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1
Towards Recovery and Shared Prosperity
Panel Session 2:Market Signals & Policy Pathways:
Investment and Innovation on the Road to Recovery
Disclaimer
The observations presented herein are meant as background for the dialogue at the 7th IEF-IGU Ministerial Gas Forum hosted by the government of Malaysia. They have been prepared in collaboration with Boston Consulting Group and should not be interpreted as the opinion of the International Energy Forum or Boston Consulting Group on any given subject
3
Market Context
Session Objectives
Key Questions
Review market conditions and new policy pathways that affect investment in gas demand and supply, research and development and new technologies.
COVID-19 Impact on Investments and LNG market conditions• How much investment in natural gas E&P and
infrastructure is deferred due to COVID-19? • Is there risk that a supply gap or bottle neck will
increase market volatility on the short-, to medium-term?
Lesson learnt and path forward• How can gas trading hubs facilitate further
regional cooperation and gas market integration in Asia?
• Natural gas market share will grow in Asian markets but may well recede in Europe under Paris Agreement pledges and net zero policies announced after the pandemic.
• What lessons if any can be drawn from Europe and other world regions or are Asian gas markets unique?
Carbon management• Which carbon management approaches (ETS,
taxation, technology, standards) best support the industry?
• The Global LNG market is heavily affected by the COVID-19 pandemic, with mixed mid-term outlooks, but strong long-term market fundamentals for gas growth.
• Gas is expected to play a key role in energy transition but requires collaboration and support.
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Table of Contents
1
COVID-19 Impact on Investments and LNG Market Conditions
2
3
Lessons Learnt and Path Forward
Carbon Management
Pages
6 - 13
14 - 26
27 - 39
6
COVID-19 Impact on Investments and LNG Market Conditions
6
Impact of current events on additional capacity planned to come on-line by 2020-2025 split into four categories (I)
Assets ramping up or under construction
c. 62 Mtpa
Projects with FID taken to date
c. 48 Mtpa
Qatar's expansion
c. 44 Mtpa
Projects with no FID taken to date
~100 Mtpa on pipeline
Limited risk of delays in assets operating in 2020; additional delays can be expected for assets to be commissioned by 2021-2022• Assets expected to come on-line in 2020 have their future revenues locked in through LT
contracts (hence limited exposure to today's commodity volatility), and final construction phase requires smaller workforces limiting impact of COVID-19
• Assets planned to finish construction in 2021-22 could be delayed due to (i) COVID pandemic limiting working at full-capacity (i.e. workforce reduction due to infection spread, lack of raw material due to limitations in global trade, etc.) and (ii) if large LNG volumes are still uncommitted: e.g. integrated projects, with high upstream investments and equity offtake
• Under-construction assets starting production in 2023-25 more likely to ease COVID short-term impact
Material risk of delay, particularly on projects with offtake not fully committed to date• Assets that already have all offtake fully committed should experience limited risk of delay
• Upcoming very low LNG price environment and demand contraction likely to delay projects with uncertain offtake or financing– Increasing liquidity in 2020-2021 will make it even harder for these projects to secure
extra offtake through LT contracts
7
Impact of current events on additional capacity planned to come on-line by 2020-2025 split into four categories (II)
Assets ramping up or under construction
c. 62 Mtpa
Projects with FID taken to date
c. 48 Mtpa
Qatar's expansion
c. 44 Mtpa
Projects with no FID taken to date
~100 Mtpa on pipeline
Limited risk of delays in assets operating in 2020; additional delays can be expected for assets to be commissioned by 2021-2022
Material risk of delay, particularly on projects with offtake not fully committed to date
Current market environment may push first phase of Qatar’s expansion beyond 2025• Phase 1, initially planned for 2024, has been delayed by up to six months by the coronavirus
