Energy and Climate Change
Unlock demand side flexibility for European consumers, innovation and the climate
Signatories of this letter welcome the Clean Energy Package as the means to set in place new rules for a consumer-centred European energy system, by implementing the three stated EU objectives: putting energy efficiency first, achieving global leadership in renewable energies and providing a fair deal for consumers.
Demand side flexibility is a resource that not only benefits and empowers individual consumers, both private and professional, but also reduces total system costs, facilitates renewables integration and contributes to building Europe’s smart energy leadership.
This remarkable resource however suffers from important market failures that the ‘Clean energy for all Europeans’ package attempts to address. Signatories of this letter, all strong advocates for demand side flexibility, urge you to include the necessary proposals to develop demand side flexibility in the final legislation, and ensure consistent enforcement through thorough planning and reporting obligations in the Governance regulation report.
The stakes are high. Not delivering Europe’s demand side flexibility potential risks affecting Europe’s competitiveness, undermining its decarbonisation efforts, undermining its benefits for consumers and jobs and growth opportunities for Europe as a whole.
The following points highlight key steps necessary to develop demand side flexibility by creating functioning wholesale energy markets; opening markets to consumers and third parties; and remunerating demand side flexibility fairly.
1. Creating functioning wholesale energy markets
The electricity directive and regulation can significantly contribute to establishing well-functioning energy markets that reflect the availability or scarcity of supply and the adequacy of the network. In particular,
• Reform short-term markets functioning to help increase the overall flexibility of the power system (Electricity Regulation Chapter 2).
• Harmonise features of intraday and balancing markets to encourage trading of energy across borders, and as close as possible to the time of delivery (Electricity Regulation, Articles 5 and 7).
• Tackle overcapacity of generation to re-establish long term price signals for investors and minimise the risks that capacity mechanisms create for the development of efficient wholesale markets, as well as consumer empowerment, demand response and the deployment of innovative low carbon and energy efficiency technologies. The best way to minimise such risks is to:
o Only implement capacity mechanisms as a last resort, when proven strictly necessary by a European adequacy assessment which factors in the contribution of renewables, self-consumption and on-site generation (including cogeneration) and assesses flexibility needs (Electricity Regulation, Article 18).
o Ensure capacity mechanisms are open to all resources such as energy efficiency, demand response, storage, all generation technologies, and cross border capacity (to add to Electricity Regulation, Article 23).
o Review the need for capacity mechanisms regularly:
- So as to ensure consistency between procurement of capacity and the size of the adequacy concerns (to add to Electricity Regulation, Article 23) on the basis of the latest European resource adequacy assessment
- So as to ensure consistency with the overall competitiveness and decarbonisation objectives
o Ensure that the duration of the capacity contract is short enough to correspond to the regular reviews.
o Require Transmission System Operators (TSOs) to report on redispatch and countertrading measures they undertake, including underlying costs, and the level of effectiveness and openness of market-based curtailment or re-dispatching mechanisms to all energy resources. In turn, the creation of liquid and efficient markets and the deployment of demand side flexibility resources will reduce the need for additional measures to guarantee system adequacy.
2. Ensuring market access for consumers and third parties
Rules must be established and enforced so that demand-side resources have unhindered access to all energy markets (wholesale, balancing, ancillary services) in all timeframes, including through product requirements fit for supply and demand-side resources alike. This also means direct market access for consumers and new market entrants, including third party aggregators and ESCOs.
• Give consumers the right to participate in energy markets with dynamic price contracts. This includes providing customers information on actual time of use at near real time and the right to respond to price signals, as well giving consumers the right to sell flexibility independently of any contractual arrangements to procure energy, directly or through an (independent) aggregator. Smart metering is a pre-requisite as the certified basis for billing consumer using multiple tariffs for market-based pricing. It also forms the foundation for the development of additional consumer services (Electricity Directive, Articles 11, 17, 20, 21).
• Enable fair market access for Demand Response and service providers. Deployment of demand side flexibility has so far been impeded by outdated market rules, insufficient market access for service providers and ineffective price signals. Demand response should have non-discriminatory access to all markets (Electricity Regulation, Articles 1, 3, 4, 5, 6, 7, 11, 12, Electricity Directive, Articles: 3, 15, 16, 17) and Demand Response Aggregators should be enabled to access the market without prior agreement of other market parties who are often competitors (Electricity Directive Article 17).
• Network tariffs should be fully transparent and allow the development of self-consumption and self-generation. They should be based on the marginal costs of the use of the system and take into account the avoided capital (e.g. grid investments) and operational expenditures due to flexible generation and flexible load embedded at the local level, as well as avoided CO2 emissions. (Electricity Regulation Article 16; Electricity Directive Article 15).
• Accelerate the cost-efficient decarbonisation of the existing building stock, notably through reaping the flexibility benefits of technical building systems and other appliances to support consumer empowerment: set in place a proper framework for the deployment of infrastructures (i.e. on-site renewable electricity generation, high efficiency cogeneration, smart metering or electro-mobility) and of demand-responsive devices that will facilitate the buildings’ integration into a wider energy ‘eco-system’ where active prosumers self-generate, self-consume, aggregate, trade and sell surplus electricity to the grid. In this new setting, buildings will no longer be a load but a micro-energy hub contributing to consumer empowerment and cost-efficiency of the energy system. The smartness indicator of buildings should support consumer empowerment and the development of buildings as part of the energy system.
• Create a comprehensive framework for grid monitoring, so as to increase the visibility of flexibility, including demand-side flexibility. It should be based on information that TSOs and DSOs would publish regularly as regards to the performance of their networks , in particular the volumes and sources of curtailed energy (Electricity Directive, Article 59). Comprehensive reporting on grid evolution, together with appropriate tariff structure, will be an essential basis for cost-effective network management and enable the targeted acquisition of flexibility services from the market by system operators instead of CAPEX only investments (Electricity Directive, Article 32).
• Ensure enforceability of the right for citizens and businesses to self-generate, self-consume, and valorise their flexibility; (Electricity regulation Article 16; Electricity directive Article 15).
• Establish a constructive framework for energy storage which takes into account the specificity of the energy storage technologies, and recognizes that TSOs and DSOs should not own, develop, manage or operate storage assets, unless a market based procurement based on an open and transparent tendering procedure is proven of not being possible and is regularly reviewed. (Electricity Directive, Articles 36 and 54)
Signatories of this letter are convinced that such a way forward will provide consumers with the satisfaction of managing their own energy consumption while optimising their overall carbon and environmental performance.
