Vattenfall - Summary

Summary

The mapping of the global abatement possibilities shows that there is a realistic potential for reducing the emissions of greenhouse gases to 2030 to a level that brings us on a long-term path towards stabilization of the climate. This is however very challenging and even if the needed abatements in 2030 are reached, further reductions will be needed for continued stabilization of the climate. By 2050, the emissions should be reduced to 20-25% below the 1990 level and by 2070 to around 35% below the 1990 level. As emissions from the developing world are likely to increase, this will require much larger reductions in the industrialized world. Fulfilment of the outlined abatement potential requires political and institutional measures. The requirements differ between sectors. Within the power sector most of the abatement opportunities require stable CO₂ prices above € 15-20/t CO₂e. The exceptions within the power sector are nuclear power and CCS with enhanced oil recovery, which are profitable on their own terms. If an effective global climate regime can be implemented, big shifts in technologies can be expected. CCS can be expected to be the base-case for fossil plants if the costs go down as projected and nuclear will be strongly competitive. The feasibility of achieving the abatements within the power sector is high relative to other sectors, but financial incentives such as a price on CO₂ and innovation support to new technologies are needed. Climate change and climate change policy will be a major factor for regulatory uncertainty with large impacts on companies’ financial performance. The results presented here reflect a perspective up until 2030 and after this the relative importance of CCS is likely to increase. The feasibility in achieving the abatements are high also in the industrial sector and also for this sector the most important regulatory mechanism is stable financial incentives to invest in low emission technologies. There is a significant risk for competitive distortions if a homogenous approach is not taken across different parts of the world. Within the transport sector, fuel prices will play a role to realize the abatement potential, but other policy measures, not only motivated by climate concerns, are likely to be more important. Consumers require short paybacks on investments, which means that fuel economy standards might be more effective than fuel prices for unlocking vehicle efficiency. Rapid development of bio fuels is likely to require on-going policy support given uncertain oil prices, and there might be a need for additional innovation support. Public transport is at least as important as fuel prices for moderating demand. Within the buildings sector, all of the abatement opportunities below € 40/t CO₂e come at a zero or negative cost. The negative cost abatement opportunities are not realized under business as usual due to, e.g., market failures, misaligned incentives, high perceived consumer discount rates and program costs, which is why efficiency standards are the key success factor in realizing the abatement potential. Within the forestry sector, difficulties in e.g. monitoring are an important hurdle for realization of the potential. Satellite and field-based methods allow increasingly precise measurement of net forestry changes, which could enable international compensation for countries that increase net forest cover. There are however long investments cycles and concerns about leakage, which could mean that project-based mechanisms may not lead to a realization of the potential and it is challenging to include forestry in a CO₂ cap and trade system. As it is for forestry, agriculture and waste is also a sector were implementation is very challenging, with a significant proportion of the abatement taking place in developing countries and from dispersed sources. Local standards and policies are likely to be needed, in addition to financial incentives for the developing countries to act. As this shows, implementation is often very challenging. A price on CO₂ is often a necessary part of creating the incentives for abatement, but it might not at all times be sufficient and could be problematic to implement for some types of emissions. Other policy instruments will therefore also be needed.