pandemic hindering the bidding process for potential partners, which might drag start up date after 2025
Most projects with initially planned FID in 2020 have already announced delays on FID decision• Projects owned by infrastructure developers are having difficulties to secure financing in
current market environment
• Projects owned by E&P players have been forced to reduce CAPEX due to low oil prices
• Additional competition driven by large expiration of LT contracts linked to existing assets (~140 Mtpa), if LNG demand does not catch up
8
Current events could now lead to ~10-15 Mtpa reduction in capacity scenarios by 2023 and 50-60 Mtpa by 2025
428459
486
563
428450
475510
0
200
400
600
(Mtpa)
2019 20232021 2025
-8-11
-53
Pre-COVID liq. Scenario - Base case Revised liq. Scenario - Base case
Comparison of Pre-COVID liquefaction capacity base scenario and revised base case
9
Revised perspectives on Global LNG liquefaction capacity by 2025 indicates ~30-50 Mtpa lost growth
Low LNG Liq. capacity scenario Base LNG Liq. capacity scenario High LNG Liq. capacity scenario
• Potential delay of projects that were planned to be commissioned by 2020, but start not after 2021
• 2-years delay of all projects under construction and for those withFID taken
• Qatar expansion happening after 2025• No non-FID projects coming on-line
between 2020-2025
• Potential delay of projects that were planned to be commissioned by 2020, but start not after 2021
• 1-year delay of all projects under construction and for those with FID taken
• ~8 Mpta of Qatar's expansion before 2025
• No non-FID projects coming on-line between 2020-2025
• Potential delay of projects that were planned to be commissioned by 2020, but start not after 2021
• No delay for projects under construction, • Some projects with FID taken delayed to
start production after 2025• 25 Mtpa of Qatar's expansion
before 2025• ~15 Mtpa non-FID projects coming on-
line between 2020-2025
0
200
400
600459
2021 2025
(Mtpa)
2019 2023
428 450 486
0
200
400
600
2025
(Mtpa)
2019
428
2021
475
2023
450510
0
200
400
600
(Mtpa)
2019
450
2021 2023 2025
428489
564
No FID taken Operating in 2019Ramping up or under construction
Qatar expansion FID taken
517 563 596
Pre-COVID liq. Scenarios
xx
10
US playing a key role balancing the market in the short run
US LNG netbacks are now negative to both Europe and Asia
US LNG exports utilization likely to remain low as the global market
remains over-supplied
0
2
4
6
8
10
2017 2018 2019 2020 2021
Projected LNG exports (BCF/D)
-2
0
2
4
6
Jan 2020Jan 2019 Jul 2019 Jul 2020
2019-present estimated US GOM netbacks ($/MMBTU)
Historic
Max capacity
US EIA STEO
BCG low case
Northeast Asia netback Europe netback
1. Calculated as NEA spot minus (1.15*Henry Hub + shipping costs) 2. Calculated as TTF minus (1.15*Henry Hub + shipping costs)Source: US EIA, Argus, Bloomberg, press reports, BCG analysis 11
Market likely to still be oversupplied in 2025
Low
Base
High
Low Base High
(Mtpa)
Sup
ply
sce
nar
io
Demand scenario
10
2025
-2
2025
-29
2025
30
2025
18
2025
-9
2025
Undersupply
75
2025
63
2025
37
2025
Oversupply
12
LNG suppliers adjusting to lower-for-longer demand by reducing liquefaction output & delaying projects
0
20
40
100
60
80
Apr Oct
(%)
Jan Feb Mar May Jun Jul Aug Sept Nov Dec
No FID on new developments taken to date, not happening since 1998
Drop in utilization of liquefaction terminals, particularly exacerbated in the US
29
18
74
21
68
60
40
0
80
20
(Mtpa)
20152014 2016 2017 2018 2019 2020
0
Evolution of capacity of FIDs projects per year (2014-2020 YTD)Evolution of utilization of liquefaction facilities
Global average - 2019
US - 2020
Global average - 2020
-12.7%
-54.4%
Global average – 5 yr range All projects with FID expected for 2020, pre-COVID, have been delayed to 2021
Source: BCG LNG market model 13
14
Lessons Learnt and Path Forward
14
• Current regulated tariffs mainly reflects KOGAS basket of long-term supply contracts resulting into uncompetitive prices versus cheap spot LNG cargoes
• Several large buyers are waiting for expiration of their wholesale contracts with KOGAS to import directly, although regulation does not facilitate direct imports
• Restrictive regulation and lack of open third party access to LNG and gas infrastructure is incentivizing new regas developments
• Korean government has set 2025 as date to start allowing reselling LNG for volumes beyondKOGAS contracts