European paper industry reaction to the US administration's withdrawal from Paris Agreement on climate change
"The US administration’s decision to step down from the Paris Agreement sadly puts at risk the global efforts needed to address climate change. It also regrettably reflects a view that climate action would undermine industry competitiveness. To make the case for action - and win back the US, Europe must decisively demonstrate that decarbonisation can go hand in hand with industrial competitiveness and investments. The European paper industry has a vision through its Investment Roadmap to decarbonise by 80%, create 50% more added value and increase its investment by 40% by 2050. This should be done in the background of a Paris Climate Change Agreement which provides a solid framework for climate action and fosters a global level playing field" says Sylvain Lhote, Director General at CEPI
Statement from the alliance of energy intensive industries on the clean energy for all Europeans package
We, the Alliance of Energy Intensive Industries representing more than 30,000 companies that are Europe’s largest energy consumers and together, directly employ more than 2.8 Million people, want to make a success of the Energy Union. We see it as a potential enabler of European industry’s competitiveness and a unique opportunity to deliver on Europe’s ambitious transition to a low-carbon energy system. Energy Intensive Industries make a series of recommendations to reach this ambition in an effective, secure and cost-conscious way that delivers value for investment to European economic contributors such as industry. The Alliance would welcome a new energy framework that:
- ENABLES INNOVATION IN INDUSTRY SECTORS THAT DEVELOP PRODUCTS AND TECHNOLOGIES leading to lower greenhouse gas emissions (GHGs) across value chains. Our industries offer low-carbon solutions to help Europe transitioning to a low-carbon, energy efficient region. Our products and innovative processes have a strong potential to enable greater energy efficiency or help the wider deployment of renewables;
- PUTS THE GLOBAL COMPETITIVENESS DIMENSION HIGH Our industries will be key in delivering several elements of the Clean Energy Package. The Governance of the Energy Union must acknowledge this and not relegate the competitiveness dimension as secondary to other aspects, but increase its prominence;
- SECURES INDUSTRY’S ACCESS TO COMPETITIVE, RELIABLE, AND SUSTAINABLE ENERGY through a fully liberalised European electricity market. The growing share of variable renewable energy production in the grid represents both a challenge and an opportunity for industry. Negative impact of system changes on industry and on security of energy supply must be avoided. Policy framework conditions should be nondiscriminatory, technology-neutral and predictable over the longer term to enable sustainable investment decisions;
- AVOIDS COSTLY AND UNNECESSARY OVERLAPPING LEGISLATION: The EU ETS and the Market Stability Reserve will lead to a higher price of carbon under the 2030 framework. It is therefore important that new measures do not overlap with ETS, adding an additional layer of obligations for industry, but rather target untapped potential laying in e.g. buildings or mobility sectors. Enabling better energy performance in those sectors would stimulate our economy and create new jobs and growth opportunities;
- CLEARLY DIFFERENTIATES ENERGY EFFICIENCY AND REDUCTIONS IN INDUSTRIAL ACTIVITY: looking at levels of energy consumptions in the different sectors of our economy, it is clear that so far the 2020 objective is being partly met through reduced levels of production. Our industries wish to contribute to growth in Europe while, at the same time, improving their energy efficiency performance; in this framework, it is relevant to assess reduction of energy consumption in relative terms;
- INTEGRATES RENEWABLE ENERGY SOURCES IN A COST-EFFICIENT MANNER: as long as it is in place, support to renewable energies must become cost-efficient and must focus on technology-neutral innovation. Support
schemes should be market-based and market responsive. They should only benefit technologies that are not yet mature, on a temporary basis.
As key players in the transition to a low-carbon economy, energy intensive industries and value-chain partners will provide constructive input into the decision-making process.
European paper industry reaction to Fertilizers Europe “alternative facts” in “Allowances balance calculation in the EU ETS” Ecofys report
On 15 May 2017 Ecofys published the report “Allowances balance calculation in the EU ETS”, commissioned by Fertilizers Europe.
The document is full of omissions in data collection and analysis. Although the authors acknowledge such shortcomings throughout the whole report, they still conclude that, even with improved accuracy “by performing an extensive data collection […] it is expected that the main conclusions of this study would remain the same”. In other words: the results would be the same, regardless of facts and figures.
Such a statement would be sufficient to disregard this alleged “objective study”.
Yet in CEPI we are strongly convinced that facts and figures are essential to developing informed decisions. CEPI facts and figures are backed by our in-house statistical team and are third-party verified. We believe this ethos should equally apply to others.
As the Ecofys document is built on an impressive amount of misleading or “adjusted” information, we believe it is imperative to rectify the claims against the pulp and paper industry:
1. Sector definition and cross-boundary heat flows
A whopping 20% of additional carbon emissions for our industry are not accounted for in the Ecofys report.
In the ETS, emissions from heat are allocated to the heat consumer, not the heat producer (where emissions effectively take place). Heat-related emissions are thus not counted under the ETS registry codes “pulp and paper” but under “combustion installation”, even if these emissions happen within the perimeter of the industrial site.
The impact of these emissions is massive: the sector actually moves from having a surplus to having a shortage of allocations.
Ecofys is well aware of the impact heat flows calculations has on industry allocation, particularly for the pulp and paper industry. Yet, it decides to disregard them, concluding that “indicatively” the pulp and paper industry has “an allowance surplus that carries long into phase IV”.
Clearly, by using “alternative facts”, anything can be “indicatively assumed”.
2. Emission levels in Phase III
Despite concrete achievements, our sector’s emission reductions have not matched the allocation reductions induced by the cross-sectoral correction factor. For example, in 2016 only our sector was 4% under-allocated.
Our sector is under-allocated and, unless major disruptions happen, will remain so until at least 2020. The regulatory impact post-2020 is still unknown.
Any increase in allocation surplus for our sector, as illustrated in the Ecofys report from 2014 to 2020, is unreal and unrealistic.
3. Emissions carried over from Phase II
First and foremost, the above-mentioned cross-border heat flow applies also here. The figures lack data on emissions from combustion installations in the paper industry. Had these figures been taken into consideration, they would have shown a cumulative surplus in line with other industrial sectors. This comes to no surprise as the pulp and paper industry, like all industries, was heavily hit by the economic and financial crisis.
Moreover, at the beginning of Phase II, in 2008, the pulp and paper industry had 872 open permits in the ETS. In 2013, at the beginning of phase III the open permits were reduced to 825.
Many of the installations that closed were small and medium enterprises, often family-owned. When an installation closes those allowances are gone: either released to the market or cancelled. There is no intra-company transfer.
Unused allowances released to the market could be in anyone’s account, including in fertilizer companies.
Assuming that all those allowances remained at the disposal of the pulp and paper industry for future use, painting the image that the sector is sitting on an immense amount of unused credits, is purely fictional.
4. Carbon intensity improvements (past, present, future)
The pulp and paper industry is proud of the achievements reached in reducing carbon emissions over the past years. Since 2005, when the ETS began, we have reduced our carbon intensity by around 21%.
