72
The negative interaction between energy saving and the European CO
2
emissions trade has grown stronger since 2008, as discussed in chapter 4. As soon as the EIA is used by companies participating in the trading
system or reduces the electricity offtake from power stations which participate in the system its benefits alleviate the pressure exerted by
the emissions cap and thus the extent to which the system encourages energy saving or other ways to emit less CO
2
. 5.5.5
Costs and benefits of voluntary agreements with the manufacturing sector
Do multiyear agreements work? Medium-sized and large companies are more likely to acquire energy
efficient technology for their production processes if they participate in multiyear energy saving agreements than if they do not see table 5.
In all size categories, participants in a multiyear agreement took more energy saving measures in their production chain than non-participants.
Energy savings in the supply chain are therefore a priority in the second generation of multiyear agreements.
46
Participants in multiyear agreements show more energy saving behaviour than non-participants,
with the exception of the development of low-energy products. The differences are the clearest among medium-sized companies. Participants
have a more positive attitude to the necessary investments and more companies think they have sufficient knowledge to acquire energy
efficient technology. Furthermore, participants often have more insight into their own energy consumption than non-participants.
The corporate culture towards energy saving does not seem to make a difference to participation in a multiyear agreement. The differences
between participants and non-participants are therefore not attributable to corporate culture. Companies with relatively high energy costs,
however, are more inclined to participate in multiyear agreements 21 than those with relatively low energy costs 5. Nevertheless, it
remains true that participants in multiyear agreements are more active in important areas of energy saving than non-participants, even if we make
a split between high and low levels of energy costs compared to turnover.
46
Energy
savings in the supply chain are savings throughout a products lifecycle, from raw material to disposal. The savings are usually made outside the factory gates
.
73
The operation of the multiyear agreements is based in part on industry organisations exerting social pressure on companies to fulfil the
agreements.
47
Our audit found that participants in multiyear agreements experience more pressure from industry organisations, industry members
and permit issuers but it ultimately makes no difference for the total perceived social pressure. Social pressure from other parties, such as
employees, counts for far more than that from other participants in the multiyear agreements. That social pressure does not have a decisive
influence on a companys behaviour could mean that companies are not very sensitive to external pressure or that social pressure in its present
form is too weak. On the whole, our survey found that multiyear agreements have a
positive influence on the acquisition of energy efficient technology. There are also important explanatory factors at play at the participants: the
presence of an energy management officer and knowledge of the companys own energy consumption.
Table 5. Differences between participants and non-participants in multiyear agreements, by size of company Company size
Small Medium-sized
Large Participant
Non- participant
Participant Non-
participant Participant
Non- participant
Energy efficient technology acquired 55
50 97
65 91
77
Energy saving measures in the supply chain
32 16
62 32
61 38
Office equipment and building measures 45
56 51
78 70
70 Positive attitude
61 44
74 50
67 79
Positive social pressure 26
22 50
45 70
63 Industry organisation
61 50
84 62
87 73
Industry members 39
39 79
55 85
69
Permit issuer 54
51
97 80
96 80
Feasibility 50
29 66
51 68
66 Sufficient knowledge
54 30
71 53
80 73
Insight into own energy consumption
54 31
87 51
84 66
Source: Netherlands Court of Audit survey
Bold: significant, less than 5 probability that the relationship is due to chance
Has the Benchmarking Agreement worked? The Benchmarking Agreement, which covers most energy consumption
in the manufacturing sector, has not saved energy. The participating companies improved their energy efficiency by 0.5 per annum in the
period 1999-2007; this is less than the autonomous saving Verificatiebureau Benchmarking, 2008. The costs of the Agreement are
47
In consultation with the Ministries of VROM and of EZ and NL Agency, we have identified the policy assumptions behind the multiyear agreements. One of the assumptions is that industry
organisations are important influences on companies and companies want to live up to their expectations.
74
not known but costs were certainly incurred by the participating companies, if only to show where they stood in the world ranking. The
government incurred costs for the establishment of the Benchmarking Verification Bureau. Since the instrument did not achieve the policy
target, the cost benefit ratio is very unfavourable. How much energy did multiyear agreements save?
