Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050

Energy xxx (2014) 1e7

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Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050 Hana Gerbelová a, *, Filipa Amorim a, André Pina a, Mário Melo b, Christos Ioakimidis c, Paulo Ferrão a a b c

MITjPortugal Program e Sustainable Energy Systems, Instituto Superior Técnico, Av.Professor Cavaco Silva, 2744-016 Porto Salvo, Portugal Escola Superior Náutica Infante D. Henrique, Av. Engenheiro Bonneville Franco, 2770-058 Oeiras, Portugal Deusto Institute of Technology, DeustoTech, Energy Unit, Avda. de las Universidades, 48007 Bilbao, Spain

a r t i c l e i n f o

a b s t r a c t

Article history: Received 30 July 2013 Received in revised form 17 December 2013 Accepted 3 January 2014 Available online xxx

The European Union proposed the introduction of taxes on emitted CO2 as an effective policy measure for the reduction of CO2 emissions in its electricity sector. Applying the TIMES (The Integrated MARKALEFOM System) modeling tool, this paper examines the cost effectiveness of different evolutions of CO2 taxes under the Emissions Trading System in Europe by 2050 in order to analyze the possible roles and limits of different mitigation technologies within the Portuguese electricity supply system. The results were analyzed based on the final year CO2 emissions of the electricity system when compared to 1990 levels. The results show that when CO2 prices stay below 50 V/tonne by 2050 there is no reduction in emitted CO2 emissions when compared to the levels of 1990. For CO2 prices reaching between 50 and 100 V/tonne there is a clear reduction in CO2 with the increase in the price, from 7% with 50 V/tonne to 79% with 100 V/tonne. For prices above 100 V/tonne the increased taxation has only a slight impact on the reduction of CO2 emissions, as even with a 300 V/tonne price the CO2 reductions achieved are only of 87%. Ó 2014 Elsevier Ltd. All rights reserved.

Keywords: Electricity generation CO2 emissions CO2 taxes The Integrated MARKAL-EFOM System Portugal

1. Introduction The amount of CO2 present in the atmosphere keeps rising due to the continuous and increasing use of fossil fuels for energy production. Portugal as a member of the EU (European Union) and within the framework of the Kyoto protocol and the UNFCCC (United Nations Framework Convention on Climate Change) must deal with climate change as one of the main factors towards longterm sustainable development [1]. A study by the EC (European Commission) showed that under current policies domestic GHG (greenhouse gas) emissions would be reduced by 60% in 2050 compared to 1990 levels [2]. Therefore in 2011, the European Council proposed an initiative to design policy measures in the energy and transportation sectors to achieve 80e95% GHG emissions reduction by 2050 compared to 1990 domestically [3]. The largest mitigation of CO2 emissions is expected to be performed in the electricity sector, mainly due to technology innovation and energy efficiency in end-use [4,5]. In practice, the use of some existing supply technologies will have to be expanded and new * Corresponding author. Tel.: þ351 21 040 70 27. E-mail addresses: [email protected], (H. Gerbelová).

[email protected]

advanced technologies will have to be introduced and commercialized to meet GHG reductions in the electricity market, especially in the long run [6]. The EU is one of the main actors in the global effort to reduce GHG emissions and proposed various regulatory measures and strategies in order to achieve targets in limiting its emissions [7]. In this context, an EU Directive introduced the EU-ETS (European Union Emission Trading Scheme) as a mechanism towards flexible and efficient reduction of CO2 emissions [8]. It is a market-based policy instrument based on a cap-and-trade scheme between energy intensive installations, which are allocated an annual number of permits to emit CO2 [9]. The first trading phase of the Scheme came in force in 2005 when, according to the National Allocation Plan of each EU member states, a certain number of allowances were allocated to the largest carbon intensive industry sectors based on their historical emissions. Gradually, the number of allowances is getting limited and it is up to the strategy of each country whether to invest in reducing national emissions or to buy extra allowances from the international market. Lund [10] argues that the international collaboration under Kyoto Mechanisms can lead to the particular situation where the industrial countries are more involved in the CO2 emission control of other countries than controlling their own emissions. In any case, the emission trading