This was the result of real investments and it lead to the creation of jobs and growth. In the recent years we have been investing 3.5 bn €/year, including investments in energy efficiency and higher use of renewable energy sources.
In fact, in some countries we have even achieved an impressive 75% emission reduction since 2005, without jeopardising international competitiveness.
The Ecofys report, on the contrary, retroactively assumes no historic emission intensity improvement occurred. Nor future emission intensity improvements are foreseen.
We strongly disagree.
5. The misplaced logic of “improvements are not possible”
The carbon footprint of the pulp and paper industry is already very low (0.7%of EU GHG emissions) and will further reduce.
We see tremendous potential in linking the low-carbon economy to the bioeconomy and the circular economy. Our mills are already producing cost-effective low carbon solutions to replace carbon intensive products.
For instance, looking at fertilisers:
• Bio-based fertilisers → ETS benchmark: 0.02 - 0.12 tCO2/t (pulp)
• Fossil-based fertilisers → ETS benchmark: 1.619 tCO2/t (ammonia)
There is definitely some untapped potential to be exploited!
The Ecofys report, on the contrary, assumes no improvement in carbon-intensity both in the past and the future. Meaning rewarding incumbents and putting up barriers to innovation.
We strongly disagree.
Climate change is a serious threat, and needs to be treated seriously. We need to refocus on investments in the EU economy, driving the transition towards a low-carbon economy where Europe leads by example
Within this context, the ETS needs to promote and reward those investing in low-carbon technologies and solutions.
All sectors are important and should be treated equally. And they all need to contribute.
The clock is ticking and 2021 is just around the corner. We need to close the ETS negotiations as soon as possible, to give industry the regulatory predictability needed to start planning the next wave of low-carbon investments.
“No trade-off on Fairness”: Recommendations from the Alliance for a fair ETS
The Parliament, the Council and the Commission enter now the trilogue negotiations that will shape the ETS directive after 2020.
We, the 17 signatories of this paper, energy-intensive sectors representing about 2 million jobs in the EU and comprising many SME’s, are fully committed in taking our share of responsibilities and reducing our emissions.
However, we are also very concerned by the impact that some proposed measures would have on our global competitiveness.
We stand by one principle: sufficient free allowances must be available to allocate every carbon leakage installation at the level of the benchmark, as to avoid additional direct and indirect costs, resulting from the implementation of the ETS that are not faced by our non-EU competitors.
This is true more than ever, especially when some measures, which have been proposed without any impact assessment on our sectors, might have a dramatic impact on our competitiveness if adopted without the necessary flexibility in the share of free allocation, like the permanent cancellation of allowances, or the doubling of the intake rate of the MSR.
We therefore ask the trilogue negotiators to acknowledge, in their final compromise, the mutual importance of our sectors for the EU economy, in particular for European jobs, and all our economic value chains by:
1) Ensuring enough free allowances are available to allocate all carbon leakage installations at the level of the benchmark. This is not a free lunch for industry as less than 5% of the installations will receive enough to produce, the remaining 95% will have to buy allowances. We therefore support the Parliament proposal to reduce the auctioning share by max 5% (from 57% to 52%) if the CSCF is necessary.
2) Rejecting any approach which aims at discriminating a few from other sectors exposed to carbon leakage risks, namely the “tiered CSCF” in the event that the 5% reduction mentioned above is not sufficient. This discrimination between industrial sectors goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, a tiered CSCF would entail that even best performers in most sectors would bear significant carbon costs.
3) Supporting the proposal from the Parliament by which the Innovation fund is fully financed from the auctioning share.
1. Cefic - European Chemical Industry Council
2. CEMBUREAU – European Cement Association
3. CEPI – Confederation of European Paper Industries
4. Cerame-Unie - European Ceramic Industry Association
5. EDG – European Domestic Glass Association
6. Epmf – European Precious Metals Federation
7. European Copper Institute
8. ESGA – European Special Glass Association
9. EUROALLIAGES - Association of European ferro-Alloy producers
10. EUROGYPSUM - Gypsum Industry
11. EuLA – European Lime Association
12. EXCA - European Expanded Clay Association
13. FEVE – The European Container Glass Association
14. FuelsEurope - European Petroleum Refining Industry
15. Glass Fibre Europe – The European Glass Fibre Producers Association
16. Nickel INSTITUTE
17. International Zinc Association
Placing competitiveness at the heart of the ‘Energy Package’
In view of the European Commission's publication of its Winter Energy package, the European paper industry has compiled a position paper outlining its stance on key aspects of the proposal. Here are our key messages:
Deliverables expected by “Clean energy for all Europeans” package, as a whole:
• Promotion of cost-competitive energy prices
• Consistency between policy measures
• Stability and predictability of the regulatory framework
Deliverables expected by specific legislative proposals:
• Allowing for market-based prices to show real value of electricity
• RES generators should participate in the markets in the same way as all other generators
• Subsidies to RES-E should not be allowed to distort wood supply markets
• Security of electricity supply to energy intensive industry must be secured
• Demand flexibility should be voluntary and rewarded
• The benefits of CHP should be recognised (efficiency, cost effective, energy security, resource efficiency)
• EU should not create more bureaucracy or official bodies / authorities
Energy Union Governance
• No to a binding cap on energy consumption impeding industrial growth
• Increased mobilisation of forest biomass is essential in reaching the 2030 renewable energy target
• Need for a real focus on industrial competitiveness
• Reduction of administrative burden for business needs to be prioritised
• Need to avoid/minimise policy conflicts and overlaps
• The directive should not set a binding EU cap on energy consumption
• Member States should be allowed to set their own indicative targets
• Costs and potentials varies across Member States: there is no one-size-fits-all energy savings trajectory
• Equal footing between obligation schemes and alternative measures needs to be preserved
• Cogeneration to remain at the core of the Energy Efficiency Directive
• Support schemes should not distort wood markets and should stimulate supply of wood
• Opening up to national schemes to cross-border participation in electricity markets should lead to more market integration, not to harmonised subsidies
• Guarantees of origin should remain as trade description, not to be used as subsidies
• There is no “one size fits all” in heating and cooling: focus should be on flexibility and cost-efficiency
• Emission reduction in transport should cost-efficiently drive renewable energies in transport (RES-T) integration into the market while not resulting in transportation costs increased
• Our industry is an emerging producer of RES-T solutions mainly from wastes and residues, such as advanced biofuels, biogas, excess electricity from bio-based pulp and paper mills...
