Sustainability Analytics
“Increasing carbon prices can pose a significant risk to our business. ETS emission allowances have so far been allocated at no cost. Starting in 2013, power producers will have to acquire all of their allowances through auctions. The number of allowances will be reduced each year. It is expected, that if not managed effectively this could lead to higher operational costs.” E.ON AG (CDP response, 2011)
As sustainable development becomes a
global challenge, countries are pushing for
promoting energy efficiency and reducing
emissions. The world is moving towards
a climate regime, one that would be
governed by emission caps for both the
developed and the developing world.
As a consequence, energy intensive
plants under emission caps will prepare
for stricter regulations. In Europe there is
a move towards increased auctioning of
emission allowances (one allowance is
the right to emit one tonne of CO2). Earlier
majority of the allowances were allocated
free to the regulated plants; however, from
2013 the majority of allowances will be
auctioned.
The allocation of free allowances so far,
put little burden on organisations to initiate
actions on emission reductions. This will
change as organisations would now be
under greater pressure to discover their
internal price of emission reductions. In
this scenario, a number of factors will
determine the emission trading behaviour
of plants. A key factor is the ’price of
emission allowance’ relative to the ’internal
cost of emission abatement’ within a plant.
Logica
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