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Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011

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H. Gerbelová et al. / Energy xxx (2014) 1e7

system is believed to encourage carbon intensive industries to reduce their CO2 emissions. As the environment stringency gets tighter, the companies participate more actively in the EU-ETS [11]. Therefore, in the electricity sector, which is responsible for a significant amount of CO2 released, the EU-ETS is considered to be a key component in order to commercialize low carbon technologies at large scale. In continental Portugal, large incentives have been used to implement technologies using RES (renewable energy sources) in the electricity sector due to country’s favorable location for their use [12e14]. The Portuguese National Renewable Energy Action Plan to the European Commission confirms that nearly 50% of electricity is produced from RES currently and define a goal of 60% share of RES in the electricity generation by 2020 [15]. Further, a larger share of RES would be necessary to reduce CO2 emissions in the electricity sector to near-zero values. Krajacic et al. [16] showed an example of achieving 100% RES in the electricity supply in Portugal through a large increase of RES in electricity generation coupled with appropriate energy storage systems. However, this study is based only on achieving a sustainable solution, not analyzing the technology cost. Therefore, this approach considers a large expansion in installed capacity of RES technologies, even in those which are at very beginning stage of their development, with much of them providing significant excess of electricity since the fluctuating output of RES might become a main barrier to guarantee the supply of electricity. To ensure a minimum continuous load operation in a cost effective manner, it is also necessary to invest in capacities balancing these fluctuations, such as conventional backup technologies and fossil fuel power plants with CCS (carbon capture and storage) [17]. Vögele and Rübbelke [18] discussed the profitability on investments in PV (photovoltaic) power plants and fossil power plants with CCS since they are both considered as technologies characterizing a low carbon electricity sector. Taking in account the additional costs for additional capacities required for backup of the intermittent energy source, the overall effect on supplier surplus is larger when investing in the CCS. Moreover, Gutiérrez-Martín et al. [19] denoted that sudden increase and decrease in the conventional power generation output for necessary backup leads to inefficient operation of the fossil fuel power plants and higher emission levels. Significant improvements in the operation of RES technologies can be provided by the deployment of demand side management strategies [20]. However, the technology uncertainties regarding demand response are still significant and the analysis of social behavior is out of the scope in this paper. This paper analyzes interactions between different mitigation technologies within the Portuguese electricity supply system and studies different evolutions of CO2 taxes which might be applied as a main policy measure to reduce CO2 emissions in the national electricity sector. The TIMES model tool was used to assess the representative electricity system over the period of 2005e2050. The paper starts with a short description of the Portuguese electricity system, followed by a presentation of the modeling methodology and the assumptions considered. Next, different evolutions of CO2 taxes were modeled and the reduction of CO2 emissions by 2050 in the electricity system was compared. Under the most relevant trends of CO2 prices, the evolutions of the electricity system from 2005 to 2050 were compared in terms of the electricity production mix. 2. Portuguese electricity system Electricity generation in continental Portugal is divided into two regimes: ordinary and special. Special regime relates to the generation of electricity from RES (except large hydropower plants),

subject to different licensing requirements together with benefits regarding tariffs. Although the electricity generation through RES has been growing in recent years, Portugal is still heavily dependent on imported fossil fuels. The ordinary regime includes all other generation units, which function under the Iberian electricity market. The total installed capacity of fossil fuel power plants was around 6680 MW from a total of 18,546 MW installed capacity by the end of year 2012 [21]. As it is shown in Table 1, Portugal achieved a strategic shift from coal power plants to natural gas combustion in the last decade. Several natural gas power plants started their operation recently and two more are expected to enter the electricity system soon. Table 2 presents the installed power capacity of RES. Clearly, hydropower is one of the principal RES in continental Portugal. In 2012, nearly 30% of electricity production from RES was generated by large hydro plants, supplemented by small hydro which includes run-off-river plants. Lately, Portugal has also extensively invested in wind power plants. The installed capacity increased progressively from 891 MW in 2005 to 4197 MW in 2012. Moreover, the energy mix of the Portuguese electricity system is complemented by biomass, which is mainly used in CHP (Combine Heat and Power) plants, and a small amount of solar energy.