• Bureaucracy and costs should be avoided when implementing sustainability criteria
The full position paper can be consulted via the link below.Download here
ETS: on the right track but pitfalls remain
Following today’s vote at plenary on the Emissions Trading System the Confederation of European Paper Industries (CEPI) is overall encouraged by the compromise text reached. There is much in the agreement that the industry can be positive about, retaining many of the key components of the compromise text agreed the Environment committee (ENVI) stage.
“The ETS has moved a step further on its pro-investment track. Although pitfalls still remain at Council level we are confident that the current text can be improved on” says Nicola Rega, Energy and Climate Change Director at CEPI
The industry commends several key aspects of the Parliament’s decision:
• Reemphasising the need for all sectors to contribute to reducing carbon emissions
• Encouragement of early movers investing in low-carbon technologies
• Maintaining flexibility in setting the auction share
• A first step in finding solutions to help member states with compensation for indirect carbon costs
• The development of a wider-ranging fund for innovation supporting industry transition towards a low-carbon economy
Unfortunately, the macro-agreement at the core of the decision by the Parliament still maintains traces of discrimination between sectors, ultimately rewarding those investing the least in carbon emission reductions. But we are confident that this environmentally and legally questionable element will be removed as the next stage of the negotiations. This would guarantee that fairness remains a core component of the ETS.
For more information, please contact Nicola Rega at email@example.com or by phone at (+32) 485 40 34 12
For press related enquiries, please contact Ben Kennard at firstname.lastname@example.org or by phone at (+32 487 39 21 82)
Energy-intensive sectors call on MEPs to reject any "tiered approach"
We, the signatories of this paper, energy-intensive sectors representing about 2 million jobs in the EU and comprising many SME’s, are under direct impact of the EU ETS and are recognized as exposed to carbon, investment and employment leakage.
We ask Members of the European Parliament to acknowledge the mutual importance of our sectors for the EU economy, in particular for European jobs in your constituencies, and all our economic value chains by fully rejecting any “tiered approach” to free allocation and voting against it.
In order to ensure an equal level playing field for all energy-intensive industries, we call for the rejection of all approaches which aim at discriminating a few from other sectors exposed to carbon leakage risks, namely: the “tiered approach” to free allowance allocation, the “tiered CSCF” and the “import inclusion mechanism”.
This discrimination between industrial sectors goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, it would ensure that even best performers in most sectors would bear significant carbon costs.
We appreciate that all policy makers want to avoid undue carbon costs to industry and the triggering of the cross-sectoral correction factor (CSCF, reduces benchmark-based allocation to undertakings). The fairest and most effective way to provide eligible companies with the allowances needed for controlling the carbon leakage risk and still avoiding the CSCF is to increase the free allocation share and to reduce the auctioning volume accordingly. However, we are concerned by the ENVI proposal to exclude only certain sectors from the application of the CSCF, via the so-called “tiered CSCF”. Other sectors in turn would be severely undersupplied. Again this approach would arbitrarily differentiate between different European industries. Protection of some sectors should not be achieved at the expense of the others. Such segregation would also bring into question the environmental integrity of the scheme.
Moreover, we are alarmed by the late introduction of an entirely new proposal for an “import inclusion mechanism” for sectors with lower trade intensity. This is discriminatory, legally questionable and would limit the ability of certain sectors to compete on a level playing field. The notion is contrary to the principal idea of the carbon leakage risk assessment being based on two main criteria (trade intensity and CO2 intensity) as the “import inclusion mechanism” only considers the former. Finally, it goes against the Paris Agreement which does not contain any suggestions allowing for unilateral trade measures. Overall, it introduces a major change to the future of the ETS scheme increasing the legal uncertainty for the ETS reform post 2020.
We reiterate our opposition to any differentiation between the energy intensive industries and under any form of the “tiered approach” and ask you to reject it in the Plenary.
ETS review: Game over for Tiered Approach
Today’s vote in Environment Committee of the European Parliament marks another major stepping stone for the ETS review.
“There are no more doubts. The message from the Parliament is unequivocal: Game over for the tiered approach. The time has come to promote and reward low-carbon investments” says Nicola Rega, Climate Change and Energy Director at the Confederation of European Paper Industries (CEPI).
The vote reinforces the decisions already taken by the European Parliament’s Committee on Industry, Research and Energy in mid-October. It underlines the need for all sectors to contribute in reducing carbon emissions; flexibility in setting the auction share; a pragmatic solution to help member states with compensation for indirect carbon costs, and a wider-ranging fund for innovation.
The broad range of political support reached proves that the difficulties negotiators faced over the last months were worth it. We therefore fully congratulate the rapporteur, Ian Duncan, and the shadow rapporteurs Ivo Belet, Jytte Guteland, Gerben-Jan Gerbrandy, Kateřina Konečná, Eleonora Evi, Bas Eickhout and Mireille d’Ornano for their commitment to achieving a common position.
Although these are positive developments, a lot still needs to be achieved ahead of the Council negotiations. In particular, the solutions to address the impact of the cross-sectoral correction factor are far from satisfactory. The attempt to shield more than 50% of industrial emissions from this mechanism is unjustifiable from an environmental, economic and equitable perspective. It doubles the uncertainty connected to the CSCF for less carbon intensive sectors and limits their investment security for low carbon investments. In addition, the last-minute solution to include a border adjustment mechanism into the ETS raises more questions than answers.
A significant investment challenge lies ahead for European manufacturing industry to transform its production base and regain competitiveness. With our positive attitude we will constructively continue to engage with policy-makers to ensure that the ETS will work as a tool to reward low-carbon investments. It is high time we put the ETS on a pro-investment track.
For more information, please contact Nicola Rega at email@example.com or by phone at: +32 485 40 34 12
ETS Review: European paper industry commends rejection of tiered approach
Today’s vote in the European Parliament marks a major stepping stone for the ETS review.
“This message reads loud and clear:
NO to a tiered approach on carbon leakage and YES to a dynamic and predictable benchmark’s reduction”
says Nicola Rega, Climate Change and Energy Director representing the Confederation of European Paper Industries (CEPI).
The proposed flexibility in setting the auction share together with proposed solutions to help member states with compensation for indirect carbon costs and the wider-ranging fund for innovation are also welcomed by our industry.
We recognise the efforts made towards reaching a broad political agreement embracing almost all the political groups. This is a very positive signal as it demonstrates the strong consensus behind this vote. We fully congratulate the rapporteur, Frederik Federley and shadow rapporteurs Esther de Lange, Edouard Martin and Hans-Olaf Henkel for their commitment to achieving a common position.
Although these are positive developments, more work needs to be done to address the text’s shortcomings, particularly on benchmarks, the impact of the cross-sectoral correction factor and on effective compensation for indirect costs across Europe.
