Assessing the Latvia Energy Sector in the Context of Climate Change Economics

1. Assessing the Latvia Energy Sector in the Context of Climate Change Economics World Bank Prototype Carbon Fund Workshop Riga, Latvia January 24-27, 2000 Gary A. Goldstein, Lorna A. Greening International Resources Group, Ltd. Janis Rekis Latvian Development Agency, Department of Energy LAA/DoE

2. Presentation Topics • Relevance of Latvia MARKAL • Implications of Economic Growth on the Energy System and Carbon Emissions • Evaluating the Value of Latvia Carbon Permits • MARKAL Methodology Overview • Conclusions LDA

3. Relevance of Latvia MARKAL • IFE-Norway Collaboration • Preliminary Results Presented at IEA-ETSAP • MEPRD Report on SO2 • Policies and Measures to Mitigate GHG Emissions and Increase Sinks • Second National Communication to the UNFCCC • Energy Trading and CO2 Mitigation in the Nordic and Baltic Countries LDA

4. Latvia MARKAL Baseline Assumptions • GDP = Optimistic National Energy Program Scenario (1997) • Energy Prices for Imports from International Energy Agency (Other than Electricity) • Individual Power Plants Represented • Technology Progress with Regard to Efficiency Improvements • No Limits on Fuel Imports • No Nuclear Power • Forestry and Non-CO2 GHG are Not Accounted For LDA

5. Latvia GDP Forecasts LDA

6. What are the Implications of Economic Growth for Carbon Emissions? • Expanded Trade with the EU will Result in GDP Growth Rates Similar to the EU by 2005 • Industrial Structure will Shift to Light Manufacturing and Commercial Services • Carbon Emissions will Increase, but Economy will be Less Carbon Intensive Over Time LDA

7. LDA

8. LDA

9. Potential CO2 Permit Revenue • Cumulative CO2 Emissions Below Kyoto Level (92% of 1990) for 2008-2012 • 24.9 – 66.35 Mtons CO2 • Permit Price Range • $1.11 - $7.74/TonCO2 ($4.07 - $28.38/TonC) • Permit Revenue Range • $27.6 - $513.6 Million LDA

10. Liepajas Project Avoided Emissions(Base Scenario) • Displaces Some Natural Gas and Dual-fired Power Generation • Avoided Emissions 2001- 2012 (TonsC) • Methane displaced 119.298 • Power Sector Fuel Switching 16.965 • TOTAL 136.263 LDA

11. LDA

12. LDA

13. LDA

14. LDA

15. LDA

16. LDA

17. LDA

18. The Forest Sector as a Carbon Sink • Timber Harvesting is Increasing Relatively to 1990 • There is an Increase in Plantation Production • Latvian Forests will Remain a Net Carbon Sink During the Time Period 2000-2020 LDA

19. MARKAL Building Blocks

20. What MARKAL Does • Identifies least-cost solutions for energy system planning • Evaluates options within the context of the entire energy/materials system by: • balancing all supply/demand requirements • ensuring proper process/operation • monitoring capital stock turnover • adhering to environmental & policy restrictions • Selects technologies based on life-cycle costs of competing alternatives

21. What MARKAL Does (cont.) • Establishes baselines and the implications of alternate futures • Provides estimates of: • energy/material prices • demand activity • technology and fuel mixes • GHG and other emission levels • mitigation and control costs

22. MARKAL-MACRO Overview

23. Input Form for Resource Supply Option

25. What Questions Can MARKAL Answer? • How do particular technologies and policies affect GHG and emissions of other pollutants? • What are the costs of meeting mitigation targets or the value of carbon rights? • How do demand-side actions affect the supply-side and vice versa? • How do technology and fuel mix changes resulting from environmental policies affect energy prices? • What are the benefits of cooperation mechanisms?

26. Benefits of using MARKAL for Promoting Regional Energy Strategies • Builds in-country capabilities while promoting regional dialog and cooperation using a “common language.” • Enables evaluation of major projects on a regional scale. • Promotes taking advantage of resource diversity. • Facilitates cost-effective & more rapid mitigation. • Encourages for more rapid data gathering and sharing. • Fosters environmentally responsible and sustainable development.

27. Conclusions • CO2 emissions in Latvia will remain well below Kyoto commitment levels, subject to economic growth. • Permit prices are competitive, and should benefit both Latvia and buyers. • Substantial gains from permit sales seems likely. • Opportunities for further cost-effective CO2 reductions exist via AIJ. • Development of hedging strategies encourages planning for high GDP and lower CO2 emissions. • Integrated analyses can provide important insights into Climate Change policy and implications. LDA

28. Workshop Observations • The difference between concepts and reality • Pre-workshop needs • informal email exchange between experts and HC team • terminology and key concepts information note for HC team • 1st day dialog between experts and HC team • Check-list for HC (and IC/II) on documentation needs for determination of the National picture

29. Workshop Observations (2) • Controlled wider audience (Baltic countries) • More work to do on Baseline definition and issues • Additionality vs. Environmental Progress • Definitive success, with a great deal learned by all participants

30. Workshop Observations (3) • Develop the idea of in-country Sustainable Development Promotion Centers • Understanding of the principles of UNFCCC/Protocols (and IPCC guidelines) as they relate to the country • Host country knowledge and oversight of their CC assets and opportunities • Compilation of a portfolio of potential projects • Point of contact for interested parties (external and internal) • Tools and the necessary skills • Coordinator of a network internal experts • Guidance through the project development process • Ensuring the quality of the credits