Italy’s route to Kyoto: a wishful thinking?

USAEE/IAEEUSAEE/IAEE –– Washington DC,Washington DC, JulyJuly 20042004

byEnzo Di Giulio - Scuola Mattei – Eni Corporate UniversityStefania Migliavacca - Scuola Mattei - Eni Corporate UniversityAlessandro Vaglio – University of Bergamo

Which sectors are mainly responsible?

GHGs Emissions in 2001 (EU Countries)

Household and Services

17%

Industry20%

Transportation21%

Electricity Generation and

refineries28%

Others4%

Agriculture10%

Italy and Kyoto: ambitions and reality

Ambitions- 6.5% with respect to 1990

521 Mton CO2 eq in 1990- 6.5%

= 487.1 Mton CO2 eq in the first commitment period 2008-2012

KYOTO TARGET

Distinctive features of Italian Energy System

Dependent abroadNo nuclearThe “cool” questionPrivatization-liberalization-regulation

Reality

Energy saving life-style originated by a

strong energy dependence

Non energyintensiveeconomic structure

climate, high population

density

High energyprices

A low energy intensity

due to

2002 Law 39/2002 to enforce the EU Directive for the promotion of renewables June: Italy ratified the Kyoto ProtocolDecember: the new CIPE resolution

200420 April a draft National Allocation Plan

Is it enough?

Political Actions

CipeCipe ResolutionResolution 2002 2002 (MtCO2 (MtCO2 eqeq))

2000 Emissions(546,8)

2010BASE Scenario

(579,7)

2010 ReferenceScenario

(528,1)

Already located measures(39,6)

+ CDM – JI (12)

Further measures(32,5 - 47,8)

Riforestation(10,2)

FurtherCDM - JI (20,5 - 48)

Surplus(92,6)

Surplus(41)TARGETTARGET

(487,1)

Now we have “the number”The gap is around 92.6 Mton CO2 eq

ET40.8FCJ

FDP12ASCJ

39.8ASDP

7.5Transportation

6.3Household & services

26Power Generation

Import

CombinatedCycles

Renewable

= 92.6

How much CDM and JI?

Italian firms have a low propensity to invest abroad

FDI towards Developed countries and service sector

Which policies and measures could support CDM and JI decisions?

2004…Time to wake up !

Model specifications:discount rate 5%;the net cost of most P&M is assumed to be zero; simulations from 2002 but policies effective from 2004; the abatement grows linearly; price for ET = 15 Euro/tonCO2

How much will it cost?

TIME plays a crucial role:Opportunity costTechnical limit

We want to estimate the cost of reaching Kyoto assuming different degree of implementation of CIPE Guidelines

0.04415

0.00000 0.30000

R SUR

0.02

0.00 0.30

U

R CC

0.02

0.00 0.30

U

R RENEW

0.02

0.00 0.40

U

R IMP

0.02

0.00 0.40

U

R RES

0.02

0.00 0.40

R TRANS

0.00

0.00 0.50

U

R CDM

0.00

0.00 0.50

U

R FOREST

0.00

0.00 0.50

U

R OT P&M

0.00

0.00 0.50

U

R OT CDM

0

CO CC

0

CO RENEW

0

CO ELE IMP

0

CO RES

9

CO TRANS

10U

CO CDM & JI

1

CO FOREST

5

CO OTHER P&M

3

CO OT CDM&JI

15.000

CO ET

SWITCH ELE SWITCH R&T SWITCH CDM&JI SWITCH ET SWITCH THE OTHERS

CO ET Graph

NEW CC Graph NEW RENEW Graph NEW IMP Graph

RES Graph TRANS Graph CDM&JI Graph

FOREST Graph OTHER P&M Graph OTHER CDM&JI G…

CO2 PRICE THE OTHERS

P&M + CDM&JI

Degree of implementation of the Italian policies in 4 scenarios

Total cost in different Scenarios (MilEuro)

-200

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

scenario 1 (15Euro/ton)

scenario 1 (5Euro/ton)

scenario 1 (40Euro/ton)

scenario 2 (15Euro/ton)

scenario 2 (5Euro/ton)

scenario 2 (40Euro/ton)

scenario 3 (15Euro/ton)

scenario 3 (5EUro/ton)

scenario 3 (40Euro/ton)

scenario 4 (15Euro/ton)

scenario 4 (5Euro/ton)

scenario 4 (40Euro/ton)

Scenario 1, 2, 3 and 4: annual total cost assuming different CO2 prices (5-15-40 Euro/ton CO2)

Scenario 1, 2, 3 and 4: weight of ET and other actions cost in millions of Euro (CO2 price:15 Euro/tonCO2)

Emissions Trading and other actions cumulative costs (2002-2012 in MilEuro)

-500

0

500

1000

1500

2000

2500

3000

3500

4000

4500

SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4

ET other actions

The Italian NAPItaly published on 20 April 2004 a draft National Allocation Plan (NAP) under the EU emissions trading scheme.

The non-cogeneration power sector gets the larger share

The new entrants’ reserve is based on sectorial level

279.2279.7278.5Total

98.9103.2105.6Non-cogeneration power sector

200720062005Mton CO2

Allocation criteria

Historical emissions paper, refining, glassHistorical production Iron and steel, lime, clay, cogenerationEmissions projections Power sector

CIPE 2002 vs. NAP 2004 (Mton GHGs)

068.068.0Residences Reference Scenario2136.7134.7Transportation Reference Scenario282.280.2Industry Reference Scenario

28.3172.7144.4Power Industry Reference Scenario23.2541.1517.9Scenario with P&M to 2010 (with CDM)

39131.692.6Distance from Kyoto target28607.7579.7BAU Scenario to 2010-2544.0546.0Emissions in 2000-11476.1487.1Kyoto Target-13508.0521.0Emissions in 1990

DeltaNap 2004Cipe 2002

24,4GHGs Abatement by NAP

131,6 (+27,6%)Surplus in 2010

607,7BAU Scenario to 2010

476,1 Kyoto Target

A New SurplusA New Surplus

CO2 Abatement Cost in UE (4% discount rate, all sectors, EU15 – Euro/ton. CO2 eq.)

Source: EU 2001, “Bottom-up Analysis of Emission Reduction Potentials and Costs for Greenhouse Gases in the EU”

ConclusionsSurplus in 2010: about + 27%

Domestic P&M cannot solve the problem because of…

time and costs,

current political orientation

CDM-JI ? …. maybe, but let’s avoid exaggerations

Thus, Emissions Trading: how much does it cost?

Thank you for your attention!