Commission's Energy Roadmap 2050 - What Direction for EU's Climate Change Policy?
On 15 December 2011, the European Commission published its “Energy Roadmap 2050” in the form of a Communication to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions.(1) The Roadmap should be read in light of the fourth meeting of the Advisory Group on Energy Roadmap 2050 whose minutes were published on DG ENER’s website on 16 January 2012.(2)
In the Roadmap, the Commission confirms EU’s 2050 commitment to reduce greenhouse gas emissions by 80 to 95% compared to 1990 levels.(3) It also outlines five decarbonisation scenarios: (i) a high level of energy efficiency; (ii) diversification in the supply technologies; (iii) a high share of renewable energy sources in gross final consumption of energy; (iv) delayed Carbon Capture and Storage (‘CCS’); and (v) a low level of nuclear energy.(4)
In all decarbonisation scenarios, the Commission calls for “very significant energy savings”. More concretely, the Roadmap aims at a 32 to 41% energy efficiency increase by 2050 based on 2005-2006 levels.(5) This demanding energy efficiency target for 2050 can be contrasted with the pessimistic observations which Philip Lowe (Director-General for Energy at the European Commission) formulated at the Roundtable on “The Future of the European Energy Policy, Energy Efficiency and European Energy Independence” that took place on 14 September 2011 at the European Economic and Social Committee in Brussels.(6) Philip Lowe argued on that occasion that, although the EU was well on its way in achieving the 2020 greenhouse gas reduction target and renewable energy targets, it was still stagnating with respect to its 2020 20% energy efficiency objective. Philip Lowe underlined that Member States were very much opposed to the idea of having binding targets formally imposed upon them in the field of energy efficiency: they would instead mark a strong preference for indicative targets.(7) Philip Lowe also pointed out that only 4% of small companies and 20% of large corporations established in the Union would already have a policy on energy efficiency.
The Commission also calls for the share of renewable energy to reach 55% of the Union’s gross final consumption of energy by 2050.(8) As regards renewable electricity more specifically, the Commission, in two of its decarbonisation scenarios, calls for a share of 60-65% and of 97% of renewable energy sources in the gross final consumption of electricity to be reached by 2050.(9) The Roadmap insists on the essential role of renewable heating and cooling in the Union’s move towards decarbonisation: the Commission urges for energy consumption to be directed at “low carbon and locally produced energy sources (including heat pumps and storage heaters) and renewable energy (e.g., solar heating, geothermal, biogas, biomass)”.(10) In the transport sector, the Commission points to a mixture of alternative fuels as a necessary substitute for oil, biofuels remaining the most viable alternative to oil for aircrafts, long-distance road transport, and railways (when they cannot turn to electricity). The biofuels relied upon ought to be sustainable: they must help diminish demand for food production land and improve the level of net greenhouse gas savings.(11)
Stimulation of local production of renewable energy presupposes the emergence of smarter distribution grids with a view to accommodating variable generation from multiple sources of distribution (e.g., solar photovoltaic) and a growing demand for renewable energy.(12)
The Commission, in its Roadmap, is realistic about the fact that public support schemes, in particular in the form of energy subsidies, will still be needed after 2020 in order to further stimulate green technologies. These support schemes ought to be specific in their scope, foreseeable and proportionate. They should be suppressed once the underlying “market failures are resolved” and the maturation of these technologies arrived at.(13)
As regards the future of CCS, the Roadmap suggests that it is contingent on its acceptance by the public and on the adequacy of carbon prices. CCS, if deployed by 2020 and widely used by 2030, is expected to have a significant impact on the decarbonisation of many heavy industrial infrastructures. The combination of CCS and of biomass could result in “carbon negative values”.(14)
The Roadmap’s proposed energy system presupposes the achievement of a “fully integrated market” for 2014,(15) the definition of “2030 milestones” for the promotion of renewable energy sources, more consistency with a common approach to international energy policy, and a substantial increase in energy efficiency (amongst other factors).(16)
Philip Lowe at the fourth meeting of the Advisory Group on Energy Roadmap 2050 and the Commission as a whole through its Roadmap have announced that their next priority would be the elaboration of a 2030 energy policy framework.(17)
[1] European Commission, “Energy Roadmap 2050”, COM(2011) 885/2, available at: http://ec.europa.eu/energy/energy2020/roadmap/doc/com_2011_8852_en.pdf
[2] Minutes of the fourth meeting of the Advisory Group on Energy Roadmap 2050, Brussels, 12 December 2011: http://ec.europa.eu/energy/energy2020/roadmap/doc/energy_roadmap2050_advisory_group_minutes_2011_12_12.pdf
[3] Energy Roadmap 2050, p. 2.
[4] Energy Roadmap 2050, p. 4.
[5] Energy Roadmap 2050, p. 7.
