[IEA]：Combined Heat & Power and Emissions Trading

Combined Heat & Power and Emissions Trading: Options for Policy Makers

Acknowledgements

This paper was prepared by Tom Kerr and reviewed by Ingrid Barnsley, Julia Reinaud, Barbara Buchner, Pieter Boot, Richard Baron, and Luke Nickerman at the IEA. The authors also acknowledge the contributions from partners and collaborators in the IEA’s International CHP/DHC Collaborative. The paper was drafted with support from the consulting firm Delta Energy & Environment.

Foreword

The aim of this IEA Information Paper is to help policymakers and stakeholders understand the challenges of incorporating high-efficiency combined heat and power (CHP) into greenhouse gas (GHG) Emissions Trading Schemes (ETSs), and to propose options for overcoming these challenges. Despite the potential for substantial global GHG emissions reductions, CHP and related applications often do not fit easily into the overall design framework of an ETS. This paper provides an overview of key challenges, assesses lessons learned from international ETS experience, outlines key ETS design features, and proposes options and recommendations to ensure a fair and supportive treatment for CHP.

Executive Summary

Combined Heat and Power (CHP) and District Heating and Cooling (DHC) are recognized as effective tools for reducing carbon emissions in the energy sector. Cap-and-trade emissions trading systems are gaining popularity as a policy tool for addressing climate change, potentially becoming the primary mechanism for emissions reduction. It is crucial for ETS designers to ensure that CHP is not inadvertently penalized within the scheme. Designers should avoid deterring the entry of new CHP projects or causing existing CHP owners to reduce their utilization. Additionally, there is scope within the ETS to support CHP as a carbon reduction measure.

Introduction

Climate change and the need for a GHG policy response highlight the importance of efficient energy systems. CHP and DHC offer significant potential for reducing emissions by generating both electricity and heat more efficiently than separate heat and power generation. However, these systems do not always fit seamlessly into the design of an ETS. Some policymakers may wish to use ETS as a tool to promote CHP and DHC.

Key Challenges for Incorporating CHP into ETSs

ETS Design and Operational Issues: Ensuring that CHP is not inadvertently penalized requires careful consideration of various design features.
Allocation Methodology: Methods for allocating allowances must account for the unique characteristics of CHP.
CHP Bonus Allocation: Providing incentives for CHP can help mitigate potential penalties.
Reducing the Compliance Factor for CHP: Adjusting the compliance factor can encourage the adoption of CHP.
A Separate CHP Sector: Creating a dedicated sector for CHP can facilitate its integration into the ETS.
New Entrant Reserve: Allocating additional allowances to new CHP projects can support their development.
CHP Efficiency Requirements: Setting specific efficiency standards can ensure that only high-efficiency CHP projects benefit.
ETS Experience to Date: Drawing on past experiences can inform better design of future ETSs.

ETS Design and Operational Issues

Allocation Methodology: CHP systems often generate both electricity and heat, complicating the allocation of allowances.
CHP Bonus Allocation: Providing a bonus for CHP can incentivize its adoption.
Reducing the Compliance Factor for CHP: Lowering the compliance factor can make it easier for CHP operators to meet their obligations.
A Separate CHP Sector: Creating a distinct sector for CHP can streamline its management within the ETS.
New Entrant Reserve: Allocating extra allowances to new CHP projects can support their entry into the market.
CHP Efficiency Requirements: Setting minimum efficiency standards ensures that only high-efficiency CHP systems receive benefits.

ETS Experience to Date

Experience with ETSs has shown that careful design is essential to ensure that CHP is not unfairly penalized. Key lessons include the importance of flexible allocation methods, targeted incentives, and clear efficiency criteria.

Conclusion

Ensuring that CHP is treated fairly within an ETS is critical for maximizing its potential to reduce carbon emissions. Policymakers should consider the design features outlined in this paper to create a supportive and effective ETS framework for CHP.

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