The policy impact of the second generation of multiyear agreements can only be estimated and is shrouded in uncertainty. Despite the great
uncertainty, one thing is known for a fact: the impact of the multiyear agreements can never be more than the total non-autonomous energy
saving induced by government policy. This saving amounts to between 11 and 16 PJ.
48
Attributing all this saving to the multiyear agreements is a deliberately and unrealistically favourable assumption. The total impact
calculated for the EIA here is attributed to the second generation of multiyear agreements.
Cost of multiyear agreements The cost of the first multiyear agreements can no longer be determined.
In 2008, NL Agency, the implementer, put the cost of the second multiyear ag
reements in 2008 at approximately €20 million. This amount consists of NL Agencys overhead costs and an estimate of the
implementation costs borne by the companies. As the investment costs companies incurred for the energy saving cannot be estimated, the actual
total cost is not known. However, it cannot be significantly lower than the €20 million per annum given above.
49
Cost effectiveness of multiyear agreements Even if we attribute all the non-autonomous energy saving to the second
multiyear agreements , the total overhead and administrative cost of €20
million per annum would be exceedingly high per unit of energy saved: €1.25 to €1.80 per GJ. As will be seen, the cost per unit of energy saved
in these unrealistically favourable assumptions is higher than the cost of the CO
2
emissions trade in the long term, see section 5.5.7.
48
The participants in the second multiyear agreements consume about 150 PJ in total e very year. The non-autonomous saving is between 0.5 and 0.7, i.e. 0.75 PJ to 1.05 PJ per annum. Every
investment has an impact for about 15 years.
49
Multiyear agreements were also concluded with non-manufacturing industries. Some of the overhead costs therefore could be left out of account here. NL Agency, however, could not break
down the costs. This relatively small potential discrepancy is negligible compared with the optimistic discrepancy we have deliberately built in by assuming that there were no investment
costs and the very generous attribution of the effects.
75
5.5.6 Costs and benefits of the Environmental Management Act
Does the Environmental Management Act work? Several studies have shown that municipalities and provinces give litt le
priority to enforcing the energy clause of the Environmental Management Act De Buck et al., 2007; Haskoning, 2009; Majoor De Buck, 2010.
Furthermore, the Acts scope was severely curtailed in September 2004 when the Dutch government decided the energy clause would no longer
apply to companies participating in the CO
2
emissions trading system. The limited percentage of respondents to our survey that said they were
directly affected by the energy clause of the Environmental Management Act 38.9 of the companies that were not exempt from it suggested
that they had little effect. Energy saved, costs and cost effectiveness
No data are available to quantify the limited impact of the Act. Comments
The payback time assumed in the Act for compulsory measures five years is longer and thus stricter than the period companies actually use
for energy related investments. Our survey found that 33 of the companies made investments only if they can recover the costs within
three years. This means that stricter enforcement could increase the instruments effect. In view of the large difference between the statutory
and actual payback time, enforcement must not be directed at only a handful of laggards but at a large proportion of the companies. This will
require a great deal of effort and money. It can also be asked how realistic it is to assume that municipalities or provinces can accurately
assess the financial situation of every company. There is an obligation to invest only in so far as a companys financial situation permits.
5.5.7 Costs and benefits of the CO
2
emissions trading system
Does the CO
2
emissions trading system produce energy savings? The CO
2
emissions trading system is not concerned principally with energy savings but with reducing CO
2
emissions. For the foreseeable future, however, energy savings are the most affordable and most readily
available means to reduce CO
2
emissions. The impact on CO
2
emissions will therefore be achieved through energy savings. Highly divergent
estimates can be found of the impact of the CO
2
emissions trading system: from a reduction because there is in any event a price Ellerman
Buchner, 2008, via ‘no effect because the price of an emission allowance is negligible given the fluctuations in oil and gas prices Kettner
et al., 2008, to an increase in emissions because the allowances are
76
based in part on historical emissions and it was in the companies interests to step up their production and emissions Anderson Di Maria,
2009. Our audit found that the CO
2
emissions trading system had probably not led to energy savings in the Netherlands in the period 2005-2007. The
allocated emission allowances were comfortably higher than the actual emissions. Furthermore, a large proportion of the participants in the CO
2
emissions trading system also took part in the Benchmarking Agreement. Participants in this Agreement saved less energy during this period than
the autonomous saving as discussed in section 5.5.5. Companies had to buy allowances in 2008 and it is more likely that there
has been some effect since then. Amount of energy saved by the CO
2
emissions trading system The manufacturing companies that participated in the emissions trading
system consumed 900 PJ in 2008 including the energy generated for them but excluding feedstocks.