3. Modeling methodology 3.1. Times model TIMES (The Integrated Markal-Efom System) is an energy/economic/environmental tool developed for ETSAP e Energy Technology Systems Analysis Program [22]. It is used to estimate energy dynamics in local, national or multi-regional energy systems over a long-term, multi-period time horizon [23e25]. TIMES is a bottomup partial equilibrium optimization model and it is built through a detailed description of technologies and commodities that characterize the energy system. Then, it computes the minimum cost solution that is capable of providing the modeled energy demands by making decisions on equipment investment and operation, primary energy supply and energy trades. It is a partial equilibrium model as the quantities and the prices in each time period are such that the suppliers produce exactly the quantities demanded by the consumers. In this study, the TIMES simulation tool is designed to represent the Portuguese electricity system and its evolution up to 2050 with annual steps in between. The purpose of the model is to ensure that enough electricity is generated to meet the annual volume of demand. Moreover, the model employs a very detailed time resolution through dynamics within the electricity system to meet the

Table 1 Characteristics of Portuguese centralized fossil fuel power plants. Power plant location

Combustion technology

Installed capacity (MW)

Start operation

Efficiency (%, LHV)

Sines Pego Ribatejo Medas Lares Pego II 1 Pego II 2 Sinesa Lavosa Carregado Setúbal Barreiro

PC PC NGCC NGCC NGCC NGCC NGCC NGCC NGCC Fuel-oil Fuel-oil Fuel-oil

1180 628 1176 990 870 417 417 830 830 710 946 56

1985 1993 2004 2000 2009 2010 2011 2013 2017 1968 1979 1978

39 39 55 55 55 55 55 55 55 38 40 35

a

Licensed power plants.

Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011

H. Gerbelová et al. / Energy xxx (2014) 1e7 Table 2 Generation capacity by renewable sources in the Portuguese electricity system in MW.

Large hydro Small hydro Wind Solar Biomass

2005

2006

2007

2008

2009

2010

2011

2012

4578 333 891 0 1166

4578 365 1515 0 1295

4578 374 2048 13 1365

4578 379 2624 50 1463

4578 395 3357 95 1610

4578 410 3702 122 1696

4980 412 4081 155 1868

5239 417 4197 220 1779

Electricity consumption (MW)

peak electrical demand and cover unforeseen outages. The electricity consumption includes simplified load duration curves for typical days of the year. The used approach is based on the methodology developed by Pina et al. [26,27]. Hourly fractions were calculated and interpreted within TIMES for three typical days of a week (weekday WD, Saturday S and Sunday SD) in each season (Spring SP, Summer SU, Fall FA and Winter WI) giving a total of 288 time slices per year. Fig. 1 shows the electricity demand for eight characteristic days of the year 2005, as an example. The typical peak shaping of the curve occurs mostly during week days, reaching its maximum in winter at 8 p.m. Therefore the electricity generation system is obligated to match this peak in demand (slice WI_WD_20) in every year. This increased temporal resolution enables a more accurate modeling of electricity production in systems with high penetrations of RES [28]. The supply system patterns over the year were defined using availability factors. For the electricity generation by fossil fuel plants and cogeneration plants an average annual availability of 90% was considered for each time slice. For existing fuel-oil burning power plants, which are less efficient, a minimum operating value of 30% was applied to guarantee continuous operation. Hydropower generation is highly affected by annual variation in precipitation. To overcome this problem in the model, an average availability for each time slice was used depending on the variability of water resources year-round. It should be noted that most of the large hydropower plants in the model have a storage capacity in dams. To accomplish electricity generation by solar technologies, typical irradiation solar curves of Portugal were identified for each time slice. Wind generation is very unpredictable due to its random behavior. In order to determine the availability factor for wind power generation, a histogram of distribution showing percentage of full power generation in every hour of the year was prepared to compile the time slice. The required parameters for demand and supply side were based on historical statistics provided by the National Transmission System [21].