[7] This position is somewhat reflected in the Commission’s Proposal for a Directive on Energy Efficiency formally issued in June 2011. This generic Directive, if adopted by the European Parliament and the Council, would refrain from imposing binding national targets in the implementation of EU’s 2020 20% energy efficiency target. Instead, Member States would have to fix in advance indicative national energy efficiency targets in the form of absolute levels of primary energy consumption (i.e., gross inland consumption) in 2020. The Commission would have to determine by 30 June 2014 whether the EU is capable of reaching its 20% energy efficiency target. If not, the Commission may want to propose another EU legislative act that would make national energy efficiency targets formally binding upon Member States: Proposal for a Directive of the European Parliament and of the Council on energy efficiency and repealing Directives 2004/8/EC and 2006/32/EC, COM(2011) 370 final, Brussels, 22 June 2011 (Article 3).
[8] Energy Roadmap 2050, p. 7.
[9] Energy Roadmap 2050, p. 6-7.
[10] Energy Roadmap 2050, p. 11.
[11] Energy Roadmap 2050, p. 11.
[12] Energy Roadmap 2050, p. 15.
[13] Energy Roadmap 2050, p. 17.
[14] Energy Roadmap 2050, p. 12.
[15] In order to help foster an EU integrated energy market, the European Economic and Social Committee (an advisory and interinstitutional body of the EU in charge of representing employers, employees and civil society more generally) has been in favour of instituting a “European Energy Community” so as to promote a “joint approach to energy production, transmission and consumption”. This would start with the establishment of “regional energy blocks” where Member States and operators would have the opportunity to align their strategic positions concerning network development and energy mix. See Press Release of 18 January 2012, CES/12/2:
http://europa.eu/rapid/pressReleasesAction.do?reference=CES/12/2&format=HTML&aged=0&language=EN&guiLanguage=en
[16] Energy Roadmap 2050, pp. 19-20.
[17] Energy Roadmap 2050, p. 20.
Would a CES Raise Electricity Prices?
At the request of House Science and Technology Committee Chair Ralph Hall (R-TX), the Energy Information Administration (“EIA”) released a study this week on the potential impacts of a clean energy standard (“CES”). In January’s State of the Union address, President Obama called for Congress to pass legislation creating a CES, which would require that utilities generate 80% of their electricity from “clean” sources by 2035. “Clean” sources would include not only renewables but also nuclear, natural gas and coal-fired power plants employing carbon capture and sequestration technology.
The EIA report analyzed a potential CES based on several assumptions provided by Representative Hall. Under these assumptions, he report found that a CES would increase electricity bills $115 annually by 2025 and $211 by 2035. Additionally, a CES would reduce the gross domestic product by $127 billion from 2025 to 2035.
Undoubtedly, the report will be used by critics of a CES to argue that the costs of such a standard outweigh any environmental or health benefits. It should be noted that EIA’s report is based on a number of assumptions requested by Representative Hall that could contribute to the cost projections described above. Arguably most importantly, the report assumes that CES credits earned in one year cannot be banked, or used, in subsequent years, and that utilities would be prohibited from selling excess credits to other utilities. Advocates for allowing utilities to bank credits contend that it would reduce compliance costs by allowing utilities to save money by storing up credits during the early years when the clean energy generation requirements are still low. Additionally, credit trading could provide flexibility for utilities to comply with a CES.
While President Obama’s proposal didn’t specify as to whether credit banking and trading would be permitted, previous CES proposals from the last Congress did allow for credit banking and trading in some form. Notably, these proposals came from two Republican Senators – Lindsay Graham (SC) and Richard Lugar (IN). Moreover, the Senate Energy and Natural Resources Committee passed legislation in 2009 that would have established a renewable energy standard with support of both the Chairman Jeff Bingaman (D-NM) and the Ranking Member Lisa Murkowski (R-AK). Under this legislation, utilities would have been permitted to bank and trade credits for renewable energy generation. Thus, Representative Hall’s assumption that trading of CES credits would be prohibited is dubious given previous bipartisan support for this concept in the debate over both a clean and renewable energy standard.
Senator Jeff Bingaman has requested another EIA analysis of a CES. This analysis is expected to be released next month and could be based on the assumption that utilities would be permitted to bank and trade CES credits. If this assumption is included in EIA’s analysis, then this analysis could provide a better outlook of the cost implications of a CES.
Guest Blogger: AEP's Decision Reveals Legal, Political, and Economic Realities Associated with Implementing Carbon Capture and Sequestration (CCS) Technology
By John S. Wyckoff, CPG
Senior Regulatory Scientist, Technology Sciences Group, Inc. Washington, DC[1]
In less than four weeks after the Supreme Court ruled in favor of American Electric Power Company and four other power companies (see SCOTUS Holds That Plaintiffs Cannot Maintain Federal Common Law Nuisance Claims Against GHG-Emitting Utilities,) American Electric Power (AEP) announced on July 14, 2011 that it terminated its cooperative agreement regarding its Mountaineer Carbon Dioxide Capture and Storage Demonstration project with the U.S. Department of Energy due to the uncertain status of the U.S. climate policy and the continued weak economy. As part of its announcement AEP stated that it is impossible to gain regulatory approval to recover its share of costs for validating and deploying the technology without federal requirements to reduce greenhouse gas emissions already in place. (see AEP Announcement).