• Up to 9MTPA of volumes to compete in the liberalized market post 2025 due to large KOGAS contracts expiring
Market liberalization could benefit contract origination, although specific local skills are required to succeedExample: Opening of Korean gas & LNG market could create interesting opportunities for sellers
North
Chungcheong
Incheon
Gangwon
Seoul
Gyeonggi
North
Jeolla
Gwangju
South
Chungcheong
Daejeon Daegu
South
Gyeongsang
South
Jeolla
Busan
Ulsan
North
Gyeongsang
Jeju
Sejong
D
A
B
F
CG
HJ
K
I
Operating terminals
Terminals under construction
Source: Press research; BCG Analysis 15
~190 bcma linked to legacy contracts expected to expire by 2025, half of those relate to contract supplying AsiaIncreasing difficulty to find counterparts for new long-term contracts
15
84
44
39
200
0
150
50
100
Asia
2021-2025
3
(bcma)
5
190
2020
22%
26%
52%
2025
Other/Uncertain
167
Europe
23
Source: Cedigaz; Press research; BCG Analysis
Key buyers with renegotiations coming up
Key suppliers with renegotiationscoming up
Expected LNG contracts expiration in 2020-2025
16
Greater market liquidity and volatility driving value from trading and optimization
50
0
100
150
‘97 ‘99
(Mtpa)
‘95 ‘01 ‘03 ‘05 ‘07 ‘09 ‘11 ‘13 ‘15 ‘17 ‘19
LNG market liquidity continues to increase,along with greater spot market volatility• Spot and short-term now ~30% of the
global market• Spot prices ranged from $12 to
<$2/MMBtu in the past 2 years
Trading and portfolio optimization isdelivering greater value in this environment• Development of financial instruments
enabling greater trading• Time and location-based arbitrage are
both more viable and higher value
Given the market context, competitors arecontinuing to shift to a portfolio model• Midstream market is increasingly
consolidated• Other Majors are moving toward a
portfolio model combining origination with commercial optimization
Global volume of spot/short term1 LNG trade
Rapid growth in spot and short-term trade
Strong growth in JKM derivatives market over the past years, expected to continue
Growth in Platts JKM derivatives supported by spot liquidity and LNG indexation (K LOTS)
Ap
r-1
7
Ap
r-1
9
Mar
-17
May
-18
Au
g-1
7
Jan
-17
Feb
-17
Au
g-1
8
May
-17
Jun
-17
Jul-
17
Sep
-17
Oct
-17
No
v-1
7D
ec-1
7Ja
n-1
8
No
v-1
8
Mar
-18
Jan
-19
Sep
-18
Ap
r-1
8
Jul-
19
Jun
-18
Jul-
18
Oct
-18
Dec
-18
Jun
-19
Feb
-19
Mar
-19
May
-19
Au
g-1
9Se
p-1
9
Feb
-18
ICE+CME cleared volume End month open interest
1. Spot contracts 17
LNG market shifting toward more gas-on-gas pricing …
1429 33 41
8671 67 59
50
0
100
% WW LNG imports
20152005 20192010
Gas-On-Gas competition (HH, NBP, TTF etc.)
Oil Price Escalation (Brent Indexed)
Price formation for LNG Imports transitioning towards liquid price signals
Three key drivers
Evolution of regulatory environment
• Development of TPA regulation• Unbundling infrastructure
companies from suppliers / retailers
• Power sector liberalization
Infrastructure development
• Continuous development of new infrastructure that, together with rules to allow third parties access, fosters competition
• Domestic production• New pipeline routes• US LNG
Increased access to new sources of supply
Source: IGU Wholesale Price Survey 2020 18
… along with continued growth of spot and short termcontract sales
13 18 23 32 30 2941
61 59 65 70 68 75 7899
0
10
35
150
25
50
100
0
15
30
40
20
5
45
2004
1998
(mtpa)19
99
1996
2015
2001
1997
3 7420
073
2016
No. of countries
1
1995
6 7
2000
2002
10
2003
2013
3
2006
2008
2009
2010
2011
2005
2014
2017
2018
119
2019
2012
No. of countries importing spot/short-term LNG
No. of countries exporting spot/short-term LNG
Spot/short-term LNG
1. Spot contractsSource: GIIGNL; BCG analysis
Global volume of spot / short-term1 LNG trade, and countries in LNG market (mtpa, # countries)
1% 3% 4% 4% 4% 6% 6% 6% 8% 10% 13% 16% 19% 18% 17% 18% 26% 25% 27% 29% 28% 28% 27% 32% 34% % share of global LNG
19
Sentiment for energy transition is strong in many parts of the world
Source: Pew Research Center, Global Attitudes and Trends survey 20
Europe, Latin America and Africa lead on sentiment for #netzero and climate change
45 41UnitedStates
54 60
Europe
3826Middle
East
18
49
China
45 48Asia/Pacific
61 52
Africa
74 77Latin
America
Is a very serious problem (%) Is harming people now (%)
