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Risk Management for EU Emissions Trading Scheme

GIN , Cardiff 2.-5.7.2006. Risk Management for EU Emissions Trading Scheme. Anna Kumpulainen, Dr. Tuula Pohjola Helsinki University of Technology / Lahti Centre Department of Industrial Engineering and Management Environmental and Quality Management Unit. Agenda. Background EU ETS

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Risk Management for EU Emissions Trading Scheme

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  1. GIN, Cardiff 2.-5.7.2006 Risk Management for EU Emissions Trading Scheme Anna Kumpulainen, Dr. Tuula Pohjola Helsinki University of Technology / Lahti Centre Department of Industrial Engineering and Management Environmental and Quality Management Unit

  2. Agenda • Background • EU ETS • This research • Risks (literature study) • Research methods • Results (empirical study) • Conclusions

  3. Kyoto mechanisms EU ETS Means of compliance: -Reduce emissions -Aquire EUAs -Aquire CERs/ERUs CER CDM ERU JI IET Background (1/2) • Kyoto protocol in 1997  legally binding greenhouse gas reduction targets (e.g. in the EU 8% compared to 1990 levels) • EU ETS reallocates the burden between the EU countries • 12,000 companies • 1st period 2005-2007, 2nd period 2008-2012

  4. Background (2/2) • Market Analysis and Risk Management of EU Emissions Trading” (MARMET) project • Helsinki University and Helsinki University of Technology + 5 Finnish companies • May2005-Apr2007 • Now 1st results of the risk management research: • Literature study • Interviews • (Web survey) • (General risk management model)

  5. Risks

  6. Research Methods • 18 semi-structured interviews Dec2005-Mar2006: • EU ETS operations in 2005? • Risk management strategies and tools for EU ETS? • Information gathering related to EU ETS? • Future expectations related to EU ETS and other climate policies?

  7. Results: EU ETS Operations 2005 • 16/17 got more EUAs than needed in 2005 • Good weather conditions, Finnish forest industry strike, decreased demand for steel, etc. • All companies expect emissions to increase in 2006 • 14/18 companies have started EUA trading • Only 2 companies have sold all surplus EUAs • Others expect slower moves to be more profitable • 17/18 have centralised EUA trading in the corporation • 6/18 have a single counterparty: exchange/OTC • Total working hours difficult to estimate • Many sources of information used • Non-Finnish companies quite unwilling to comment their ET operations

  8. Results: Risk Management • EUA allocation for 2005-2007 is generally perceived as generous  no problems with deficits yet • Political risks are significant because investment pay-back periods are long • 12/13 Finnish companies have a written risk management strategy • Separate or part of other risk management • 11/13 have defined risk limits • Non-Finnish companies unwilling to comment their ET risk management • ”Low risk, moderate return” as the most popular strategy • 6/13 have abandoned speculative ET • Updates can be expected • 3 Finnish and 3 non-Finnish companies have invested in carbon funds; 1+2 preparing internal CDM/JI projects

  9. Conclusions • Risk management strategies moderate  Updates expected along political decicions • Results from the interviews indicative  More information from the web survey • Risk management model: a tool-kit?

  10. Thank you! Anna Kumpulainen (M.Sc) Tel: +358 41 5458859 Tuula Pohjola (Dr.) Tel: +358 50 5113703 Email: firstname.lastname@tkk.fi Helsinki University of Technology Department of Industrial Engineering and Management Environmental and Quality Management Unit P.O. Box 5500, FIN-02015 TKK, Finland http://emu.tkk.fi http://emu.tkk.fi/eman2007 http://www.honeybee.helsinki.fi/mmtal/ye/pomar/marmet.html Organisator of the EMAN 2007 Conference!

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