8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000

Spring Summer Fall Winter

Spring Weekend Summer Weekend Fall Weekend Winter Weekend

Fig. 1. Example of electricity consumption in typical days of the year 2005.

3

3.2. Assumptions The evolution of the demand over time is estimated based on the joint evolution of Gross Domestic Product and power intensity under the projections of the Portuguese Government until 2020 [29,30]. Further, the average annual growth rates are assumed to increase by 1.3% and 1.5% in the period 2020e2030 and 2030e 2050, respectively. The development of the electricity supply system over time is based on the phasing out of current power plants and providing the infrastructure with new investments. The current electricity system was presented above in Section2. The model includes the existing installed capacity by 2012, new investments which are licensed or under construction and mid-term period investments expected by the Portuguese government [31]. Further investments are cost-effective decisions made by the model. New technologies available from 2010 are PC (Pulverized Coal) power plants, IGCC (Integrated Gasification Combined Cycle) plants, NGCC (Natural Gas Combine Cycle) power plants, cogeneration plants, onshore wind, offshore wind, solar PV (photovoltaics), CSP/PTC (concentrated solar power/parabolic trough collector), small and large hydro and wave. From 2015 onwards it is assumed that the CSP/ tower (concentrated solar power/solar tower technology) will be available and in 2020 PC with CCS, IGCC with CCS and NGCC with CCS can take place within the electricity supply system. The generation of electricity through nuclear technology is not an available solution for Portugal [12]. Techno-economic parameters which describe the supply side technologies consist of its typology (commodity in/out), the contribution of the power plant towards meeting the peak requirement, installed capacity, efficiency, fossil fuel consumption, investment costs, fixed and variable operating and maintenance costs and respective technical lifetime. Data used for the input information were obtained from various literature sources [32e36]. A continues technology development is taken into account and therefore technology investment cost will proportionally decrease and efficiency of fossil fuel power plants will expectably improve over time. These changes in technological improvements were introduced to the model gradually to occur every two years. Table 3 presents some of these values. Portugal is not endowed by domestic fossil fuel reserves for energy production. Table 4 presents the evolution of the imported fossil fuel prices. These costs have been transformed into EUR2010 with an exchange rate used 1V ¼ $1.287. The electricity transformation is dynamically linked with the final electricity consumption and prices. The thermal emission factors of fossil fuels are assumed to be 98.3 gCO2eq/MJ for coal, 56.10 gCO2eq/MJ for natural gas and 77.4 gCO2eq/MJ for fuel-oil. Across the whole presented period it is considered that all fossil fuels are imported without any limitations. However, there is a limit on the maximum installed capacity that can be achieved for each RES to assure the technical quality and realistic grid interconnection, based on [37]. A homogenous discount rate of 5% was applied for all economic values and kept constant over the entire modeling horizon. In order to satisfy the required demand for electricity, Portugal imports electricity from Spain under the liberalized Iberian market [38]. It started to fully operate in 2008 and the interconnection capacity between Portugal and Spain is currently around 1200 MW [39]. Nowadays, Portugal imports around 15% of the net electricity consumption, mostly overnight. However, according to the study of Amorim et al. [40], the tendency of the electricity import in Portugal is decreasing and potentially Portugal will soon become a net exporter. To provide accurate analysis of the import/export in the TIMES, Portugal and Spain would have to be modeled as an interconnected system. In this study, however, Portugal is modeled

Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011

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H. Gerbelová et al. / Energy xxx (2014) 1e7

Table 3 Assumed technical lifetimes, evolution of investment costs and efficiencies for new technologies included in the model. Generation technology

PC IGCC NGCC PC with CCS IGCC with CCS NGCC with CCS Wind onshore Wind offshore Wave Solar PV Large hydro Small hydro CSP/PTC CSP/tower a

Technical lifetime (years)

Investment costs (V2010/kWe)

40 40 30 40 40 30 25 25 25 25 60 60 25 25

Efficiency (%)

