Energy Saving and Carbon Trading - Two Ways to Control CO2 Emissions in the Finnish Forest Industry

Villa, A. (2005). Energy Saving and Carbon Trading - Two Ways to Control CO2 Emissions in the Finnish Forest Industry. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-05-009

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Abstract

The major effort of international environmental politics is to control of greenhouse gas (GHG) emissions. Those industrialized countries that have ratified the Kyoto Protocol (KP) are committed to reducing their GHG emissions during the first commitment period of 2008-2012. To reach reduction targets, one of the mechanisms accepted in the KP was emissions trading. Trading offers cost savings to producers of GHGs who are responsible for decreasing their emissions. Each economic unit has its own marginal cost for reductions of GHG emissions, and this variation in abatement costs between different producers' profits the selling and buying of emission licenses on emission markets.

The pulp and paper industry is one of those branches of industry that has to reduce its GHG emissions, mainly carbon dioxide (CO2). In this study two ways of controlling CO2 emissions were investigated: energy saving and carbon trading. The study objects were three Finnish mills of the forest consolidated corporation: (1) a chemical pulp mill with a sawmill, (2) a chemical pulp mill with two paper machines, and (3) an integrate containing mechanical and chemical pulping, paper machines of woodfree and woodcontaining paper grades, cardboard production and a sawmill. According to reports delivered to MOTIVA (Information Center for Energy Efficiency) in Finland, reductions in CO2 emissions resulting from energy saving by means of technical improvements in processes were calculated, and were in total 230,341 tCO2 (of which 78,246 tCO2 was from wood) at the previously mentioned mills. Total CO2 emissions of both bio- and fossil fuels were, on average, 3,913,446 tCO2, of which 357,948 tCO2 originated from fossil fuels.

Carbon trading was simulated with carbon trading games played between the abovementioned mills. Three different institutions for trading were tested, namely, bilateral trading with open information, bilateral trading with restricted information and double auction with restricted information. The more information on abatement costs of the other mills a participant had, the more profitable was trading for the mill represented by a participant. Carbon trading was mainly a tool to help the mills to reduce their abatement costs, contrary to the situation if they had just invested in abatement technology themselves without trading.

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