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Nordic Energy Policy Learnings from EU CO2 Trading Scheme

Explore the early learnings from the EU CO2-trading scheme in the Nordic countries, covering price impacts, sectoral effects, policy changes, and conclusions. Discover how CO2 pricing influences energy policies in this insightful analysis.

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Nordic Energy Policy Learnings from EU CO2 Trading Scheme

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  1. What are the early learnings from the EU CO2-trading scheme Tiina Koljonen, VTT Finland and Jørgen Abilgaard, ECON Denmark Nordic Energy PoliciesOctober 5, 2005, Copenhagen

  2. OUTLINE • The price divers of the CO2 • The impacts of the EU ETS on the price of electricity • The sectoral impacts of the EU ETS • The changes in energy policies in the Nordic countries • Conclusions

  3. The CO2 price is influenced by several factors(Table: Some CO2 price determinants) 1 According to ECN: CO2 price dynamics: The implications of EU emissions trading for the price of electricity, September 2005

  4. THE CORRELATION BETWEEN CO2 AND FOSSIL FUEL PRICES IS NOT STRAIGTFORWARD

  5. 2. THE PRICE OF ELECTRICITY IN THE NORDIC MARKETS IN 2005

  6. CO2 price is a new factor, which influences the market prices of electricity(figure: Nord Pool spot prices and forward prices)

  7. The competitiveness of different electricity production technologies after introduction of EU ETS • Condensing coal and peat fired plants have been shut down in the beginning of 2005 (mainly because of the water reservoir contents in the Nordic area) • Peat fired CHP has lost its competitiveness relative to coal fired CHP in Finland • The competitiveness of biomass fired CHP and heat production have increased • Pellets are exported form Finland to Sweden • The increased CO2 and electricity market prices have increased the competitiveness of hydropower and nuclear power • Lots of discussions of the “Windfall profit”, especially in Finland and Sweden

  8. Daily spot prices in Helsinki, Oslo and Stockholm

  9. Daily spot prices in Denmark-East, Denmark-West and Oslo

  10. 3. THE SECTORAL IMPACTS OF THE EU ETS

  11. Electricity prices for small customers will increase Average electricity prices for households with 3500 kWh yearly consumption (source: Eurostat, Talouselämä 28/2005) c/kWh *The typical yearly consumption of Norwegianhousehold in is much higher than 3500 kWh/a and therefore the price level (c/kWh) isusually about the same or lower than for Swedish households

  12. The impacts of the EU ETS on industrial sector • The industrial sector received nearly full amount of emissions rights in Denmark, Finland and Sweden for the period 2005-2007 • The energy intensive industry has suffered form the raising price of electricity • Industry has started to differentiate from the Nordic electricity markets, which has been seen already before 2005 (Bas El i Swerige AB, separate el. markets in Norway, new nuclear by TVO in Finland) • The rising price and demand of biomass fuels has an impact on forest industry • The price of forest chips has increased by 20% in 2005 in Finland • The birch and pine pulpwoods have been used by energy sector also • In Finland, fiberboard industry has one year contracts for raw material => Problems next year ?

  13. The first half of the year 2005 has been successful for the big energy companies in the Nordic area • E.ON Interim report II/2005 • "Adjusted EBIT rose by 7 percent year-to-year to €4,3 billion. We benefited in particular from higher wholesale prices for electricity." • Fortum • Annual report 2004: "An excellent year” • Interim report II/2005: “The comparable operating profit of the Power generation segment was higher than last year …” • Statkraft AS Interim report II/2005 • "Operating revenues for the first six months of the year totalled NOK 7 090 million, a rise of NOK 1 694 million or 31 per cent compared with the same period last year." • Vattenfall • Interim report II/2005: “Vattenfall presents the best half-year results and the strongest profile for the second quarter in the history of the company.”

  14. 4. THE CHANGES IN THE ENERGY POLICIES IN THE NORDIC COUNTRIES

  15. Changes in the energy and environmental policies in 2005 and future prospects • Denmark: • The national emissions trading system was abolished in 2005 • No changes in the near future • Finland: • The taxation of peat was changed 1.7.2005 (no fuel tax) • The raise of the upper limit of the real estate tax has been planned for power plants (impacts especially on hydropower plants) • The new climate strategies of Finland will be ready this year • Norway: • Some changes in the Pollution Act in connection with the implementation of the emissions trading system for 2005-2007 (merely technical change) • Green certificate market from 2007 (integrated with Sweden) • Sweden: Several suggestions in the new budget proposal • CO2-tax: no tax for industrial installations or CHP included in the EU ETS, 13 öre/kg CO2 tax reduction for other energy sector • 85% increase in tax for nuclear power • The raise of real estate tax for hydropower plants from 0,5 to 1,2% and 0,5% further raise for the period 2008-2012 has been planned

  16. Conclusions • The market price of CO2 has risen to a higher level than expected • The impacts of the EU ETS have been much greater than expected in 2005 • The CO2 market is a completely new market in EU • The market is not very liquid because many EU countries do not operate on the market yet • During one trading day, only few companies might have been operating on the CO2 market, which have defined the daily market price level of CO2 • It is still too early to make any conclusions of the effects • Today, the CO2 market may be considered more or less as a speculative market

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