;
•
calibrate industry data;
•
examine industry readiness.
•
Individual Agreement
(Aughinish Alumina),
•
Collective Agreement
(10 Pharmachem
Companies)
•
Technology Agreement
(15 companies in a Thermal
Agreement)
What was involved in the
Pilot Study?
Volunteer to participate
Best Intl Practice
Establish current situation
Company B
Actions
Compare to Best Practice
Company A
Negotiate new position
Pilot project
• Action-based agreement of 4 year duration
• Identification of actions required to move firms to
Best International Practice
• Detailed energy audits carried out in all 26 firms
• Negotiation to agree economic and technical criteria
Assumptions
• Tax rate of €17.50 per tonne CO2
• Applied downstream to electricity and fuel
• Exemption / rebate of 80% for compliance
• No phasing in of tax
Outcomes
• Agreements concluded in all 26 firms
• All actions to be implemented <5yr payback
Individual)
•
baseline 1.5 -2 yrs
• Energy management improvements
• ‘Special Investigations’ - Collective
(3-5 yrs
Results – audit costs
Technology
€7,000
(2.3%)
of annual energy cost
Collective
€16,000
(1.5%)
of annual energy cost
Individual
€90,000
(0.14%)
of annual energy cost
Results – average investments
Technology*
Collective
20.6%
of annual energy cost
23.1%
of annual energy cost
Average payback (bundle)
1.2 years
Average payback (bundle)
1.4 years
Specific action paybacks from 3 months to 5 years
* ex CHP
Results – CO2 savings
Technology
17.1%
Average per firm
Collective
16.4%
Average per firm
Individual
Pilot total
~14% = electrical
~17-20% = thermal
5.4%
17,300 tonnes
1,150 tonnes
34,000 tonnes
3,390 tonnes
69,000 tonnes
120,000 tonnes
Results – abatement costs
Technology
- €8.30 per tonne
Collective
- €12.20 per tonne
Negative abatement costs indicate economically
viable investments
Looking forward
• Potential for mix of three agreement types
• Potential application
Collective
Technology
150 firms
500 firms
650 firms
40% of industrial energy
use
• Potential abatement for whole sector
640,000 tonnes
Transaction costs
Indicator
Projected CO2 abatement
Annual cost
(inc ¼ set up cost)
Static cost (per tonne)
Average transaction cost
CO2
Technology
Collective
240,000
400,000
€233,000
€470,000
€1.20
€0.97
€1.10
per tonne
Agreements in the Policy Mix
• EU Emissions Trading pilot addresses largest firms
• Electricity generators included in EU Emissions
Trading Pilot
• Negotiated agreements require incentivisation by a
tax - or the threat of a tax- or the reward of a rebate
• Have potential to incentivise electrical end use
efficiency
Looking forward –
Results
Negotiated Agreements:are a viable instrument
for climate change policy in Ireland
provide significant carbon dioxide impacts
can be acceptable to industry
can protect competitiveness
Putting agreements in place
Experience and expectations
The steps
• Recruit
• Establish the baseline
• Consider what’s possible
• Consider what’s reasonable
• Set it down and agree it
• Look to monitoring etc
Recruitment
• Pilot recruitment
• Individual agreements
• Collective agreements
• Technology agreements
Establish the baseline
• Investigate current practice
• Energy technologies and management
• Detailed energy audits
Some audit learning
• Need strong template
• Need full cost analysis
• Need strong company involvement
• Quality and credibility to firms…
… yet independence and
credibility to regulator
Consider what’s possible
• Gap between current and best practice
• What is best practice?
• The long list
Consider what’s reasonable
• Criteria for shortening the long list
• Technical issues
• Economic issues
On economic issues
• The parameters
• Showing real change
• Meeting everyone’s needs
Set it down and agree it
• Negotiation
• The agreement
Lessons on negotiation
• Trust, credibility, history
• Information
• Mandate
• Work
Monitoring & compliance
• Robustness vs efficiency
• Self reporting basis
• Verification
• Sanctions
Outcomes
• Agreement in all cases
• Low cost, reliable CO2
• Estimated abatement: 640 kt
• Double the impact of tax alone
• Motivation, compliance, information
Final thoughts
• Considerable learning
• A plausible model
• The core values of an agreement approach
Discussion
Distributionnumber of firms
Distribution of firms by numbers
0%
1%
0%
3%
18%
Firms in Emissions Trading
Next 10 Largest Firms
5 typical firms from collective pool
Most Likely pool for Sectoral Agreements
Potential Pool For Horizontal Agreements
Firms Too Small for Negotiated Agreements
78%
Distributionenergy usage
Distribution of firms by energy usage
24%
5%
Firms in Emissions Trading
Next 10 Largest Firms
5 typical firms from collective pool
Most Likely pool for Sectoral Agreements
Potential Pool For Horizontal Agreements
44%
22%
1%
4%
Firms Too Small for Negotiated Agreements
Action-based approach
Best Intl Practice
Company B
Actions
Company A