New EU emissions trading system to increase electricity prices
RENATA GOLDIROVA
22.01.2008 @ 09:02 CET
EUOBSERVER / BRUSSELS – The electricity generation sector in the EU will in the future be forced to buy the right to emit carbon dioxide by auction, as Brussels is set to strengthen the bloc's emissions trading scheme, seen as a cornerstone in the fight against climate change.
On Wednesday (23 January), the European Commission is to publish its far-reaching package of green legislation, including a major reform of the EU's CO2 emissions trading scheme (ETS), originally set up in 2005.
The electricity sector will be first to buy emission permits by auction from 2013 (Photo: European Commission)
The ETS currently covers some 11,500 energy-intensive installations throughout the EU - such as power plants, oil refineries, steel mills and cement factories - which account for almost half of the EU's CO2 emissions.
The biggest change to the reformed scheme is that EU member states will no longer come up with the so-called national allocation plans, meaning they will no longer grant permits to pollute to their companies.
Instead, the "plans would be replaced by auctioning or free allocation through single EU-wide rules," according to draft proposals seen by EUobserver.
"The power sector would be subject to full auctioning from the start of the new regime in 2013," the commission proposal says, adding "other industrial sectors, as well as aviation, would step up to full auctioning gradually, reaching full auctioning by 2020."
Initially in 2013, one-fifth of pollution permits are to be sold, rising by ten percent each year and reaching 100 percent in 2020. The auctioning revenues will be delivered not to the EU but to the national coffers of EU member states.
Commission President Jose Manuel Barroso, speaking in London on Monday (21 January) said: "we need to incentivise the saving of the planet."
He acknowledged, however, that the competitiveness of energy-intensive industries may suffer a blow in the face of strict green rules.
"There would be no point in pushing EU companies to cut emissions if the only result is that production and indeed pollution shifts to countries with no carbon disciplines at all," Mr Barroso said, adding: "if needed, we should also be ready to continue to give the energy-intensive industries their ETS allowances free of charge."
Such an option is expected to be considered in 2010.
But consumer wallets will also feel the pinch of full auctioning, as power plants are expected to pass on most of the cost of emission permits to customers.
"Electricity prices may increase by 10-15 percent by 2020," one EU official said on Monday, referring to a commission impact assessment study.
National CO2 targets
Brussels believes that new emission trading rules will help the 27-nation bloc to reach the target, agreed by EU leaders in March last year, to reduce CO2 emissions by 20 percent by 2020 compared to 1990 levels.
However, other sectors such as transport, buildings and agriculture, which are not covered by the ETS, are also expected to contribute to the overall 20 percent target.
Under the commission plan, each EU country will face a mandatory cap on greenhouse gas emissions based on its wealth, using GDP per capita as criterion.
This means that wealthier states will carry a heavier burden, with some of them being required to cut their emissions by 20 percent in the next 12 years compared to 2005 levels. On the other hand, the poorest states, namely Bulgaria and Romania, will be allowed to increase their emissions by up to 20 percent from 2005 levels.
As far as policies to cut CO2 are concerned, member states will be more or less "free to determine where to concentrate their efforts." Only "some of this would be driven by EU measures - such as tougher standards on CO2 emissions from cars and fuel," the commission proposal says.