2010

2020

2030

2040

2050

2010

2030

2050

1571 1780 616 e e e 1217 3300 5650 2550 2000 2000 3574 6993a

1434 1626 595 2550 2350 1325 1200 2845 4070 1539 2000 2000 3360 6731

1298 1471 546 2200 2000 1100 1150 2200 3350 1200 2000 2000 2904 5051

1230 1394 530 2075 1975 1050 990 2050 3025 1000 2000 2000 2569 3694

1163 1318 513 1950 1850 1000 900 1900 2700 800 2000 2000 2200 2200

42.9 46.9 60.9 37.7a 43.3a 53.5a

52.0 53.0 64.1 44.0 47.1 57.5

54.9 59.9 70.0 48.0 54.6 64.6

Values for fossil fuel power plants with CCS for the year 2020, value for CSP/tower for the year 2015.

as an isolated system and therefore import and export of electricity is not taken into consideration. The model has been validated by experimental runs from 2005 to 2012, which were compared to the historical statistical data of the sector. 3.3. Scenarios Climate policy constraints were imposed by introducing CO2 tax prices. In all scenarios, the tax price starts at 20 V/tonne in 2010 and linearly increases to reach values from 30 to 300 V/tonne of CO2 in 2050. Presenting results under a 100 V/tonne price, as an example, means that this scenario considers that the evolution of CO2 tax over time reaches 100 V/tonne by 2050. 4. Results 4.1. Impact of CO2 taxes on CO2 emissions reduction The results were analyzed based on the CO2 emissions of the electricity system on the final year (2050) when compared to 1990 levels. The taxation of CO2 emissions results in an increased production cost of fossil fuel based electricity, which can result in a reduction of total CO2 emissions. However, for CO2 prices below 50 V/tonne there is no reduction by 2050 when compared to the levels of 1990, as shown in Fig. 2a. For CO2 prices between 50 and 100 V/tonne there is a clear increase in CO2 reductions with the increase in the price, from only 7% with 50 V/tonne to 79% with 100 V/tonne. For prices above 100 V/tonne, the increased taxation has only a slight impact on the additional reduction of CO2 emissions, as even with a 300 V/tonne price the CO2 reductions achieved are only of 87%. The reduction of total CO2 emissions when compared to 1990 can be based on both the introduction of additional RES for electricity production and the investment in CCS technologies, as shown in Fig. 2b. While for CO2 taxes reaching below 50 V/tonne the total CO2 emissions increase when compared to 1990, the

results show that even in low CO2 taxes there is investment in additional RES generation capacity, which helps to avoid even higher increases in CO2 emissions. From 50 V/tonne to 100 V/tonne, the decrease is mainly justified by the investment in CCS technologies, which are responsible for between 20% and 36% of all electricity produced. While there is also an increased investment in RES for CO2 taxes in this range, this increase is much smaller than the one observed for CCS technologies, as the share of electricity produced from RES goes up from 59% with 50 V/tonne to around 63% with 100 V/tonne. For CO2 taxes of 100 V/tonne or higher, conventional fossil fuel power plants vanish over time and more than 99% of all electricity is generated through RES or CCS technologies. The increase of CO2 prices leads to a decrease in the cost-effectiveness of CCS technologies when compared to RES technologies, with the decrease in the share of electricity produced from CCS being compensated by the increase in RES. When compared to the international goals of 60% and 95% reductions in the electricity sector, whereas the first goal could be achieved with a CO2 tax of 70 V/tonne by 2050, the second would only be achieved with unrealistically high taxes. In the context of the auctioning scheme of EU-ETS, a price of 70 V/tonne of CO2 could be achieved as a response to the expected worldwide increase in coal and natural gas usage.

4.2. Carbon storage capacity needs for different CO2 prices The investment in CCS technologies will require the design of auxiliary systems for the transportation and storage of CO2. The maximum amount of CO2 captured per year in the simulations performed was of around 17 Mtonnes of CO2, which occurs for a CO2 price of 100 V/tonne, as shown in Fig. 3. However, the total amount of CO2 captured in the time period under analysis is achieved for taxes between 130 and 200 V/tonne, reaching values of around 355 Mtonnes of CO2. This is because, even though they have slightly lower maximums of yearly CO2 capture, the higher tax increase through time enables the earlier investment in CCS technologies.

