Sunday

22nd Apr 2018

How Oettinger's CO2 sell-off could fill Brexit blackhole

  • Germany still relies heavily on coal, which means it needs to sell its energy companies more ETS permits (Photo: Tobias Scheck)

How can the hole that the UK will leave in the EU budget after Brexit be filled?

The European Commissioner in charge of that budget, Guenther Oettinger, gave some examples earlier this month.

Thank you for reading EUobserver!

Subscribe now for a 30 day free trial.

  1. €150 per year
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

  • EU commissioner Guenther Oettinger: 'The only non-European part is the fact that the revenues from the ETS go to national budgets' (Photo: European Commission)

He said a tax on plastics could do the trick, and despite his colleagues' doubts, is lobbying in favour of the idea.

The German commissioner also launched the idea for another potential source of revenue: the proceeds from the EU's emissions trading system (ETS).

In a speech, he noted that the member states set climate goals and targets at an EU level, and acts as one at international climate conferences, like in Paris and Marrakesh.

"The only non-European part is the fact that the revenues from the ETS go to national budgets," Oettinger said.

"I think it would make sense that proceeds from our climate protection policy, from what has been agreed in Paris and Marrakesh and what we do with the ETS should actually go to the European budget," he said.

Oettinger did not give additional information, and much of his focus afterwards went on the plastics tax suggestion.

But what would happen if the commission actually followed through on the ETS idea?

Not enough

For one, it would not be enough to plug the annual Brexit hole of between €12bn and €15bn, but it would go a long way.

In 2015, national governments received €4.9bn by auctioning ETS permits. Companies that are part of the ETS are required to hand in these permits for every tonne of CO2 they emit.

But UK companies make up a sizeable chunk of that.

Without counting the UK, the proceeds would only be €4.3bn.

While it is possible that the UK would continue to remain a part of the system, it is unthinkable that the UK government would agree that the proceeds would then go into the EU budget.

Using the ETS revenues for the EU budget would also be a big culture shock for those managing the budget.

The EU budget is agreed in cycles of seven years, and hardly fluctuates.

The ETS proceeds however can change year on year, depending on the demand for CO2 permits.

In 2014, the proceeds were only €3.2bn – or €2.8bn, not counting the UK.

The EU would have to adjust its programmes far more to a fluctuating income then it does now – just like national budgets do, said Gerben-Jan Gerbrandy, a Dutch member of the European Parliament.

"That would be very natural," he told this website in his office in Strasbourg.

"I'm strongly in favour of moving towards more own resources for the EU. Whether ETS is the best, is something to be discussed, there are others as well," said Gerbrandy, a Liberal member of the parliament's environment committee.

It is unclear how the income from the ETS will develop over the years, because it is determined by various factors.

One is that as of 2021, the number of ETS permits which member state authorities will be allowed to sell, will decrease by 2.2 percent every year.

This could mean less revenue, if the price remained the same.

Economic theories about supply and demand state that the price should go up if the permits becomes more rare, but the system has suffered a much-lower-than-expected price for years, due to the economic crisis and a subsequent glut of available permits.

Some measures to correct that will enter into force next year, but it is difficult to predict how well it will work.

Getting member states to give up revenue?

Before the commission's plan could work, it would need the approval from national governments, something which could prove quite difficult.

"That will be a nightmare to many member states," MEP Gerbrandy said.

In his argument for moving the ETS proceeds to the EU level, Oettinger said that it would be "logical".

But there was probably a political reason why in the mid-2000s, when the system was set up, it was decided that national budgets should benefit from the ETS.

"I can imagine that that was necessary to have the member states agree on such an ETS system," said Gerbrandy, who added that he was "guessing" since he was not present.

But moving the collection of ETS money from a national to EU level is just another way of increasing member states' contributions, said Gareth Goldsmith, spokesman for the European Conservative and Reformist group in the EU parliament, which is often critical of the more federalist side of EU plans.

"If you change where that revenue is collected, it is still the same money, it is just member states paying more," said Goldsmith.

"De facto, whatever way you cut it, it's increasing contributions," he added.

However, using the ETS plan would mean that contribution hikes are linked to the level of dirtiness of a country's industry and power sector.

In 2015, Germany received 22.5 percent of ETS auctioning, while France received only 6.3 percent.

This can be explained for a large part because of Germany's higher reliance on CO2-emitting coal power, compared to France's nuclear power.

ETS auctioning as a budget resource, would make Italy and Spain the second- and third-largest contributor, and would see Romania contributing more than the Netherlands.

Another feature of the ETS that could disappear is its link to other climate action.

Currently, national governments are required to spend 50 percent of the ETS revenue on measures that reduce greenhouse gas emissions.

It is possible for such a requirement to implement at an EU level as well, but the EU budget has no 'earmarking', which means that it would be difficult to check if the ETS proceeds actually went to climate action.

