Unilateral emission reductions of the EU and multilateral emission reductions of the developed countries. Assessing the impact on Finland with TIMES model

This report assesses the impact of the unilateral greenhouse gas emission reductions proposed by the EU on the structure of European and Finnish energy systems with TIMES models. The two models used are techno-economical energy system models including an extensive description of technologies on energy production and consumption. The models derive the sectoral energy demand from given economic projections and calculate the optimal way of satisfying the energy demand through market equilibrium. The basis for EU wide calculations was the Common POLES-IMAGE economic scenarios which project a GDP growth of 2.4 % p.a. until 2020. A sensitivity analysis was conducted with a lower economic growth projection. The results indicated that a reduction of 20 % compared to 1990 emission levels by 2020 would lead to most reductions being conducted at the electricity sector. The consumption of coal in electricity generation would decrease considerably. In the long term some of the natural gas based production would incorporate carbon capture and storage (CCS), and the use of wind power would grow substantially. The value of carbon would lie at levels around 20 to 30 euro/t CO2 by 2020 were the reductions carried out without flexibility mechanisms. With a reduction target of -30 % by 2050, the value of carbon would rise to 40 . 50 euro/t CO2 by 2050, and nearly to 100 euro/t CO2 with a target of -60 % in 2050. The calculations on Finland were based on economic projections by the Ministry of Finance and the Government Institute of Economic Research. The scenarios asses the optimal way of reducing Finnish emissions with a range of prices for emission rights between 20 and 50 euro/t CO2. The sectors not included in the emission trading scheme were assumed to conduct reductions with costs up to the value of emission rights. The use of coal was reduced after 2010, accompanied by an increase in the use of natural gas. The utilization of bioenergy increases considerable in the total energy balances. Also the use of wind power would grow. CCS would be profitable after 2020 with the higher prices for emission rights. The relative differences in sectoral emission are highest in electricity production. Were the Finnish reduction target at -20 % in 2020, Finland would buy emission rights with all price levels. A target of -10 % would result with selling of rights on higher price levels at later stages. The research also assessed the direct costs of the reduction measures, including costs from investment, operation, fuels and raw materials and trade. (orig.)