IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Back-up info, some views and experiences (not necessarily shared by all sectors)

Applicability and practical aspects of Performance-based allocation

Vianney Schyns, IFIEC Europe [email protected]

ECCP Meeting, EU ETS Review, 22 nd May 2007 1

IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Contents

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Number of benchmarks Transaction costs & complexity Setting the benchmark below average performance Technical definition

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all energy carriers Benchmarks in a direct emissions scheme

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Pareto: few activities have major coverage

Netherlands: almost 100 benchmarks already defined 3

IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Transaction costs and complexity

 High transaction costs often mentioned in literature

Transaction costs lower in practice

• • • • • Typical consultancy costs: € 25-40,000 per benchmark Higher cost first time complex benchmark So 100 benchmarks cost say € 3-4 mln “Verification Bureau”, NL say < € 1 mln for 100 benchmarks (each 4 years?) Excl. verifier, for NL only: say € 5 mln for 4 x 75 Mton = < € 0.02/ton CO 2    Determination of benchmarks cheaper on EU scale Additional: annual costs of monitoring & verification Complexity often mentioned as problem   Defining new benchmarks needs great care – technology expertise Practical principle: keep it simple – ignore secondary effects  Once defined  rather straightforward

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Possible feasible benchmark formula

 Benchmark data of plants under the scheme (now EU) Benchmark between average & best performance, e.g.

Benchmark = WAE – CF x (WAE – BP)

• • • WAE = Weighted Average Efficiency CF = Compliance Factor, to comply with total cap BP = proven Best Practice, proven means actual measured operational data (or rather BP Group, for extra stimulation of innovation)   Formula coincides with EU ETS Directive Annex III (3), average emissions and achievable progress for each activity Industry most likely opposes following alternatives   Dutch/Flemish worldtop 10% – too short allocation, unstable outcome  shape benchmark curve

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incomplete participation Related only to BP (BP + X%) – too short allocation, contra incentive to improve BP, effectiveness & innovation

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmark = WAE – CF x (WAE – BP)

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmark takes account of all energy carriers (1)

Feeds Steam CO 2 ?

Production plant Natural gas ?

Other fuel ?

Product(s) Many energy functions can • • • be done either with: Steam, or Electricity, or Natural gas or other fuel Electricity Benchmark takes this into account:

Normalised calculation to (total) primary energy – or total CO 2

Benchmark for only fuel is meaningless Benchmarks for manufacturing and (related) utility plants Examples: chemical plants, refineries, paper plants, etc.

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmark takes account of all energy carriers (2)

Feeds (ethane, LPG, naphta, gas oil, etc.) Simplified scheme steamcracker CO 2 Furnaces with heat recovery to steam 2/3 of the investment Steam recovery Separations with high power compressors Electricity Methane from feedstock Steam • • • Separation train can be: Efficient, with net-export of steam of whole cracker Inefficient, steam import Both can be with the same direct emission of the cracker itself Products (ethylene, propylene, etc.) • • • Power train can be: Steam turbine driven Electric motor driven Combinations High influence on electricity & steam balance, direct emissions elsewhere

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmarks in a direct emissions scheme (1)

Allocation

= direct emission – emission {total plant – total BM} CO 2 Feeds Production plant Product(s) •

Example:

Net-import of secondary energy carriers:

70 – {120 – 100} = 50 Plant worse than benchmark

Steam Electricity Natural gas Other fuels Site utilities have also benchmarks

Further examples:

• • Zero net-import:

120 – {120 -100} = 100 Plant worse than benchmark

Net-import:

70 – {90 – 100} = 80 Plant better than benchmark 9

IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmarks in a direct emissions scheme (2)

  Easy inclusion in an ETS  No conceptual problem in a direct scheme and no legal problem with Directive, on the contrary

Allowances according to deviation with benchmark

 In formula:

A = RDE + RSE – Σ production x (REE/RCE – benchmark) x CCF

• • • • • RDE = Realised Direct Emission (ton CO 2 ) RSE = Realised Sequestered Emissions (ton CO 2 ) REE/RCE = Realised Energy (or CO 2 ) Efficiency (GJ/ton product or ton CO 2 /ton product) Benchmark = benchmark energy (or CO 2 ) efficiency CCF = CO 2 Conversion Factor (= 1.0 in case of CO 2 -benchmark)  Note: Process emission is in this view included in the Best Practice

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IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmarking in the product chain

Benchmarking provides incentives in the whole product chain …

Fuel Electricity and heat generation Electricity Fuel Feed Heat, from CHP or from boilers Industrial manufacturing plant with use of electricity and heat Product … the efficiency of the production of electricity & heat … the efficiency of the use of (fuel), electricity & heat 11

IFIEC EUROPE – International Federation of Industrial Energy Consumers

IFIEC Back-up material (not necessarily shared by all sectors)

Benchmarks need great care

Feeds Hardly or zero CO 2 Production plant Product(s) Steam Electricity Hardly or zero fuel

Other effectiveness’ shortcomings

Maximisation E (110%) Minimisation E (85%)

Present Dutch formula is incorrect

Allowances = HE x G x E x C HE = historic emissions G = Growth Factor

E = Energy Efficiency

(benchmark/actual energy use) C = Compliance factor to remain within total cap Formula becomes meaningless – even introduces gaming – in case of significant import of secondary energy carriers (utility boilers & CHP are rightfully separate), for example: HE (= ~ zero) x E = ~ zero

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