Europe is committing to climate-neutrality by 2050
President of European Union Ursula vonder Leyen
We are acting to make the EU the world’s first climate neutral continent by 2050. The climate law is the legal translation of our political commitment, and sets us irreversibly on the path to a more sustainable future …
—EU commission press release, 04 March 2020
EVP for the European Green DealFrans Timmermans
We are turning words into action today, to show our European citizen that we are serious about reaching net-zero greenhouse gas emissions by 2050. The European climate law is also a message to our international partners that this is the year to raise global ambition together …
—EU commission press release, 10 March 2020
Several large Asian economies stand the most to gain from energy transitions
0.03
0.06
0.09
0.12
0.15
0.18
0.21
0.5 1.0 2.00.0 1.5 2.5 5.5
Philippines
Canada
Italy
Chile
China
Russia
Colombia
European Union
South Africa
Malaysia
Egypt
France
Fuel imports as a
share of GDP (%)
Mexico
Germany
UAE
Nigeria
Pakistan
Indonesia
Energy intensity of economy (KOE/$GDP)
Turkey
Japan
Saudi Arabia
India
South Korea
Thailand
US
Argentina
Vietnam
Brazil
Australia
UK
ROW
Europe
Asia Pacific
Higherenergy
intensity
Lowerenergy
intensity
Low fuel import dependence High fuel import dependence
Asian economies with high energy intensity and import dependence
Energy intensity of GDP vs. Energy import dependence
Note: Fuel imports consists of coal, petroleum, natural gas, lubricants, and related materialsSource: Enerdata, World Bank, BCG analysis 21
Renewables are becoming more cost competitive in Asia2015-2020 Solar and onshore wind vs. coal competitiveness index
Note: Calculated as the % difference in coal LCOE vs. the lower of the onshore wind and solar LCOEs for each country * 100Source: Bloomberg New Energy Finance, BCG analysis 22
-150
-200
2015 2020-250
50
-100
0
100
Europe
Germany
UK
Belgium
Denmark
France
Italy
Netherlands
Poland
Spain
Sweden
RES cheaper
Coal cheaper
-200
2015 2020-250
-150
-100
0
50
100
Asia Pacific
South Korea
China India
Japan
Vietnam
Thailand
Malaysia
Indonesia
Philippines
Resilient Asian countries have relied on cheap coal, but the falling cost of renewables is supporting greater levels of deployment
Solar and wind are starting to compete with coal & gas in Asia ($/MWh)
And renewables are taking a greater share of the mix
2020 2015 2020 2015 2020
Wind CoalSolar Gas
0
50
100
150
200
250
300
2015 2020 2015 2020 2015 2020
0
2
4
6
2016 2017 2018 2019
Share of non-hydroelectric renewables
in total energy mix over 2016-2019 (%)
Source: Bloomberg New Energy Finance, BP Statistical Review of World Energy, BCG analysis 23
Green stimulus and policy measures in Asia represent significant portion of global total and support deploymentof EVs
Chinese & Korean announced green stimulus is as large as the EU’s
Policies: China & South Korea supporting EVs through subsidy extensions
Source: BNEF, Vivid Economics, Energy Policy Tracker, press reports BCG analysis
260
600
200
60
80
0
200
400
600
ChinaEU
Approved & announced global green stimulus ($ billions)
South
Korea
ROW Total
China EV & infrastructure spending
EV charging infrastructure
HV transmission & other infrastructure
EV subsidy extension & “cash for clunkers”
EU Green Deal
Hydrogen investment
Energy efficiency support
Low carbon vehicle support
South Korea Green New Deal stimulus
R&D funding for EVs & batteries
EV subsidy extension
Acceleration of EV & hydrogen targets
24
Implications: Faster energy transitions in Asia will challenge key drivers of oil and gas demand growthAPAC expected to drive 80% of oil demand growth through 2040 …
… And ~50% of global natural gas demand growth
Source: IEA, BCG analysis
But a hastened transition would have consequences for oil & gas
4.6
1.9
3.0
105
0
100
110
7.6
96.9
2018-2040 change in oil demand
under IEA SPS (MB/D)
2018 APAC ROW 2040
106.4
334
745
373
5,000
0
4,500
5,500
2040
2018-2040 change in natural
gas demand under IEA SPS (BCM/A)
2018 APAC ROW
3,952
707
5,404
ChinaROW Rest of APAC
• Increased adoption of EVs would erode expected oil demand, especially in China wherethe government hasprioritized deployment
• An accelerated rollout of renewable energy sources could slow the expected gasdemand growth
25
Three main type of natural gas markets – Asian markets moving toward market liberalization
