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APEx 2005 Annual Conference Disney’s BoardWalk Inn, Florida

APEx 2005 Annual Conference Disney’s BoardWalk Inn, Florida. CO 2 Torger Lien President & CEO, Nord Pool ASA. Kyoto protokoll ETS and EUA quota system. Diff. reductions. ETS Reductions. ETS reductions. Other. Carbon credits CERs (CDM) ERUs (JI). ETS sectorer. Emissions 1990.

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APEx 2005 Annual Conference Disney’s BoardWalk Inn, Florida

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  1. APEx 2005 Annual ConferenceDisney’s BoardWalk Inn, Florida CO 2 Torger Lien President & CEO, Nord Pool ASA

  2. Kyoto protokollETS and EUA quota system

  3. Diff. reductions ETS Reductions ETS reductions Other Carbon credits CERs (CDM) ERUs (JI) ETS sectorer Emissions 1990 Emissions 2008-2012 EUs Kyoto obligation Kyoto gap

  4. Ways to close the Kyoto gap • Domestic policies & measures: • Taxes • Financial support • “command-and-control” • Negotiated agreements • Own abatement Non-ETS measures (domestic) Own abatement Governments decide how to share the burden. Ultimately Kyoto commitment rests with governments ETS • Imports: • EU allowances (EUAs) • Credits from developing countries (CERs) • Credits from Russia/Ukraine ((ERUs) • “ Kyoto units” – Assigned amount units Residual: Government purchases

  5. Kyoto AAUs (assigned amount units) Trinn 1 Husholdninger, Tjenesteyting, Mindre industri ETS Transport Trinn 2 Metall Kraft Varme Mineraler Treforedling Trinn 3 Instal. 1 Instal. 2 Instal. 3 Instal. 4 Trinn 4 Allocation to individual installations

  6. “Gap” ETS sector 2005-2007 BaU EU 25 60 Mil ton CO2 EU 1O (New) 50 CDM 40 Weather Economical growth Energy prices 30 EU 15 Reductions ETS sector 20 10

  7. “Gap” ETS sector 2008-2012 Import of credits 250 200 Import of credits:CDM/JI or ETS-sector reductions 150 EU 25 100 Competition over CDM/JI credits: Public fund, buyers outside Europe 50 Reductions ETS sector Supply Demand

  8. Marginalcost powergeneration -Continental Europe Carbon price €16/ton Carbon price €16/ton Gas price $5.75/mmbtu Coalprice $64/ton Coal Gas

  9. Coalprice, gasprice & carbonprice Carbon price (€/tonn) 30 25 20 15 10 5 Gasprice/Coalprice UK May 2005 E Continent May 2005 E Continent May 2004

  10. Fuelcost, gas & coal

  11. Trading EU Allowances at Nord PoolTo start in 2005 • Forward contracts – physical delivered • Ticker code: EUA (1 EUA = 1 tCO2) • Min. lot: 1000 EUA • Starting with three contracts: • EUADEC-05 (last trading day 1st Thursday in December 2005) • EUADEC-06 (last trading day 1st Thursday in December 2006) • EUADEC-07 (last trading day 1st Thursday in December 2007) • Closing price set every day • Use existing infrastructure; PowerCLICK ETS, Clearing Desk Application, SECUR clearing system etc • Link to national registries for transition of EUA • EUA spot contract

  12. Volumes compared Open interst NP: 10249 ECX: 13174

  13. Elastic consumption Load variation and price structure Fuel exchange Hydropower Bottlenecks No thermal power Carbon dioxide price impact on electricity prices 100% 0%

  14. Production cost avg. coal fired power generation Marginal carboncost: 13,7 øre/kWh

  15. 100 % 80 % 60 % 40 % Nordel 20 % Germany 0 % 10 20 30 40 50 60 EUR/tonne CO2 cost impact – the European model Definition: Price rise/cost escalation for coal • Today’s fuel prices • The cost effect in Germany is higher than in the Nordic region • Today’s carbon dixoide price yield about 45% effect in the Nordic region

  16. 35 45 43 30 41 25 39 37 20 EUR/tonne EUR/MWh 35 15 33 31 10 29 5 27 0 25 February 05 March 05 April 05 May 05 June 05 July 05 August 05 Carbon 2007 Germany 2007 Nordel Actual forward and carbon dioxide prices, 2007 • Strong correlation beetween forward and carbon dioxide prices • Even stronger correlation between Nord Pool and EEX power prices

  17. EUA/ETS sustainability • Higher power prices to household consumers • Globally competitive base industry will suffer • EUA price formation fundamental or speculative • Will the consept reduce CO2 emissions globally • 2005-2007 is the test period. What will be the conditions for 2008-2012 period, and what will happen after 2012 • For how long will European poleticians be the frontiers on the account of european base industry flagging out…or will the rest of the world follow their brave initiative?

  18. For more information: www.nordpool.com

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