50
At the time, CO
2
emissions trade would have had an effect for between one and four years at the most.
51
The price elasticity in 2008 thus lay between
–0.005 and –0.04 increasing every year by between
–0.005 and –0.01. The price incentive in 2008 was approximately 20 10 per 50 barrel. The estimated energy
saving can be estimated at between 0.1 and 1: in 2008 the manufacturing sector therefore consumed between 1 and 9 PJ less energy
than it would have done without the CO
2
emissions trading system.
52
Cost of the CO
2
emissions trading system The direct cost to the government consists of the overhead costs of the
Dutch Emissions Authority NEA. The NEA supervises the trade in emission allowances for CO
2
and NO
x
nitrogen oxides. Since it is not known what part of the overhead cost should be attributed to supervision
of the trade in CO
2
emission allowances, half the overhead cost, €11 million, on average approximately €3 million per annum, has been
attributed. The adm inistrative cost to companies is about €6 million per
50
According to data collected by CE Delft from a variety of sources, the companies participating in the trading system consumed approximately 790 PJ in 2008 and purchased 25 to 30 million kWh of
electricity with an estimated calorific value of 110 PJ.
51
The system was introduced in 2005 but probably had little if any effect before the end of 2007 owing to the generous allocation of emission allowances. For the sake of completeness, our
calculations take account of the possibility that the system also work ed in the initial years.
52
The product of price elasticity and price incentive is between 0.1 and 0.8, the latter is rounded to 1.
77
annum SIRA Consulting, 2004. The ‘fixed cost therefore totals €9 million per annum.
Both the cost to the government and the administrative cost are estimated for all Dutch companies participating in the European CO
2
emissions trading system. This includes energy not generated for the manufacturing sector for example energy consumed by households.
To estimate the cost to the manufacturing sector only, the figures above should be multiplied by 0.70.
53
This produces a cost of €6.3 million per annum. In addition, the companies incur investment costs: the net annual
cost of investing in energy saving measures for the CO
2
emissions trading system. These investments are the active ingredient: the higher they are
relative to the overhead cost, the better the system does what it is intended to do.
Assuming that entrepreneurs act rationally, at the current price of an emission allowance, about €20 per tonne, they will take a package of
measures that costs between virtually nil and €20 per tonne of CO
2
saved. Averaged across all the companies and all the additional measures taken as a result of the emission allowances, the investment cost will lie
in the middle between €0 and the amount above which investments are loss-
making, i.e. the investment cost is equal to €10 per tonne of CO
2
saved. The manufacturing sector emits about 56 Mtonnes of CO
2
per annum.
54
The calculated decline in demand lies between 0.1 and 1, equal to between 0.06 and 0.6 Mtonnes of CO
2.
The annual investment cost on account of CO
2
emissions trading is therefore between €0.6 and €6 million. Added to the fixed cost to the government and the
administrative cost to industry together €6.3 million, this brings the total to between €6.9 million and €12.3 million.
Since the system is intended to remain in operation for a long period of time, it is necessary to calculate the cost of the notional situation in
which the CO
2
emissions trading system had already been in existence for 20 years or so in 2008. The reduction in energy consumption and thus in
emissions would then amount to between 2 and 4 price elasticity of 0.1 to 0.2 with a price incentive of 20. With an emission of 56 Mtonnes
per annum, this represents a CO
2
reduction of 1 to 2 Mtonnes. If the price
53
The verified emission of all the Dutch participants in the trading system amounted to 80 Mtonnes in 2008. The manufacturing sector accounted for half, power stations for the other half. Of the
electricity generated, 40 was consumed by the manufacturing sector. The manufacturing sectors total share of the emission was therefore 70 the direct half plus 40 of the other half of
electricity generation.
54
This is the verified emission of all Dutch participants in the emissions trading system, 80 Mtonnes times 0.70.