Illiquid markets/monopolies
Liberalized markets without liquid price signal
Liberalized markets with a liquid price signal
• One/few single domestic buyers
deliver 100% of the supply
• Infrastructures operated under closed
access where the equity holder
retains the right to allocate the
capacity
• The Government tends to regulate
the price; only a few companies with
capacity to sell to end user
• Multiple buyers to deliver the
supply; need to have commercial
department to balance supply and
demand
• Infrastructures operated under open
access rules
• Prices negotiated between buyers
and sellers without transparent price
signal
• The Government regulates that price
is set by supply-demand forces
• Multiple buyers can access and
trade supply; hub liquidity allows
for non- integrated operations
• Infrastructures operated under open
access rules
• There is a transparent price signal
that is used by players to negotiate
prices
26
27
Carbon Management
27
Cost competitiveness is the critical challenge for globalgas demand
86
41
93
43
66
43
90
53
89
53
0
50
100
150
110
IndiaIndonesia
LCOE ($/MWh)
China
66
Gas average: 94
Japan Malaysia
91
Coal average: 68
101
6873
111
63
98
65
Coal - High Gas - High
Coal - Low Gas - Low
178
125
79
41
85 88
55
72 7059 55
47 45 42 40
83 82
8375 74
65 63 60 58 56
0
60
120
180
US - Mean LCOE ($/MWh)
20122009
144
98
20112010
117
2013
74
2014
50
64
2015
55
2016 2017 2018 2019
43
Utility scale PV Wind Gas-combined cycle
Gas remains uncompetitive vs. coal in Asia... ... And is increasingly challenged vs. wind/solar
Source: Bloomberg, Lazard, BCG analysis 28
Regulation of localized pollution the most effective lever for improving gas competitiveness – Example of China
48
100
62
0
50
100
150
2019 LCOE ($/MWh)
Solar -Crystalline
Silicon
Coal - Sub-critical
Natural Gas CCGT
-38%
48
115
100
0
50
100
150
Solar -Crystalline
Silicon
2019 LCOE ($/MWh)
Natural Gas CCGT
Coal - Sub-critical
-13%
48
104110
0
50
100
150
2019 LCOE ($/MWh)
Solar -Crystalline
Silicon
Coal - Sub-critical
Natural Gas CCGT
+6%
LCOE with no externality costs LCOE with $40/t CO2 priceLCOE with local pollution
externality costs
Note: Based on average base case LCOE for China in 2019 per Bloomberg; Local pollution externality costs per University of Texas LCOE studySource: Bloomberg, University of Texas, BCG analysis 29
Air quality policies key to driving gas demand growth Example: China's net-zero target is a giant step in climate change action
Peak emissions before 2030 and net zero by 2060 - major step for the economic (and fossil fuel) powerhouse
PM2.5 targets in early 2013, after emissions far exceed targets set in 2012• 2017 was the target compliance year for the
new standards
Northern cities critical to meeting targets • "2+26 policy" launched in 2017 targeting Beijing,
Tianjin, and 26 other Northern cities with severe air pollution
• Aim to reduce PM2.5 emissions by 15% to meet2017 targets
Focus on switching coal boiler use and rationalizing inefficient industries• Direct mandates to switch fuel use enforced on
a local level• Industry capacity cut among less efficient plants
(e.g., steel, aluminum)
Government uses targeted enforcement to pursue fuel switching goals
2+26 face stronger emissions limits – leading to gas demand growth
50100
15 30
050
100150
800800
SO2PM
Coking emissions standards (mg/m3)
NOx
150
National standard 2+26 limit
More than 1,100 Chinese officials were held accountable for violations of air pollution laws in November 2016
7
43
10
50
15
65
0
70
Total energy
demand
13th 5-year plan gas share targets (%)
Urban
dwellings
2020Present 2030
2,480 inspection personnel dispatched to 2+26 cities to enforce policy in September 2017 – January 2018
2+26 emissions limits enforced on 24 other industries in addition to coking
~43% of urban gas consumption growth from 2015-2017 took place in 2+26 cities
Improving urban air quality is a key policy priority in China
Regulations on coal to gas switching used to achieve air quality improvements
Source: China NDRC, Press reports, Columbia Center on Global Energy Policy, OIES, Chem Linked, China National Bureau of Statistics, BCG analysis 30
CO2 price of >40$/t needed for Asia to prompt coal togas switching
862 4
120
10
40
60
80
100
US
$/mmbtu
$/t
EUJapan
EU ’15
China
Carbon price($/t CO2)
Gas price - landed
Co
al p
rice
$0 $20 $40