Table 4 Evolution of fossil fuel prices. Fossil fuel

Units

2010

2015

2020

2025

2030

2035

2040

2045

2050

Crude oil Natural gas Coal

$2011/bbl $2011/Mbtu $2011/ton

176.8 14.0 123.4

107.6 9.6 110

118.4 11.2 115

128.3 12.1 119.2

135.7 12.9 122.5

141.1 13.4 125

145 13.7 129.8

154.9 13.8 134.7

165.5 13.9 139.8

Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011

H. Gerbelová et al. / Energy xxx (2014) 1e7

a)

5

a) 35000

CO2 reducti o n by 2 0 5 0 co mpa red to 1990 level (%)

100 30000

60 40

20 0 -20 0

50

100

150

200

250

300

350

-40

-60

Installed capacity (MW)

80

15000

Large hydro plants Fuel oil plants NGCC

IGCC with CCS 10000

IGCC PC

0

CO2 price (€/tonne)

2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

b) 300000

100 90

250000

80 70

60 50 40

RES

30

CCS

20

RES+CCS

10 0

Electricity production (TJ)

Share in energy mix in 2050 (%)

20000

Small hydro plants

CHP

-100

b)

Wind plants 25000

5000

-80

PV

Wind onshore 200000 150000 100000 50000

0

50

100

150

200

250

300

350

CO2 price (€/tonne)

Solar Hydro pump storage Hydro Fuel oil Natural gas Coal with CCS Coal Biomass

0 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

Fig. 2. a) CO2 emissions reduction (%) by 2050 when compared to 1990 levels for different CO2 prices; b) Share of RES and CCS technologies in the production of electricity for different CO2 prices.

4.3. Assessment of evolution of the Portuguese electricity system under different CO2 taxes

400

20

350

18 16

300

14

250

12

200

10

150

8

6

100

4

Total Yearly

50

2

0

Maximum CO2 captured per year (Mtonnes)

Total CO2 captured from 2020 to 2050 (Mtonnes)

4.3.1. Portuguese electricity system evolution under 70 V/tonne CO2 tax To achieve a reduction of 60% in CO2 emissions when compared to 1990 levels in the Portuguese electricity sector, a CO2 price of around 70 V/tonne will be required, see Fig. 2a. Fig. 4b presents the development of electricity generation by source under this scenario, satisfying the required electricity demand. Electricity production from biomass maintains practically constant. The wind and hydro will increase considerably and after 2010 are generating almost two times more electricity than in the base year. On the contrary, fuel oil power plants come to the end of their lifetime

0 0

50

100

150

200

250

300

350

CO2 price (€/tonne) Fig. 3. Total CO2 captured in the time period 2020e2050 and maximum CO2 captured per year for different CO2 prices.

Fig. 4. a) Installed capacity by 2050; b) Electricity generation by source.

and none will be built after the last one will be retired as seen in Fig. 4a. Currently, the coal power generation is particularly important, accounting for about 28% of the electricity generation. However, coal is the most carbon intensive fuel. With increasing CO2 taxes, more capacity of NGCC power plants will be installed due to their lower emission factor when compared to coal power plants of approximately the same size. At the beginning of the studied period, conventional pulverized coal power plants are still in use. The higher efficiency of IGCC plants creates a moderate investment over the PC plants from 2020 onwards and in 2030 IGCC with CCS will become part of the portfolio for CO2 mitigation technologies within the electricity supply system. By the end of the studied period, the solar PV technology becomes competitive resulting in the slight growth of electricity generation through RES. Less mature technologies such as waves, concentrated solar or offshore wind are still too expensive to play role in the Portuguese electricity supply system.

