Emissions projections

Kousoulidou M, Ntziachristos L, Mellios G, Samaras Z (2008) Road-transport emission projections to 2020 in European urban environments. Atmos Environ 42 7465-7475... 

Figure 3. Uncertainty of emission projections from installations covered by the EU ETS. The chart shows best estimates of total C02 emissions from EU ETS sectors in 2003 and 2005 (connected by dotted line), compared to allocations (flat line 2005-2007), and two estimates of 2005 emissions provided by market analysts in the months leading up to the release of the verified emission data. The shaded area indicates a plausible range of uncertainty in emission projections for the phase I period at the time of initial allocation decisions.

The evidence that basing allocations on projected business-as-usual (BaU) emissions leads to an inflation of emission projections is consistent, overwhelming, and readily explicable (see above). The recent market collapse is proof either that projections were inflated, or that companies found it far easier than expected to reduce emissions - probably a combination of both. 

These numerical simulations provide a useful insight into the magnitude of distortions induced by allocation to the power sector. Since the C02 emissions cap for Europe is fixed, high C02 emissions projections imply increased scarcity and allowance prices. This could induce an increased flow of allowances through the flexible mechanisms of the Kyoto Protocol, including the clean development mechanism (CDM) and joint implementation (JI). The extent to which C02 prices would have to adjust to achieve the same level of European-wide emissions is a question requiring further research. 

Auctioning may also provide a hedge against projection uncertainties, reduce price volatility, and increase investor stability. The recent EU ETS market collapse is a dramatic manifestation of uncertainty in emission projections. Reserving some allowances for periodic auctions ... 

The scenaria estimate the CO2 emission absolute volume for the year 2005 to be within the range 45-51 Tg. Table 1 summarises the anthropogenous CO2 emission projection till the year 2010 for the scenario, which assumes significant innovation and restructuring of industrial technologies, resulting in decreased energy demand. 

The Consultation NAP was based on a two-stage allocation approach, in which sector-level allocations were based on projected business as usual emissions including relevant environmental policies. However, because of the misalignment issues discussed above, most sector emissions projections were calculated in a bottom-up fashion from installation-level historic emissions data. Sector growth rates were then applied to the bottom-up historical emissions totals to arrive at future projections. 

The question of emissions projections played a prominent role in the debate on the cap for the EU ETS as well the emissions targets for the sectors not included in emissions trading. Whereas BMU mainly referred to an emission projection ( Policy Scenarios III study) commissioned by the Federal Environmental Agency (DIW et al. 2004), industry as well as parts of the Administration (chiefly BMWA and the Chancellor s Office) drew upon a projection in their arguments which had been drawn up and commissioned by BDI (RWI 2003). Table 4.1 displays the results of both of these projections in a comparative fashion. Central differences are revealed with regard to the future development of emissions from industry on the one hand, and commercial, residential and transportation sectors on the other hand. The business-as-usual (BAU) projection of the industry assumes only a minimal reduction in emissions from industry and the energy industry up to 2012 and anticipates considerable emissions reductions in the sectors not covered by emissions trading, above all in the transportation sector. By contrast, the BAU projection of the Policy Scenarios III Study assumes a pattern of development diametrically opposed to this. 

The preparation of economy-wide sector-level emissions projections to 2012 was hampered by the data constraints, time constraints (the task needed to be completed in three months) and the need for agreement among departments on basic input assumptions. The overall gap between Ireland s BSA target and projected emissions over the first... 

Two different scenarios were considered one for the electricity sector and another for the industrial sectors. Allocations were based on emissions projections, historical emissions and the emissions reduction potential of each sector. The general consensus is that industrial sectors have been allocated as many allowances as they will probably need and that the bulk of reductions has fallen on the electricity sector. 

The allocation to the electricity sector was partly based on historical emissions, projections of electricity demand and expected trends of the generation mix (with and without carbon constraints). 

The allocation to non-electricity sectors was based on emissions projections (2001-2006), by extrapolating the historical emissions trends per sector (annual growth rates between 1990 and 2001). The allocations were then adjusted according to the emissions abatement potentials in each sector. When combined, the industrial sectors were allocated 73.88 Mt CO2, which was the sum of their estimated business-as-usual (BAU) emissions. This compares with 68.37 Mt CO2 annual emissions in 2002 and average 2000-2002 emissions of 66.87 Mt C02-Two adjustments were made to this general methodology ... 