Cost equivalence of coal and gas power generation
Note: Short run marginal cost for CCGT (54% efficiency) and coal plant (39% efficiency); transport cost 1 $/mmbtu, 9$/tonneSource: BCG Analysis
ASEAN
31
Coal-competitive Gas-competitive
0
10
20
30
40
2016
2013
2012
$ per metric of CO2
2011
2014
2015
2017
2018
2019
$20-40/t typically estimated as required carbon price to incentivize widespread fuel switching
Adoption of carbon pricing is growing, though prices often remain too low to prompt significant fuel switching
8
18
0
10
20
30
40
2014
Share of global annual GHG emissions (%)
2013
2016
2011
2012
2015
2017
2018
2019
2020
Effect of
China ETS
in 2020
Asia PacificEurope
North America CIS
South America
Africa
US RGGIEU ETS CA Allowance Futures
Carbon pricing initiatives as a share of global emissions covered Average carbon prices on major indices
Source: World Bank, Eurostat, Climate Policy Initiative, RGGI, BCG analysis 32
Gas commerciality is playing a crucial role on technology adoption, but carbon pricing may be a driver going forward
Impact: DRI production is up 30% globally since 2015, reducing GHG intensity of iron and steel
Global DRI production has grown by nearly 30% over last three years
DRI lowers CO2 emissions and energy intensity of ironmaking
53 5159
70
0
30
60
90
20172015 2016
Global direct reduced iron production 2011-2018 (million tons)
2018
+30%
DRI lowers the energy intensity of ironmaking by using a chemical process, while the conventional method involves melting iron ore
Natural gas DRI lowers CO2 emissions by 66% relative to standard blast furnace ironmaking
DRI production growth is centered in regions with access to cheap gas
Climate policy can drive greater DRI adoption
Iron & steel make up ~7% of global energy related GHG emissions
The DRI-EAF route is widely seen as the most viable way to significantly reduce the carbon intensity of the iron and steel industry
11
173
33 0
0
10
20
30
Regional growth in DRI production 2015-2018 (million tons)
North America
AfricaMiddle East
CIS Asia Pacific
Eurasia Latin America
-3
0
33
Note: DRI can be coal based or natural gas based – around 90% of global DRI is natural gas based; analysis excludes Indian DRI as most coal based DRI is produced in IndiaSources: World Steel Association, Midrex, BCG analysis
~50% of global economy considering carbon tax; potentially extended to imports in the future
1. Singapore, China, USA, Japan, Hong Kong, Thailand, Republic of Korea, Thailand and Vietnam 2. The circles represent subnational jurisdictions. The circles are not representative of the size of the carbon pricing instrument, but show the subnational regions (large circles) and cities (small circles) 3. ETS = Emission Trading SystemSource: DOSM, MATRADE, World Bank
Domestic carbon tax potentially extended in
future to imports
Early discussions onborder carbon tax have
begun in Europe
Should differences in levels of [climate] ambition worldwide
persist […] the Commission will propose a carbon border adjustment mechanism, for selected sectors, to reduce the risk of carbon leakage
—The European Green Deal (2019)
NORTHWEST TERRITORIES
ALBERTACANADA
BRITISHCOLUMBIA
WASHINGTON
OREGON
CALIFORNIA
MANITOBA
ONTARIOQUÉBEC
NEWFOUNDLANDAND LABRADOR
PRINCEEDWARDISLANDNOVA SCOTIA
NEW BRUNSWICK
RGGI
MASSACHUSETTSVIRGINIA
MEXICO
COLOMBIA
CHILE
BRAZIL
RIO DE JANEIRO
SÃO PAULO
ICELAND
EU
TURKEY
UKRAINEKAZAKHSTAN
REPUBLIC OF KOREA
CHINA
THAILANDVIETNAM
AUSTRALIANEW ZEALAND
SOUTH AFRICA
JAPAN
ETS implemented or scheduled for implementation
Carbon tax implemented or scheduled for implementation
ETS or carbon tax under consideration
Carbon tax implemented or scheduled, ETS under consideration
ETS and carbon tax implemented or scheduled
TAIWAN
SINGAPORE
34
Key decisions still to be taken on EU CBT policy
Simple Complex
Direct emissions Indirect emissions
Emissions from the last stage of production before import
Emissions from the whole value chain
Primary inputs Finished and intermediate products
Exclude transport emissions Include transport emissions
All these variables will be decided through
the forthcoming legislative process
Indicative planning for Q2 2021
Easier to implement but high risk of being circumvented
Harder/costlier to implement but less likely to be circumvented
35
Sectors most impacted by the border tax
Cement
SteelNon-fer.
