International Energy Agency (IEA) Overview
Establishment and Purpose:
- Established: November 1974 within the Organisation for Economic Co-operation and Development (OECD).
- Objective: To implement an international energy programme, promoting rational energy policies and improving energy supply and demand structures.
Member Countries:
- 28 out of the 30 OECD member countries.
- Includes: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.
- The European Commission also participates in the work of the IEA.
Executive Summary
Climate Policy and Carbon Leakage:
- Kyoto Protocol and Emissions Trading Scheme (ETS): The implementation of the Kyoto Protocol or similar regimes has raised concerns about competitiveness for CO2-intensive products, especially in industries facing uneven greenhouse gas constraints.
- European Union ETS: Introduced in 2005, the ETS caps GHG emissions in power generation and certain industrial activities, leading to increased electricity prices and potential loss of market shares for the European primary aluminum sector.
- Carbon Leakage: Defined as the increase in emissions outside a region due to a policy to cap emissions in another region. This report focuses on competitiveness leakage, where carbon-constrained industries lose market share to non-carbon-constrained countries.
Competitiveness and Loss of Competitiveness
Definitions:
- Competitiveness: Defined as the ability to maintain profits and market share.
- Loss of Competitiveness: Enhanced competition from cheaper competitors and lower profits leading to reduced investment and expansion.
European Aluminum Sector:
- Current Position: About 85% of Europe's primary aluminum imports come from eight countries, with higher production costs compared to other regions.
- Historical Context: Competitive situation existed even before the introduction of carbon costs in 2005, primarily due to higher electricity prices and labor and power costs.
- Impact of ETS: The ETS has led to increased electricity costs, making European production less competitive.
Cost Analysis:
- Electricity Cost Increases: Estimated electricity prices paid by smelters increased at a rate slightly above the global average (EUR6.9/MWh for Europe vs EUR5.6/MWh for the world average).
- Long-Term Contracts: 82% of European primary smelting capacity was under long-term electricity contracts in 2006, indicating stability in pricing.
Conclusion
This report highlights the challenges faced by the European primary aluminum sector due to the implementation of the ETS and the potential for carbon leakage. It emphasizes the need for a robust method to quantify these impacts and considers the implications for policy-making, particularly in addressing competitiveness losses driven by climate policy.