A significant investment challenge lies ahead for European manufacturing industry to transform its production base and regain competitiveness. We will constructively engage with policy-makers to ensure industry’s viability and that the ETS rewards low-carbon investments. We urge the ENVI Committee to seize the opportunity to build upon ITRE’s lead and to put the ETS on a pro-investment track.
For more information, please contact Nicola Rega at firstname.lastname@example.org or by mobile: (+32) 26274918
Note to the Editor
CEPI aisbl - The Confederation of European Paper Industries
The Confederation of European Paper Industries (CEPI) is a Brussels-based non-profit organisation regrouping the European pulp and paper industry and championing the industry’s achievements and the benefits of its products. Through its 18 member countries (17 European Union members plus Norway) CEPI represents some 505 pulp, paper and board producing companies across Europe, ranging from small and medium sized companies to multi-nationals, and 920 paper mills. Together they represent 23% of world production.
Tiered approach impacts seriously the majority of energy-intensive industries in the EU and their associated value chains
We, the signatories of this paper, energy-intensive sectors representing about 2 million jobs in the EU and comprising many SME’s, are under direct impact of the EU ETS and are deemed exposed to carbon, investment and employment leakage.
We urge Members of the European Parliament to acknowledge the importance of our sectors for the EU economy, in particular for European jobs, and all their economic value chains by rejecting any “tiered approach” to free allocation and voting against it.
We strongly oppose any “tiered approach1” and continue to advocate for full (100%) free allocation up to emissions efficiency benchmark levels for all sectors.
We maintain that:
- The tiered approach would reserve free allowances for some sectors at the expense of others. It would go against the principle set in the October European Council Conclusions that best performing companies in the ETS carbon leakage sectors should not bear additional carbon costs. Fairness should be a key principle of policy making. Jobs in one sector are neither more nor less important than those in other sectors.
- The proposed tiering has no economic logic. It is based on flawed assumptions that the European industrial sectors could pass on costs without losing market shares and lacks any cost comparison between a given European and a non-European sector.
- Nor does it have proven environmental logic. It would not deliver decarbonisation through investment and innovation but rather drag those investments outside Europe. In fact, the tiered approach punishes a sector investing in carbon emission reductions by giving a lower protection against the risk of carbon leakage as a direct consequence of these investments.
- Moreover, it could well prove to have been unnecessary to prevent a Cross Sectoral Correction factor (CSCF). Many analysts’ reports, including the Commission’s Impact Assessment, predict that there will be sufficient allowances available to ensure full free allocation at the benchmark levels and there is no grounds for referring to discriminatory instruments.
Our industries have made several alternative proposals to tiering, which include a lower auctioning share (52% instead of 57%), the application of a dynamic allocation and a fully flexible reserve for growth that would deliver full and effective carbon leakage protection without the need for arbitrary discrimination.
In conclusion, we ask you to create a framework that gives all sectors an equal opportunity to thrive in Europe and not to pick and choose which sectors stay in Europe.
1. Cefic - European Chemical Industry Council
2. Cembureau – European Cement Association
3. Cepi – Confederation of European Paper Industries
4. Cerame-Unie - European Ceramic Industry Association
5. Epmf – European Precious Metals Federation
6. European Copper Institute
7. Esga – European Special Glass Association
8. Esta – European Steel Tube Association
9. EuroAlliages - Association of European ferro-Alloy producers
10. Eurogypsum - Gypsum Industry
11. Eula – European Lime Association
12. Exca - European Expanded Clay Association
13. Feve – The European Container Glass Association
14. Association of the world's Primary Nickel Producers
15. International Zinc Association
1 In fact, there is no single approach on tiering, as there is no sound basis to build a tiered approach in the EU ETS.
Hydrophobic Deep Eutectic Solvents promise to play key role in making paper industry more sustainable
PhD research carried out as part of the PROVIDES project has recently resulted in promising new sustainable hydrophobic Deep Eutectic Solvents (DESs). These hydrophobic DESs could successfully replace chemical solvents in the paper recycling process in order to remove transition metal ions such as iron and manganese from paper pulp.
Coordinated by ISPT, the industry-driven PROVIDES project focuses on developing environmentally friendly alternatives to chemical solvents in the European pulp and paper industry. It is financially supported by 20 industrial partners.
Deep Eutectic Solvents (DESs) are nature-based, renewable, biodegradable, low-volatile and cost-effective. When used for producing high-quality cellulose fibers in paper-making applications, they are extremely energy efficient, particularly because they do not require high temperatures. They offer a groundbreaking new method for the pulping of many different lignocellulosic materials for producing chemical pulp, pure lignin and other chemicals.
Read the full press release by ISPT here.
DES was the winning project of the Two Team Project, a CEPI project thanks to which the industry identified eight breakthrough technologies that would help decarbonise papermaking. Read more about it here.
CEPI joins demand-side flexibility platform
CEPI has joined I.D.E.A.S., a European informal multi-stakeholder platform for advocates of demand-side flexibility. I.D.E.A.S stands for:
• Improve energy efficiency
• Develop new business models
• Empower consumers
• Address security of supply and competitiveness
• Support a cost-efficient integration of renewable energy sources
The aim of the platform is to contribute to the development and implementation of European policies and initiatives to drive the deployment of flexible demand side resources in support of EU’s goals in energy and climate, security of supply and competitiveness.
The platform consists of the following European industry associations and civil society organisations:
- European Building Automation Controls Association
- COGEN Europe
- EDSO for smart grids
- European Climate Foundation
- European Copper Institute
- Smart Energy Demand Coalition
- European Heat Pump Association
- Solar Power Europe
- IFIEC Europe
- EREF - European Renewable Energies Federation
- Wind Europe
We are looking forward to sharing intelligence and expertise and exchanging on possible common actions.
Post 2020 ETS reform
Statement in view of the Environment Council on 20 June 2016
As a market-based system, emissions trading has the best potential to reduce greenhouse gas emissions in the lowest-cost way, and to create a market signal to drive low-carbon investment. The undersigned associations support the principles of the EU ETS as the cornerstone mechanism to deliver cost-efficient emission reductions in the EU while at the same time securing a global level playing field for industry.
But, for this to be achievable, we need to ensure that the EU ETS works for every covered sector. We must make sure that the energy-intensive, carbon-intensive and/or trade-exposed industries, operating in a highly competitive global market get the right kind of support to enable them to continue to reduce emissions within the EU. For the power sector, which needs significant levels of investment to secure and decarbonise the electricity supply, we must ensure a carbon price that provides a meaningful signal towards the sector’s low carbon investment decisions today and tomorrow.
The post 2020 ETS reform must focus on achieving long-lasting, holistic and effective changes to the system in order to instil confidence in the market. An essential element of the reform is to provide long-term predictability and legal stability to industry and investors, and to avoid the quick-fixes and piecemeal approach we have seen in the recent past.