metalsChem
Pulp & paper
GlassElectri-city
Sim
ple
su
pp
ly c
hai
n
Construction
Consumer foods
Rubber & plastics
Packaging & coatings
Mining & Quarrying
Co
mp
lex
sup
ply
ch
ain
Metals & mech. engineering
Automotive
High-tech goods
Pharma
Aerospace
Consumer appliances
EU priority sectors for carbon border tax
263
106
76
27
686
Segments impacted
328
200
143
124
39
15
EU 27 production value-added ($B)
Patented bio-pharma, vaccines, generics
Residential, com'l, T&L
Packaged foods, soft drinks, spirits
Various consumer, construction, and industrial applications
Metals, coal, non-metal
Metallurgy, machinery, mechanical equipment
Component makers and automotive OEMs
Telco eqpt, PCs and mobile devices, electrical eqpt
Component makers, LCA, business jets, military aircraft
Washers, dryers, refrigerators, vacuums, etc.
Source: Oxford Economics; BCG analysis 36
Regional, national, and subnational carbon pricing initiatives and share of global emissions covered, The World Bank
Note: Only the introduction or removal of an ETS or carbon tax is shown. Emissions are presented as a share of global GHG emissions in 2012 from (EDGAR) version 4.3.2 including biofuels emissions. Annual changes in GHG emissions are not shown in the graph. Due to the dynamic approach to continuously improve data quality using official government sources, the carbon tax only covering F-gases in Spain was added. The information on the China national ETS represents early unofficial estimates based on the announcement of China’s National Development and Reform Commission on the launch of the national ETS of December 2017Source: State and Trends of Global Carbon Pricing 2018 – World Bank
Share of global annual GHG emissions Data as of May 2018
25
20
5
10
15
02010
5
2002 20151991
41
19961990 1992 1993 1994 1995 1997 1998
15
1999 20112000 20062001 2003 2004 2005
46
32
2007
4
20142008 20182009 2012 2013 2016 2017 2019
47
2020
2 6 7
54
8
37
9 10 16 19 21
24
38
50
China national ETS (2020 –>)
Singapore carbon tax (2019 –>)
UK carbon price floor (2013 –>)
Tianjin pilot ETS (2013 –>)
Estonia carbon tax (2000 –>)
Massachusetts ETS (2018 –>)
Guangdong pilot ETS (2013 –>)
Argentina carbon tax (2019 –>)
Beijing pilot ETS (2013 –>)
Shenzhen pilot ETS (2013 –>)
Finland carbon tax (1990 –>)
South Africa carbon tax (2019 –>)
France carbon tax (2014 –>)
Québec CaT (2013 –>)
Australia CPM (2012 - 2014)
Colombia carbon tax (2017 –>)
Ukraine carbon tax (2011 –>)
Mexico carbon tax (2014 –>)
Ireland carbon tax (2010 –>)
Poland carbon tax (1990 –>)
Shanghai pilot ETS (2013 –>) Tokyo CaT (2010 –>)
Chile carbon tax (2017 –>)
Iceland carbon tax (2010 –>)
Saitama ETS (2011 –>)
Alberta carbon tax (2017 –>)
RGGI (2009 –>)
Japan carbon tax (2012 –>)
BC carbon tax (2008 –>)
BC GGIRCA (2016 –>)
Liechtenstein carbon tax (2008 –>
Ontario CaT (2017 –>)
Switzerland carbon tax (2008 –>)
Washington CAR (2017 –>)
Korea ETS (2015 –>)
New Zealand ETS (2008 –>)
Fujian pilot ETS (2016 –>)
Switzerland ETS (2008 –>)
Spain carbon tax (2014 –>)
EU ETS (2005 –>)
California CaT (2012 –>)
Latvia carbon tax (2004 –>)Australia ERF Safeguard Mechanism (2016 –>)
Portugal carbon tax (2015 –>) Slovenia carbon tax (1996 –>)