4.3.2. Comparison of electricity generation from 2005 to 2050 under different evolutions of CO2 taxes Fig. 5 summarizes the electricity production under four different evolutions of CO2 taxes by presenting the share of electricity generation in 2020, 2035 and 2050. Common to all scenarios in 2020, electricity generation through RES reaches more than 60% share of electricity production. This is in agreement with the National Renewable Energy Action Plan. However, its further evolution depends on technology maturity and the price of CO2 taxes. In 2050, only CO2 taxes higher than 100 V/tonne lead to a higher share of RES in portfolio. Under the scenario of reaching 50 V/tonne of CO2 by 2050, IGCC with CCS will start to generate electricity after 2035, whereas, with higher CO2 taxes in 2035 IGCC with CCS will generate a significant share of electricity. Costs of carbon emissions required

Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011

H. Gerbelová et al. / Energy xxx (2014) 1e7

Share in electricity generation

6

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 50

70

100

300

50

2020 Biomass

Coal

Coal with CCS

70

100

300

50

2035 Natural gas

Hydro

70

100

300

2050 Hydro pump storage

Wind onshore

Solar

Fig. 5. Share in electricity generation in 2020, 2035 and 2050 under four different evolutions of CO2 taxes reaching 50, 70, 100 and 300 V/tonne of CO2 by 2050.

to cover capture costs is a linear function of the electricity price and under 100 V/tonne the IGCC with CCS will reach the highest share in the electricity generation. Higher CO2 taxes impose higher CO2 reductions (Fig. 2a) as well as more investment on RES technologies (Fig. 2b), thus contributing to higher share of RES, mainly solar, in electricity production. This could demonstrate that CCS technologies can be a transitional technology until less mature RES technologies become competitive in the energy market.

tonne by 2050. In this scenario, CCS technologies would enter the electricity system around 2030. For prices reaching above 100 V/ tonne of CO2 by 2050, the increased taxation has only a slight impact on the reduction of CO2 emissions. Therefore, to achieve a stronger decarbonization scenario, such as the 95% goal that is being discussed in the EU, other policy measures would have to be developed to complement the use of CO2 taxes. Acknowledgments

5. Discussion While the introduction of CO2 taxes can be an effective measure for the reduction of CO2 emissions in the electricity sector, their impact seems to be limited due to the limited potential for costeffective RES such as wind onshore and hydro, and the significant costs of other RES with high potential and complementary resource availability such as solar, wave and wind-offshore technologies. To achieve a reduction of 60% in CO2 emissions when compared to 1990 levels in the Portuguese electricity sector, a CO2 price reaching of around 70 V/tonne would be required. Nonetheless, the increase of the CO2 price to 100 V/tonne would have even more significant results, enabling a reduction of around 79%. The introduction of CCS technologies occurs only for CO2 prices around 50 V/tonne or above, reaching a maximum penetration at 100 V/tonne and decreasing for higher prices due to a decreased competitiveness when compared to RES. To achieve CO2 emissions reduction of 95% in the electricity sector it is not be possible to rely only on the use of CO2 taxes, with other policy measures such as the direct taxation of fossil fuels, the establishment of ambitious goals for RES penetrations, or the development of further technological efforts to improve efficiency and decrease investment costs of RES being required. The use of energy storage technologies for long-term storage could provide some support in increasing the costeffectiveness of RES technologies by enabling a better match between electricity supply and demand. 6. Conclusions When applying CO2 prices reaching between 50 and 100 V/ tonne of CO2 by 2050 in the Portuguese electricity system there is a clear increase in CO2 reductions from only 7% with 50 V/tonne to 79% with 100 V/tonne comparing to 1990 level. This increase is mainly justified by the investment in CCS technologies, which are responsible for between 20% and 36% of all electricity produced in 2050. When compared to the EU goal of achieving a 60% reduction of CO2 emissions, this could be achieved in the Portuguese electricity sector with a gradual increase of the CO2 tax to around 70 V/

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Please cite this article in press as: Gerbelová H, et al., Potential of CO2 (carbon dioxide) taxes as a policy measure towards low-carbon Portuguese electricity sector by 2050, Energy (2014), http://dx.doi.org/10.1016/j.energy.2014.01.011