The price of carbon dioxide also impacts the price of Fortum’s energy products, i.e. electricity and heat.
Our climate strategy’s key tools include the use of the EU’s emissions trading and the Kyoto mechanisms (Joint Implementation=JI and Clean Development Mechanism=CDM). About 95% of our CO2 emissions in the EU area are within the sphere of EU emissions trading.
Emissions allowances with Kyoto mechanisms
In 2011, Fortum was granted 6.8 million tonnes in free emissions allowances. The company’s emissions in the EU emissions trading scheme were 8.0 million tonnes. Thus, in terms of emissions allowances, Fortum was short. With the renewal of the EU’s emissions trading, all emissions allowances for electricity production must be acquired from the markets starting in 2013.
Emission reduction units (ERU) received from the Kyoto mechanisms can be used in EU emissions trading within the framework set by the mechanisms. We are currently developing Joint Implementation projects in Russia, and about 3.5 million ERU are expected from these projects during the Kyoto period 2008–2012.
We have also invested a total of 10 million euros in two international carbon funds: The World Bank’s Prototype Carbon Fund (PCF) and Nefco’s Testing Ground Facility (TGF) fund. Our goal is to receive from the funds about 1–1.2 million emissions reduction units (CER and ERU) that comply with the UN’s international approval process.
CO2-free production creates financial benefits
In addition to the management of emissions allowances related to our own production, we also trade carbon dioxide emissions allowances in European marketplaces, including Nord Pool Spot and ECX. We manage our emissions allowance price risks through the use of CO2 derivatives and by ensuring that the costs of allowances are taken into account during production planning.
The majority of the emissions allowance price is transferred to the electricity price in the Nordic electricity markets. In line with the objective of emissions trading, the price of CO2 emissions is a financial incentive to produce electricity with emissions-free production methods and to improve the efficiency of energy use. In the emissions trading scheme, CO2-free energy production brings clear financial benefits to Fortum.