Versnellen van de energietransitie kostbaar of kansrijk Een

Versnellen van de energietransitie: kostbaar of kansrijk? Een gedachten-experiment voor Nederland Springtij | September 2017

Messages to remember 01 02 03 It is possible to reach (deep) decarbonization The energy transition will be costly, but also provides economic opportunities Increased electrification drives further rollout of renewables 2

To achieve EU 2050 ambition Netherlands needs to accelerate with factor 3 CO 2 equivalent emission, % change as of 1990 110 100 90 -16% 224 -20% -40% -60% -80% 197 0. 7%. /yr 187 80 179 70 134 60 50 2%. /yr = 3 x 40 87 30 45 20 10 0 1990 SOURCE: CBS 2000 2010 ‘ 14 ‘ 16 2020 2030 2040 2050 3

We selected a set of measures Assumptions used ▪ ▪ Shift to electricity for domestic shipping, buses, light duty vehicles, and motor cycles ▪ ▪ ▪ Improved insulation ▪ ▪ ▪ Shift from oil and gas furnaces and steam boilers to electric versions Other demand ▪ Energy efficiency improvements of 1% per year Power ▪ ▪ Gas, coal, and oil are replaced by wind, solar, biomass and gas as backup Transport Buildings Industry Shift to hydrogen for trucks Shift to electric, district (and geothermal), and biogas space heating Shift to biogas (18%) and electric (82%) water heating and cooking Example shift from coal blast to biogas and electric furnaces Efficiency improvements Introduction of flexibility measures SOURCE: Mc. Kinsey MGI, CE Delft, CPB, CBS 4

The current energy system is largely dependent on fossil fuels Netherlands energy demand in 2014; flow between energy sources and sectors, PJ Energy sources Sectors Natural gas 1, 114 Transport 438 Oil 709 Residential 373 Coal 377 Commercial 315 Renewables 1 136 Industry 840 Other 77 Agriculture, fishing & other 160 Electricity (net import) 53 Power sector 2 343 (net) 1 Includes: hydro, geothermal, solar, wind, and biomass 2 Only includes net use for central power production (320 PJ) and transmission and distribution losses (23 PJ); energy sector own use (e. g. , oil consumption in refining is included in industry) SOURCE: Centraal Bureau voor de Statistiek (2014), “Energiebalans” and “Energieverbruik” databases 5

In 2040, the energy system would look and function very differently Netherlands energy demand in 2040; flow between energy sources and sectors, PJ Energy sources Sectors Natural gas Transport Oil Residential Commercial Renewables 1 Industry Other Agriculture, fishing & other Power sector 2 1 Includes: hydro, geothermal, solar, wind, biomass, and hydrogen 2 Includes net biomass use (94 PJ), gas use (111 PJ) and own use and transmission and distribution losses 6

When striving for 80% reduction by 2040 the role of renewables and power increases further Netherlands energy demand in 2040; flow between energy sources and sectors, PJ Energy sources Sectors Natural gas Transport Oil Residential Commercial Renewables 1 Industry Other Agriculture, fishing & other Power sector 2 1 Includes: hydro, geothermal, solar, wind, biomass, and hydrogen 2 Includes net biomass use (94 PJ), gas use (37 PJ), and own use and transmission and distribution losses 7

An annual investment of ~EUR 10 billion would be needed to move towards a 60% CO 2 reduction by 2040 Indicative net investment need, EUR billions, 2020 to 2040 20 200 45 20 135 Economic impact 30 Transport Residential Industry and Commercial Demand Estimate investment need to adjust demand ~10 EUR billion/ year or ~3% of annual budget RES build out (excluding grid) Network and connection costs Total additional investment § Direct impact of investments and changes in import – export balance § Shifts towards sectors with higher multipliers § Attraction of new economic activities Note: Cumulative investment varies strongly with commodity prices (incl. offshore wind, PV) System and Generation 8

CO 2 e emissions from industry have reduced 2 x faster than total emissions in the Netherlands CO 2 equivalent emission, % change as of 1990 110 -16% 100 90 224 Total emissions -20% -40% -60% Industry emissions -80% 197 187 80 70 -32% 60 50 40 30 20 -95% 10 0 1990 2000 SOURCE: CBS, National Inventory Report (1990 -2014) 2010 ‘ 14 ‘ 15 2020 2030 2040 2050 9

A game of clusters - 67 Mton industrial CO 2 emissions Industrial facility Mton Dedicated power plant 0, 1 Mton CO 2 29 Total emissions Netherlands CO 2 e(CH 4/N 2 O/F) 6 Mton CO 2 158 CCS 22 38 7 Energy-related emissions SOURCE: PRTR Netherlands, National Inventory Report 2016 – data for 2014 Processemissions End of life emissions mostly outside NL 5 0. 3 Top 10% industrial facilities are responsible for >65% of CO 2 emissions 120+ 45 CCU CO 2 e (CO 2) Recycling Reuse 10

Overview of industrial CO 2 emissions, split by functional use Emissions per sector, estimated Mton CO 2/yr, 2014 22 12 0 1 11 4 6 Total 1 High temperature heat production at one steel plant is industry’s largest CO 2 emissions source 6 16 67 1 2 7 Process emissions 1 1 12 On site transport 19 Electricity (e. g. , machine drive) 1 22 High temperature heat 3 14 Mid temperature heat 2 4 Low temperature heat 3 5 7 10 2 6 Ammonia and ethylene production result in 11 MT of process and heatrelated emissions 4 4 1 Chemicals 2 0 1 Iron and steel 0 Petroleum Food processing, Other refining beverages and industries tobacco Nearly every sector produces emissions by generating lowand medium-temperature heat NOTE: Difference in totals due to rounding 1 Emissions from biomass are excluded; 2 On-site transport not allocated to specific sectors SOURCE: Manufacturing Energy Consumption Survey (2013); National Inventory Report (2016); expert interviews; CE Delft Denktank energiemarkt Industrielewarmtemarkt 2013; expert interviews 11