In this respect, the European Commission’s proposal to set, in the ETS Directive itself, the ratio between the shares of allowances for auctioning and those for free allocation is an element of certainty. However, the rules should ensure the right balance between ensuring liquidity with regard to the available auctioning volumes and providing the necessary volume of free allowances on the level of best performers in order to avoid carbon and investment leakage.
The undersigned associations are committed to make the reform of the EU ETS a success. But it must be a success for all the covered sectors. As representatives of major industrial sectors, we will remain firm on this point as this will be essential to develop and strengthen the industrial value chain across Europe as well as European industry’s international competitiveness.
The day Aristotle said: “The Tiered Approach doesn’t work”
This article appeared in the Parliament Magazine issue no 435, 30 May 2016
Aristotle often used the reduction ad absurdum to show the untenable consequences one would ensue from accepting the item at issue. If he was alive and would hear about the Tiered Approach in the ETS review, we would probably have engaged in the following dialogue:
Aristotle: What is the purpose of proposing a Tiered Approach?
N.Rega: To avoid the so-called cross-sectoral correction factor (CSCF) – a uniformed cut in free credits allocated to each industrial installation, should the total demand excess the total availability of free credits.
How would a Tiered Approach work? Sectors are clustered in different groups, and receive a different level of free credits. How would sectors be clustered?
On the basis of the different degree of the sectors’ exposure to the risk of carbon leakage, whereby industrial production would relocate outside the EU due to climate policies.
And how could different exposure levels to such risk be evaluated?
For every sector we should assess the impact of carbon pricing in and outside the EU, the carbon intensity of EU and non-EU production, specific trade patterns, products’ price elasticity, and so-forth.
Have any of these analyses been used in the proposed tiered approach?
Not really. Sectors have not been compared with their respective non-EU sectors. Instead, they have just been all lined up and assumed that the higher a sector strikes in terms of combined carbon and trade intensity, the higher it is exposed.
This is counter-intuitive: when a sector reduces its carbon intensity, shouldn’t it increase its exposure to the risk of carbon leakage?
Indeed, as relocation outside the EU in countries with less stringent carbon constraints would then increase global carbon emissions.
So far, the methodology behind the Tiered Approach doesn’t look very sound-based.
Indeed, one could argue that it is rather arbitrary and discriminatory.
Could it be legally challenged?
In case of rigid boundaries in defining the carbon leakage groups, companies not receiving the highest level of free credits will most likely go to court.
Would these companies have a chance to win?
Most likely, given the flawed methodology being used.
What would happen then?
Sectors would retroactively receive additional free credits at the highest level.
So, the risk of triggering the CSCF won’t be avoided.
And what if the boundaries were not be rigid but rather flexible?
In this case, sectors initially allocated in some clusters would still be allowed to prove their higher need for protection, via the so-called qualitative assessment.
But if sectors will be granted additional free credits, where would these come from?
Like in past cases, the Commission would have to take a relevant amount of free credits upfront and park them aside, in case all sectors would apply and receive full protection.
Does it mean that sectors will be deemed to receive 100% free credits?
Yes, as allowances potentially needed would not be allocated.
So, also in this case, the risk of triggering the CSCF won’t be reduced.
Indeed. Additionally, a generalised use of the qualitative assessment would exponentially increase both the administrative burden and the lack of transparency in the decision-making process.
Thanks to Aristotle, we have come to a straight-forward conclusion: the Tiered Approach defeats its original purpose, namely to reduce the risk of triggering the CSCF. With additional drawbacks impacting the stability, predictability and transparency of regulatory framework.
A better way to cost-effectively reduce industry’s demand for free credits is to focus instead on developing rules to stimulate and reward investments in low-carbon technologies. In this respect, tiering does neither. Something that even Aristotle would agree upon.
Strong industry concerns on the ITRE Draft Opinion on the EU-ETS Reform post-2020 and other thought experiments putting industries at risk of carbon leakage
Tiering is not the solution
The undersigned energy-intensive industries express their strong concerns regarding the proposal to introduce “tiered approaches” to carbon leakage protection, as introduced in the ITRE Draft Opinion.
According to all forecasts, “tiering” is not needed.
All forecasts, including the Commission’s Impact Assessment, predict that a shortage of free allowances is highly unlikely during phase IV of the ETS. A shortage can be as good as excluded if the proposed share of allowances to be auctioned were properly calculated. Those 700 million ‘unused’ allowances of phase III (that were earmarked for free allocation but remained unallocated due to business closures or a lack of new entrants) should remain available and within reach if needed for production, recovery and growth during 2021-2030. Thus, the ETS reform can deliver the agreed emission reductions cost-effectively, encourage best performance through safeguarding full and effective carbon leakage protection to the benchmark level. There is no need for exposing parts of EU industry to undue carbon costs.
The ITRE Draft Opinion proposes to expose a lot of industrial sectors to the risk of carbon leakage.
Burdening companies with undue carbon costs by cutting free allocation would divert resources from modernising and upgrading industrial infrastructure, thus exacerbating the risk of investment leakage to countries with less stringent climate policies. This does not send a positive signal to European
industry to accompany its decarbonisation investments and undermines our faith in, and support for, the ETS as a cost-effective means of reducing carbon emissions.
“Tiering” is based on theoretical assumptions and distorts the internal market
The proposed tiering has no environmental or economic justification and is based on flawed assumptions (“cost pass-through”) of unpredictable market dynamics. It reserves free allowances for some sectors at the expense of others. It goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, tiering would ensure that even best performers in most sectors would bear significant carbon costs and expose them to carbon and investment leakage.
Statistical indicators vary - sometimes greatly - with time and depend on many factors (market conditions, company structures, exposure to international trade, etc.). Hence, the setting of thresholds would be arbitrary and would risk not reflecting future needs and leakage risks of the sectors.
As a result, we call on the Members of the ITRE Committee to react strongly to the Draft Opinion, so that the ETS reform delivers full and effective carbon leakage protection without the need for arbitrary discrimination. Jobs in one sector are neither more nor less important than those in other sectors.
We call for an approach based on realistic benchmarks, allocation based on more recent production data and an adequate reserve that ensures full allocation to benchmark levels. Fairness and solidity should become key principles of policy making. We ask you to create a framework that gives all sectors an equal opportunity to compete and thrive in Europe, and not to pick certain sectors to stay in Europe.
ETS Review: Five comments and proposals on the ITRE draft opinion
On 26 April the ITRE rapporteur published the draft opinion on the Commission proposal to review the Emission Trading System. While the report includes some positive proposals, other aspects still need to be improved. In some cases, some proposed solutions would need to be thoroughly thought through, as they would have the unintended consequence of negatively impacting industrial competitiveness and destabilising the regulatory framework.