Claims for an increased allocation, based on emissions projections... 

Allowances in the NER not allocated by 30 June 2007 will be auctioned. The allocation to new entrants will be made according to emissions projections using the average production capacity of existing installations within the sector, best available technology, and the reductions of the sector in which the new installation is to operate. 

Concerning European Community legislation, several Directives were considered, particularly for the macro allocation. Some of these Directives increase and others reduce GHG emissions, and adaptations were made accordingly (either in the emissions projections or in the installation-level allocation) ... 

Finally, other Community legislation is mentioned in the NAP when an analysis of the emissions projections in non-covered sectors is carried out. 

Besides the sectoral meetings, the Ministry of Economy and Transport held countless bilateral meetings with practically every operator who wished to have such a consultation. Notwithstanding that, the Ministry of Economy and Transport always made clear that only sectors as a group may submit proposals on allocation rules. Of course, in the case of sectors where there was only one operator (oil, steel, coking), the only possibility was to hold individual negotiations. In such sectors, the allocation was equivalent to the projected emissions, and no allocation rules were necessary. Therefore in such cases discussions were almost exclusively about the emission projections, which meant that the Ministry of Environment, the ministry responsible for projections, was the main negotiating partner. 

In case of early action, a reserve equal to 3% of the total emissions projection was deducted from the projected emissions and distributed to the installations based on the assessment of questionnaires (operators of the installations had to fulfil certain conditions to be eligible for bonus allocation). The early action bonus B(EA) for one year was calculated as follows ... 

Due to the limited commitment of the Ministry of Economy, the economic perspective was taken into consideration by the Ministry of Environment which was not interested in creating additional development barriers for the Polish companies. Therefore, at a relatively early phase of the work, the Ministry of Environment decided to propose additional bonuses above emission projections in order to acknowledge early action. Industry representatives were trying to lobby for the highest possible allocation. The consultants role was to structure the process and organise constructive discussions based on the ETS Directive and the Commission documents, as well as objective data and clear proposals for calculation limits and their allocation. Overall, this phase of work was quite successful, even though industrial representatives tried to enforce their opinions and expectations. 

Figure 12.1. The modelling set used to develop C02 emission projections in Poland.

The typical configuration of the model set is shown in Figure 12.1. This modelling set was used in several studies for the Polish government in which official energy or emission projections were developed. It was also used to calculate the potential and costs of CO2, SO2 or NOx emission reduction. 

Other important assumptions used for emission projection include ... 

CO2 emission projections in the BLN scenario split into ETS sectors as one aggregate and main sectors that remain outside the system are shown in Table 12.4. 

Comparison of the BLN scenario projection with the Kyoto limit has shown that emission projections are located under the limit. But, because of significant uncertainty of assumptions, other future emission paths are considered possible. Figure 12.5 shows three different paths starting from 1989 emissions linear decrease from the 1988 emission to the Kyoto limit (1), the emission path of the BLN scenario (3) and... 

The emission projection presented by Poland was not accepted by the Commission according to its decision dated 8 March 2005 total quantity. .. is inconsistent with the Commission s most recent assessment made pursuant to Decision 280/2004/EC. The Commission used the following arguments ... 

In September 2004 the complete NAP proposal covering allocation at sectoral and installation level was prepared and submitted officially to the European Commission. The total number of allowances of 286.2 Mt/year was built from emission projection and additional allocation reflecting early action and cogeneration emission reduction effects. 

In a decision taken in March 2005 the Commission accepted the cap level of 239 Mt/year which is 16.5 % below the Polish proposal. This decision was based on the Commission s revision of emission projections and its refusal to accept the allocation of additional allowances above the projections to assign benefits for significant early action and cogeneration production and to compensate main risk factors. 

The individual approach to each sector in respect to emission projections and the allocation method could be positively assessed. Significant differences in production and emission dynamics made implementing the same factor for different sectors controversial. It was also useful to have the possibility of using different allocation methods in different sectors. The power sector is a good example to illustrate this need. Testing a grandfathering method in this sector showed that some installations had been allocated above their real production capacity, while others were allocated at a very low level of capacity utilisation. 

If so, on what basis 14 Sectors - allocation based on emission projections Determination of sector budgets = historical emissions in 1999-2002 x sector-specific growth factor x emission intensity change factors... 

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