Enel Group and Carbon Pricing
Views on Carbon Pricing, the EU ETS and the proposed reforms

Daniele Agostini – Head of Energy And Climate Policies, Enel
27/1/2022

The Enel Group today
A global green energy player active along the full electricity value chain
Active in 5 continents

32 countries
RES Capacity

49 GW1 capacity
Grid Customers

74 mn end users
Electricity sold2~ 430 TWh

1 Out of which 45 GW Ownership model and ~4 GW Stewardship model
2 Power free + regulated + wholesales + PPAs

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Enel’s Position on Carbon Pricing
Carbon pricing is one of the most effective means to pursue decarbonization•Putting a price on carbon is one of the central pillars of aneffective, efficient and credible climate policy•

The Carbon Tax vs Cap and Trade debate has to carefully
consider the local context especially in terms of:Carbon Pricing Around the World➢ Political acceptability➢ Market structure➢ Policy interaction➢ Institutional capacity•

Cap-and-trade systems are generally the most efficientmechanism to reduce emissions, especially in industrialized
economies, as they ensure environmental effectiveness andeconomic efficiency through cost minimization•Carbon taxation is better suited for specific contexts including
the initial phase of carbon pricing implementation, weakerinstitutional frameworks, sectors characterized by distributedemission sources.

Source: World Bank, Carbon Pricing Dashboard and State and Trends of Carbon Pricing 2021 report3Why we like emission trading
It’s about transparency, flexibility and efficiency•Environmental Transparency – There is a cap, the path is clear,
the environmental outcome guaranteed•

Technological Flexibility – There is full flexibility to choose howto decarbonize in terms of operational vs investment decisions andtechnological choices•

Temporal Flexibility – The flexibility to choose when to
decarbonize, adjusting to asset lifetimes and economic cycles•

Economic Transparency – There is a value for emissions and it
is clear to all, while the forward curve reflects expectations andstate of the art knowledge•Harmonization – It ensures a level playing field among industrial
operators and, through linking, across national borders.

Through effective management of policy overlap, the ETS can be acentral pillar of an effective wider set of climate policies.

History and Ambitions of the EU ETS
CO2e emission trend2021

Vis a vis its Command & Control alternatives, Emission Trading
Systems (ETS) ensure:

FF55 proposal → Including ETS
reformNet Zeroby2050

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The two dimensions of Cap&Trade
The cap drives investment decisions, the price drives operational decisions
Verified emissions and EU ETS cap (2005-30)

Historic and forecast EUA price (€/t)

Source: ERCST: 2021 State of the EU ETS Report; BNEF: 2H 2021 EU ETS Market Outlook
Note: in the curve the 2030 “new cap” assumes a 65% reduction in ETS emissions as the ERCST study was published before the release of the “Fit for 55” Package proposing a 61% reduction target

5Managing the short term price uncertainty
Trading, hedging and diversification support a utility’s winning strategy
Carbon price uncertainty may be determined by a number ofdrivers including:•Economics – Growth in the wider economic contexts,
commodity prices, competitiveness within the ETS sectors•Regulatory – Carbon regulation but also wider energy, climateand environmental policies affecting abatement patterns•

Weather – Temperature affecting demand for heating andcooling, rainfall influencing hydraulicity, in the long-term windand solar regimes

European Gas, Coal and CO2 (%, Jan-Sep 2021)

Utility’s strategy in managing the uncertainty may include:• Hedging the portfolio of forward sales in order to lock-in themargins• Decarbonizing the asset base reducing exposure to the carbon
price• Diversifying geographically in order to hedge against thedifferent drivers of uncertainty
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Looking at the long-term strategic decisions
Enel’s milestones on the Road to Net Zero by 2040 across scope 1, 2 and 3

7Engaging in the policy debate
The proposed EU ETS reform will contribute to the increased ambition and resilience
Within the EU’s “Fit for 55” Package, Enel’s key views on the revision of the EU
ETS include:
1.

Ambition -The EU ETS strengthened cap is welcome. The increase inambition needs to be fully transparent

2.

Market Functioning - Support to the revised MSR regulation. The
mechanism plays a key role in ensuring the system’s resilience3.

Scope - Support for the proposed EU ETS scope expansion tomaritime and H2 production, but eligibility thresholds for the latter needrevision. Scope expansion expand liquidity and reinforce environmental
ambition

4.

Competitiveness - More EU ETS auction revenues should be invested
to support ETS sectors decarbonization. The effectiveness androbustness of the financing mechanism needs to be ensured.

5.

Just Transition - Ensure a Just Transition, safeguarding employment
and industrial transition while avoiding unfair costs redistribution andsafeguarding customers is paramount. More focus is needed in the social
dimension

Ambition

Mkt Functioning

Scope expansion – Maritime & H2Competitiveness

Just Transition

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Conclusions•

Carbon pricing offers the opportunity to support the energy transition in a flexible andtransparent way delivering the environmental outcome and ensuring economic efficiency•

The price drives short term change but on the long term the cap perspective plays anincreasingly important role•

The utility’s actions involve:➢

Short to medium term operational measures aimed at decreasing emissions andreducing exposure➢Medium to long term strategic decisions ensuring long term decarbonization➢Stakeholder engagement to increase the effectiveness of the carbon pricing policy

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