Hubei pilot ETS (2014 –>)
Kazakhstan ETS (2013 –>) Sweden carbon tax (1991 –>)Chongqing pilot ETS (2014 –>)
Norway carbon tax (1991 –>)
Denmark carbon tax (1992 –>)
Alberta SGER (2007 –>)
Number of implemented initiatives
37
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Note: Nominal prices on April 1, 2018, shown for illustrative purpose only. The Australia ERF Safeguard Mechanism, British Columbia GGIRCA, Kazakhstan ETS and Washington CAR are not shown in this graph as price information is not available for those initiatives. Due to the dynamic approach to continuously improve data quality using official government sources, the carbon tax covering only F-gases in Spain and F-gas tax in Denmark were added. Prices are not necessarily comparable between carbon pricing initiatives because of differences in the sectors covered and allocation methods applied, specific exemptions, and different compensation methodsSource: State and Trends of Global Carbon Pricing 2018 – World Bank
US$ 140/tCO2e
US$ 130/tCO2e
US$ 120/tCO2e
US$ 110/tCO2e
US$ 100/tCO2e
US$ 90/tCO2e
US$ 80/tCO2e
US$ 70/tCO2e
US$ 60/tCO2e
US$ 50/tCO2e
US$ 40/tCO2e
US$ 30/tCO2e
US$ 20/tCO2e
US$ 10/tCO2e
US$ 0/tCO2e
29
36
77
101
139
Denmark carbon tax (fossil fuels)
Iceland carbon tax
55 France carbon tax
64Norway carbon tax (upper)
Finland carbon tax
Switzerland carbon tax, Liechtenstein carbon tax
Sweden carbon tax
<1
1
2
3
4
5
6
7
9
16
8
15
21
23
25
Mexico carbon tax (lower), Poland carbon tax, Ukraine carbon tax
Estonia carbon tax, Hubei pilot ETS, Guangdong pilot ETS
RGGI, Chongqing pilot ETS, Norway carbon tax (lower)
Shanghai pilot ETS, Saitama ETS, Tokyo CaT, Colombia carbon
tax, Latvia carbon tax
EU ETS
Portugal carbon tax,Switzerland ETS
Slovenia carbon tax,Korea ETS
UK carbon price floor, Spain carbon tax, Ireland carbon tax, Denmark carbon tax (F-gases)
Tianjin pilot ETS
Fujian pilot ETS, Mexico carbon tax (upper), Japan carbon tax
Chile carbon tax
Shenzhen pilot ETS
Beijing pilot ETS
New Zealand ETS, California CaT, Ontario CaT, Québec CaT
Alberta CCIR,Alberta carbon tax
US$/tCO2e
27 BC carbon tax
Prices in implemented carbon pricing initiatives, The World Bank
38
Five major developments expected to impact the carbon ecosystem and its participants
Overall carbon markets expected to grow
strongly
Markets will likely become increasingly
short
Profit pools will grow Market fragmentation will persist, but some
scenarios show consolidation
Liquidity for both voluntary and mandatory
markets will increase
Value will shift towards upstream/Intrinsic
project value, i.e. access to projects will be key
Own origination (backed by balance sheet) will
become an even bigger differentiator
Trading and risk management capabilities will increasingly become
a differentiator
Ability to deploy capital & carry risk will allow to
capture additional upside
There is value in scale and having an integrated
offering; in-house demand a sizeable added
benefit
Value capture potential also linked to speed to market & ability to scale up quickly
39
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Towards Recovery and Shared Prosperity