Six ways to move industrial decarbonization forward – reaching 60% by 2040 60% reduction compared to 1990 levels progressing all options Mt. CO 2, 2014 – 2040 Options Assumed impact on industrial CO 2 emissions by 2040 Assumed impact electricity related emissions (excl. from baseline of 45 Mton) Theoretical maximum and minimum potential by 2050 3 Energy efficiency Electrification of heat demand Change of feedstock Develop routes to reuse and recycle materials Decide on steel production route(s) 6 Develop CCS/U capabilities Total reduction 19. 6 4 23 SOURCE: Centraal Bureau voor de Statistiek (2014), “Energiebalans” and “Energieverbruik” databases, National Inventory Report (1990 -2014) 12

Following these measures, energy demand is reduced by 15% and CO 2 emissions by 46% (>20 Mton) Industry energy demand, incl. feedstock, PJ 14071 Industrial direct CO 2 emissions, Mton CO 2 45 -12% 1, 237 -17% 1, 166 -46% Chemicals -74% 24 Petroleum refining 12 Iron and steel Food processing, beverages and tobacco Other industries 2014 2040 60% CO 2 reduction 2050 80% CO 2 reduction 1 840 PJ of energy demand 567 PJ of feedstock. Data used in our previous report is based on a preliminary publication of the energieverbruik and energiebalans numbers of CBS, which is shown here and adds up to 840 PJ energy consumption for industry. The final CBS reporting on energieverbruik and energiebalans adds up to 833 PJ SOURCE: CBS-data for 2014 13

Industry transition in the Netherlands – the missing link OCTOBER 2017

Back up 15

Power sector: “ 80% renewable power supply” by 2040 would be needed illustrative scenario, other choices also possible Wind 62% of production Solar 12% of production ~11 thousand turbines 1 3, 500 km 2 ▪ 6% of Dutch North Sea 33 GW 1880 km 2 ~63 million solar panels 2 ▪ Third of current roof area 2 21 GW ~120 km 8, 500 kton dry biomass 3 Biomass 8% ▪ Conversion of existing coal plants to biomass ▪ As illustration, 5 GW of (seasonal) storage 4 GW Flexibility measures 5 GW 1 45% capacity factor, turbines of 3 GW 2 1. 65 m 2 per solar panel, 235 k. W Other choices would also be possible, e. g. with larger role for (coal/gas) CCS, imports 3 17 MJ/kg biomass, 2 ktons/km 2 1616

At our current pace, we will finish the remaining carbon budget within 30 years 2°C Carbon budget emissions to 2100, bn tonnes CO 2 e 3, 670 Carbon budget compared to carbon reserves 3, 000 -5, 400 Gas, unconventional Gas, conventional Oil, unconventional Oil, conventional Coal At current pace budget runs out before 2050 ~900 2°C carbon budget 175019852015 Historical emissions SOURCE: Team analysis CH 4/N 2 O/F, 2015 -2100 20162100 ~900 Carbon reserves 2°C carbon budget Future emissions 17

Four major levers are needed to enable the energy transition Final energy consumption 1, 2, 2013 and 2050, in EJ 640 431 1. Increasing energy efficiency limits the rise of energy consumption 2. CCS/U decarbonizes the use of fossil fuels 3 373 Fossil fuels 3. Switch to zero emission energy carriers, e. g. , electricity or hydrogen Power sector – Fossil fuels Power sector – Renewables Biomass and waste 4. Renewables replace fossil fuels 2013 1 2 3 4 2050 2 o. C Final energy consumption within the scenario of the IEA Increase of energy demand is determined via the relative increase of CO 2 emissions w/o energy efficiencies The fossil fuels amount processed using CCS/U was determined to be 25% of the total amount of fossil fuels by relating the CO 2 emission reduction compared for the 2 DS and 6 DS scenario The fossil fuel power sector also includes nuclear energy SOURCE: Source: IEA ETP 2016 18

Options can create additional value for the Netherlands – but do not outweigh their investment in absence of global CO 2 price Near positive business case Roll out with support New economic activity Efficiency: relatively positive business cases Drive change in energy system Create optionality in mid temperature heat: Help balance grid and further integrate intermittent renewables CCS/U: Build on well-developed, diverse offshore industry and chemicals industry Scale up Reuse and recycling: Leverage unique transport and logistics capabilities, in combination with chemicals industry Bio-to-Chem routes: Build on both agriculture and food capacilities as wel as chemicals and refining experience Electrolysis R&D: Hydrogen to help balance and buffer the energy system Innovation Further electrification: help drive change in energy system Steel route(s): different routes will either impact economy activity (e. g. CCS/CCU) or help change the energy system, or both (e. g. EAF or H 2 -based DRI) 19

The challenges … International context of majority of industrials Brown field, not green field Opex – not capex 20

…but also opportunities for the Netherlands Leading position of Dutch industry – cherished investment Dense, varied clusters – infrastructure and circulariry Innovative food and agri sector – high end bio-to-chem Logistics infrastructure – ability to recycle at scale Stable and well connected energy system 21