Cost Recovery Not Approved
A review of AEP’s announcement and its 2011 First Quarter 10-Q filed on March 31, 2011 (see 10-Q, March 31, 2011) provides insight into the company’s decision-making and in particular AEP’s ability (or lack there-of) to recover a portion of its costs from its rate base. The 10-Q indicates that in May 2010 Appalachian Power Company (APCo) and Wheeling Power Company (WPCo) (subsidiaries of AEP) submitted a base rate filing and requested rate base treatment of the Product Validation Facility (PVF) as part of its development of the Mountaineer Carbon Capture and Storage Project. In March 2011, the West Virginia Public Service Commission (WVPSC) denied the request for rate base treatment of the PVF largely due to its experimental operation. The March 2011 base rate order provided that should APCo construct a commercial scale carbon capture and sequestration (CCS) facility, only the West Virginia portion of the PVF costs, based on load sharing among certain AEP operating companies, may be considered used and useful plant in service and included in future rate base. As a result, APCo recorded a pretax write-off of $41 million ($26 million net of tax) in the first quarter of 2011. As of March 31, 2011, APCo recorded a noncurrent regulatory asset of $19 million related to the PVF.
Status of Project and Work Completed
During 2010, American Electric Power Service Company (AEPSC) on behalf of APCo began the project definition stage for the potential construction of a new commercial scale CCS facility under consideration at its Mountaineer Plant. AEPSC applied for and was selected to receive funding from the U.S. Department of Energy (DOE) for the project in the amount of 50% of allowable costs incurred for the CCS facility up to a maximum of $334 million. A Front-End Engineering and Design (FEED) study, scheduled for completion during the third quarter of 2011, was supposed to refine the total cost estimate for the CCS facility and the results from the FEED study were to be evaluated by Company before it sought any regulatory approvals to build the CCS facility. As of March 31, 2011, APCo had incurred $25 million in total costs and had received $7 million of DOE eligible funding resulting in a net $18 million balance.
Other Carbon Capture and Sequestrations Projects Funded by DOE
The Mountaineer project was one of three Carbon Capture and Sequestration (CCS) Projects that the DOE announced on December 4, 2009 that it had selected to support with $979 million in funds from American Recovery and Reinvestment Act. The other two projects were:
1) Southern Company Services, Inc. (Birmingham, AL) Project Title: Southern Company Carbon Capture and Sequestration Demonstration
2) Summit Texas Clean Energy, LLC (Bainbridge Island, WA) Project Title: Texas Clean Energy Project (TCEP) (see DOE Announcement of CCS Projects).
In light of the legal, political (See MLA's A Challenging Legislative Environment - Democratic and Republican Staff Directors Provide Legislative Outlook for Energy Policy,) regulatory uncertainty covering climate change, and now AEP’s decision to place its CCS project on-hold, it is not clear what will happened to the two other CCS projects. In addition, the resurgence of nature gas (lower natural gas pricing (see EIA Daily Natural Gas Futures Contract) due to increased production from shale-gas may hasten the conversion of coal burning plants to natural gas -- further complicating the future of CCS and other clean-coal initiatives.
[1] TSG is a subsidiary owned by the law firm McKenna Long & Aldridge LLP. TSG provides environmental technical consulting advice to MLA, other law firms, and clients (see www.TSGUSA.com).
CCS: Is it Really That Far Off
The new fashionable observation in energy circles is that Carbon Capture and Sequestration (CCS) is not ready for prime time.
US News and World Report ran a feature making the point a couple weeks back. Now Energy Secretary Steven Chu made the same point at a DC energy conference this week. The secretary told audience members that "CCS" technology might not be ready for "serious deployment" for eight to 10 years.
Really? Every time I turn around, I read about another carbon storage and sequestration project that is up and running or about to be.
Here is a sampling:
- Later this month, a gas power plant in France will begin using CCS equipment which will send the plant's emissions deep below the earth's surface.
- Swedish utility Vattenfall is operating a 1,600-megawatt coal-fired Schwarze Pumpe plant in Spremberg, Germany, which captures 9 metric tons of CO2 per hour at full load from a 30-megawatt oxyfuel boiler. The CO2 is condensed into a liquid and sold to companies like Coca-Cola for carbonation in beverages or to oil companies for use in enhanced oil recovery.
- Over a decade ago, Petro Source Carbon Company (now the carbon developer Blue Source) entered into a partnership with an affiliate of BP to construct an 82 mile, 10-inch CO2
Those are three commercially viable examples of CCS technology at work.
Why so pessimistic, Mr. Secretary?