The following five aspects are of primary importance:
1. Availability of free allowances for industry
On the positive side, the report seeks to increase the availability of free credits for new entrants and production increases. On the other hand, the report does not address the fundamental question of how to ensure enough free credits to meet industry’s needs.
CEPI proposal: as future industry demand for free credits is subject to many uncertainties, any firm decision taken now will likely result in either excess of unused free credits or an excessive shortage of these. We would thus suggest focusing on:
- Re-balancing the share free credits/auctioning to 47.5% /52.5%, to take into consideration free credits originally allocated to industry but unused due to the economic crisis.
- Stimulating and rewarding investments in low-carbon technologies: this would be the most cost-effective way to meet the free credits cap while improving industry’s competitiveness.
- Defining in the legislation a process whereby the availability of free credits is constantly monitored and, in case of upcoming shortage, the legislator is called to take the most informed decision, exploring all available options.
2. Carbon Leakage
The proposal from the rapporteur is simply unacceptable. The motivation that such a “tiered” approach would support the “sectors in greatest need” is arbitrary and lacks any evidence that such a system would target “those sectors genuinely and most exposed to carbon leakage”. Such a discriminatory approach, if approved, would inevitably entail legal challenges in courts, leading to an unstable and unpredictable regulatory framework. Moreover, it would increase the risk of carbon leakage for most sectors in the economy, putting millions of jobs across industries and local communities at risk.
CEPI proposal: keep the Commission proposal.
3. Benchmarks update
The proposal from the rapporteur is heading in the right direction. Building on the Commission proposal, it stresses the need to use real data and tries to accommodate the need of those sectors moving at a slower pace in emission reductions.
On the other hand, the slower reduction pace should be enlarged to any type of emission, not only to “unavoidable process emissions”. Moreover, the proposal does not address the risk for a sector of remaining “trapped” into one reduction pattern, independently of technological progress. The report also does not address rules for assessing progress in installations not covered by product benchmarks (so-called fall-back approaches), which are responsible for one third of industrial emissions.
- Build on the rapporteur’s proposed amendments.
- Assess progress in comparison to latest benchmark value set in the legislation.
- Broaden the 0.3% category to any type of source of emissions.
- Specify in the legislation the rules for assessing progress in installations not included in product benchmarks (fall-back), based on energy intensity improvements.
4. Indirect carbon costs passed on in electricity prices
Although we strongly support the need to reduce the impact of carbon costs in electricity prices, the proposals will have little or no impact in this respect. This is because most industrial installations purchase electricity on the wholesale market. Differing levels of compensation will not impact the way the electricity market operates, thus the way carbon costs are passed through in electricity prices. Suggesting that no compensation should be paid if the carbon price is less than 15 euros would expose industrial sectors to real costs in the short to medium term and is based upon the same flawed “tiering” approach proposed in the carbon leakage policy area.
The proposals would therefore increase the carbon cost exposure for industries while not addressing the shortcomings of the current state aid regime, namely the lack of compensation in all Member States and the unpredictability of the rules. It should also be noted that, in some countries, the lack of compensation for indirect costs coupled with no free credits for electricity produced and consumed on-site (as in the case of CHP) is already leading to up to 40% shortage in compensation for on-site emissions.
CEPI proposal: the ETS review needs to ensure 100% compensation for both direct and indirect carbon costs throughout the whole trading period, at benchmark level.
5. Innovation Fund
We welcome the rapporteur’s attempt to increase and facilitate access to the financing of innovative projects in the industry. We also welcome the attempt to clarify the parameters already upfront in the text of the directive; this will accelerate the process by timely releasing the first funding opportunities.
CEPI proposal: build on the rapporteur’s initiative. Strengthen provisions on the share of financing support, ensuring all industrial sectors can really benefit from this opportunity.
Reaction to the tiered approach to carbon leakage protection
The signatories (see below), energy-intensive industries express concerns regarding the so called “tiered approach” to carbon leakage protection under the EU ETS
The tiered approach1 would reserve free allowances for some sectors at the expense of others. It goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, it would ensure that even best performers in most sectors would bear significant carbon costs and expose them deliberately to carbon and investment leakage.
The proposed tiering has no environmental or economic justification and is based on flawed assumptions (“cost pass-through”) of in reality unpredictable market dynamics. Depriving sectors of carbon leakage provisions would not deliver decarbonisation through investment and innovation. Moreover, it could well prove to have been entirely unnecessary. All forecasts, including the Commission’s Impact Assessment, predict that there will be sufficient allowances available to ensure full free allocation to benchmark levels at least until 2025: and there are other proposals for ETS reform that would deliver full and effective carbon leakage protection without the need for arbitrary discrimination.
To that end, we continue to support an approach based on realistic benchmarks, allocation based on more recent production data and an adequate reserve that ensures full allocation to benchmark levels. The proposed share of allowances to be auctioned shall also be recalculated downwards, as analysis of the EC proposal shows, it does not properly include the number of allowances which were to be given out for free (i.a. unallocated and left-over NER allowances).
In the circumstances, the “tiered approach” would introduce an unnecessary and unfair discrimination between sectors. Fairness and solidity should become key principles of policy making. Jobs in one sector are neither more nor less important than those in other sectors. The signatories fully share and support the BusinessEurope views on tiered approach as expressed in a statement on April 14th.
We ask you to create a framework that gives all sectors an equal opportunity to compete and thrive in Europe, and not to pick certain sectors to stay in Europe. It would undermine our industry’s faith in, and support for, the ETS as a means of reducing carbon emissions.
For further information please contact Peter Botschek, Cefic Director Energy & HSSE, e-mail email@example.com
1 i.e. as presented in a Non-paper on a Tiered Carbon Leakage List in Phase IV of EU ETS (authored by France, the United Kingdom)
Global Forest Products Industry is Part of the Solution to Climate Change
São Paulo – The International Council of Forest and Paper Associations (ICFPA) and its members welcome the signing of the landmark United Nations agreement to tackle climate change, set to take place on April 22. The agreement urges countries to implement policies that would allow them to keep a global temperature rise below 2 degrees Celsius. The global forest products industry has a highly significant role to play in the implementation of these targets.
“The global forest products industry has made significant strides in reducing its carbon footprint, stocking carbon, and generating greenhouse gas removals – all helping to mitigate climate change”, said ICFPA President and Brazilian Tree Industry (Ibà) President Elizabeth de Carvalhaes. “This agreement is crucial to implementing some of the policies that consider biomass as carbon neutral when harvested from sustainably managed forests and to further recognize all positive contributions that forests and forest products provide in combating climate change.”
The inherently-renewable global forest products industry remains committed to mitigating climate change for the benefit of the green economy and society at large. ICFPA members have achieved an impressive 5% reduction in their greenhouse gas emissions intensity since 2010/2011 and 17% since the 2004-2005 baseline year (2015 ICFPA Sustainability Progress Report).
The European pulp and paper industry has been a global champion in mitigating greenhouse gas emissions. It has set itself in 2011 a clear vision of becoming carbon neutral by 2050 and since then, taken concrete steps to reach that goal,” said Jori Ringman, Acting Director General of Confederation of European Paper Industries (CEPI). “Thanks to responsible sourcing practices and sustainable forest management, the forest area is growing in Europe by an area of over 1,500 football pitches per day. CEPI is pleased to see development in the same direction globally”, he added.
The forest industry’s significant role in mitigating climate change was highlighted in the ICFPA-commissioned report Analysis of Forest Contributions to the INDCs by acclaimed researcher Paulo Canaveira. Having looked at the contributions of forests in the national targets of ICFPA member countries (INDCs) and global mitigation effort from 2020 onwards, the report concludes that many countries identify forests and the land-use sector as relevant to policies and measures implemented to meet their targets. Reducing emissions from deforestation, but also sustainable forest management, afforestation and reforestation are commonly mentioned as key mitigation practices. In some developing countries, they even constitute the country’s main contributions.
Other climate change mitigation efforts of the global forest products industry include supporting national and regional climate policies and programs; investing in technologies with low carbon footprints and ones that improve carbon sequestration; and developing bio-based technologies to find innovative ways to use wood fiber and substitutes for goods traditionally made from fossil fuels.
Note to the editor:
The ICFPA represents more than 30 national and regional forest and paper associations around the world. Together, ICFPA members represent over 90 percent of global paper production and more than half of global wood production.
For more information about the global forest and paper industry, visit icfpa.org.
Joint declaration by a group of industry associations “2016, time to deliver… an ambitious power market reform”
The signatories of this declaration gather leading associations and industry groups with a clear stake in Europe’s energy policy. We share the conviction that only a flexible and dynamic energy system, making the best use of innovative and distributed supply and demand options, can ensure a cost-efficient and sustainable transition towards a decarbonised energy system.
We strongly believe that a market-driven environment is the best means to provide long-term investment signals while meeting all system needs and accommodating the growing share of renewable energy in the energy mix. The completion of the Internal Energy Market will improve system adequacy and efficiency, increase security of supply, support the competitiveness of European industry, and help deliver the energy and climate goals stemming from the COP 21 agreement and EU’s post 2020 objectives on emissions reductions, energy efficiency and renewables.
However, we see many constraints persisting in the energy sector that affect investment decisions, in particular: 1) depressed wholesale market prices due to overcapacity; 2) fading EU-coordination of energy policies with a tendency towards renationalisation; and 3) an antiquated set of market rules.
Market rules have been tailored to centralised production within national boundaries for too long. Not only have they failed to adapt to developments in energy technologies and evolution of demand patterns both at industry and end-consumer level, but some of them hamper the deployment of renewables, storage and demand-side flexibility. These new technologies can today provide valuable services including balancing energy offering significant flexibility to the system.
The energy system is now more complex to plan, control and balance. It needs enhanced flexibility that could be provided by a mix of options, but this would require significant changes in the relevant legislation. In this respect, we consider the upcoming legislative package on market design as a unique chance to provide the energy sector with a predictable investment framework, fairer market conditions, and ultimately seize new opportunities arising from decentralised energy production and demand side participation.
In particular, we deem essential that any ambitious reform of the energy market addresses the following issues:
1. Providing adequate price signals and further integration of short-term markets across borders
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from renewable energy supply and demand sources
3. Implementing a level playing field for all flexibility providers to foster the pan-European trading ofelectricity and grid support services.
1. Providing adequate price signals and further integration of short-markets across borders
In a well-functioning electricity market, unhindered price-formation drives operational choices and investment decisions. Transparent and undistorted market prices must be in place in all time horizons, and allowed to move freely without caps. Wholesale electricity prices reflecting scarcity would signal the need for investments in new capacity. Therefore, price spikes should be treated as a positive sign of an efficient and cost-effective energy system where market participants are free to choose the level of hedging they prefer to contract, revealing the true value of flexibility and energy at all times.
Market rules also need to be adapted so as to enhance clean and flexible energy providers to trade power over broader geographical areas and as close as possible to the time of delivery. In this context, the opening and cross-border integration of intraday market is essential, especially for energy producers whose output is variable. A as long as separate procurement of balancing capacity and energy is guaranteed, another important aspect is the possibility to negotiate the duration of contracts, e.g. for balancing contracts. This is crucial, as certain flexibility technologies may require considerable capital investment and, therefore, contracts with a longer duration.
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from different energy sources
The main challenge for security of electricity supply is not the availability of capacity as such, but the availability of flexibility that is needed to support the system and provide for a constant balance between supply and demand.
In order to identify potential, locally constrained adequacy issues, system adequacy assessments should be carried out according to a common methodology and metrics transparently defined in EU legislation1. Such analysis should be performed at regional level and consider the potential of all flexibility options, from the various energy supply and demand sources. This would ensure a rigorously needs-based approach to the introduction of Capacity Remuneration Mechanisms (CRMs) when the market cannot not deliver the adequate flexibility.
If CRMs are deemed necessary, they should be designed in a way that minimises any negative impacts on price formation on energy markets. They should avoid contributing to continued overcapacity situation by keeping redundant and polluting power plants online, and prioritise clean flexibility options as foreseen in the energy state aid guidelines.
3. Implementing a level playing field for all flexibility providers2 to foster the pan-European trading of electricity and grid support services
In addition to the modernisation and further opening of the balancing market, a proper market for ancillary or grid support services needs to be fostered to provide additional non-discriminatory revenue streams to flexibility providers, as well as overall operating cost savings for the energy system. As of today, a number of services and solutions from decentralised generation and demand-side response are technically feasible, but current market conditions do not properly value their commercial provision.
The continued adaptation of balancing and ancillary services markets should foster liquidity and incorporate innovative and decentralised solutions. Prohibitive pre-qualification requirements and access conditions for independent aggregators, extended product-durations or minimum thresholds and symmetric bids are some of the aspects currently hampering an effective market. Moreover, contradictory regulatory signals, e.g. regarding network tariffs, the operation of industrial loads or co-generation should be addressed to ensure demand side flexibility further develops without impeding the achievement of robust energy efficiency targets.
1 Incl. a clear system adequacy target level for all control areas in the EU as many countries are lacking one
2 “A service provided by a network user to the energy system by changing its generation and/or consumption patterns in response to an external signal” (Task Force Smart Grids report, 2015)in