In fact, the whole debate about the EU budget is in part because the commission is asked to do more on other fields, like migration and security.

Emissions trading deal reached after 'isolating' Poland

EU negotiators reached a deal on the ETS after breaking a deadlock on the eligibility criteria for a modernisation fund. Only Romania and Bulgaria will be allowed to use it to finance projects related to coal.

May promotes Brexit on 'first-anniversary' UK tour

The British prime minister vowed to "deliver a Brexit that unites" the country, while 44 percent of the public thinks her policy is a "total shambles" but that the decision to leave the EU should be respected.

Car lobby uses Brexit to dispute CO2 targets

The lobby group for European car manufacturers has said that if UK sales data is not counted when calculating CO2 emissions, the target should be reviewed. The commission has refused to comment.

May promotes Brexit on 'first-anniversary' UK tour

The British prime minister vowed to "deliver a Brexit that unites" the country, while 44 percent of the public thinks her policy is a "total shambles" but that the decision to leave the EU should be respected.

News in Brief

  1. Audit office: Brexit 'divorce' bill could be billions higher
  2. MEPs urge better protection for journalists
  3. Dieselgate: MEPs back greater role for EU in car approvals
  4. European parliament adopts new organic farming rules
  5. EU granted protection to half million people in 2017
  6. Report: Facebook to carve 1.5bn users out of EU privacy law
  7. Greek court ruling permits migrants to travel to mainland
  8. Commonwealth summit hopes for trade boost after Brexit

Stakeholders' Highlights

  1. Nordic Council of MinistersWorld's Energy Ministers to Meet in Oresund in May to Discuss Green Energy
  2. ILGA EuropeParabéns! Portugal Votes to Respect the Rights of Trans and Intersex People
  3. Mission of China to the EUJobs, Energy, Steel: Government Work Report Sets China's Targets
  4. Martens CentreJoin Us at NET@WORK2018 Featuring Debates on Migration, Foreign Policy, Populism & Disinformation
  5. European Jewish CongressKantor Center Annual Report on Antisemitism Worldwide - The Year the Mask Came Off
  6. UNICEFCalls for the Protection of Children in the Gaza Strip
  7. Mission of China to the EUForeign Minister Wang Yi Highlights Importance of China-EU Relations
  8. Nordic Council of MinistersImmigration and Integration in the Nordic Region - Getting the Facts Straight
  9. Macedonian Human Rights MovementMacedonians in Bulgaria Demand to End the Anti-Macedonian Name Negotiations
  10. Counter BalanceThe EIB Needs to Lead by Example on Tax Justice
  11. ILGA EuropeTrans People in Sweden to be Paid Compensation for Forced Sterilisation
  12. International Partnership for Human RightsThe Danger of Standing Up for Justice and Rights in Central Asia

Latest News

  1. ECJ ruling set to end 10-year 'mouth tobacco' lobbying saga
  2. Whistleblowers, Syria and digital revolution This WEEK
  3. MEP friendship groups offer 'backdoor' for pariah regimes
  4. Macron and Merkel pledge euro reform
  5. Obscurity surrounds EU military fund's expert groups
  6. New EU party finance rules short circuit accountability
  7. Draghi to stay in secretive 'lobby' group
  8. Bulgaria offers lesson in tackling radical-right populists

Stakeholders' Highlights

  1. Mission of China to the EUChina and EU Must Work Together to Promote Global Steel Sector
  2. Swedish EnterprisesEU Tax Proposal on Digital Services Causes Concern for Small Exporting Economies
  3. Europea Jewish CongressCondemns the Horrific Murder of Holocaust Survivor Mireille Knoll in Paris
  4. Mission of China to the EUAn Open China Will Foster a World-Class Business Environment
  5. ECR GroupAn Opportunity to Help Shape a Better Future for Europe
  6. Counter BalanceControversial Turkish Azerbaijani Gas Pipeline Gets Major EU Loan
  7. World VisionSyria’s Children ‘At Risk of Never Fully Recovering', New Study Finds
  8. Macedonian Human Rights MovementMeets with US Congress Member to Denounce Anti-Macedonian Name Negotiations
  9. Martens CentreEuropean Defence Union: Time to Aim High?
  10. UNESDAWatch UNESDA’s President Toast Its 60th Anniversary Year
  11. AJC Transatlantic InstituteAJC Condemns MEP Ana Gomes’s Anti-Semitic Remark, Calls for Disciplinary Action
  12. EPSUEU Commissioners Deny 9.8 Million Workers Legal Minimum Standards on Information Rights

Stakeholders' Highlights

  1. ACCAAppropriate Risk Management is Crucial for Effective Strategic Leadership
  2. EPSUWill the Circular Economy be an Economy With no Workers?
  3. European Jewish CongressThe 2018 European Medal of Tolerance Goes to Prince Albert II of Monaco
  4. FiscalNoteGlobal Policy Trends: What to Watch in 2018
  5. Human Rights and Democracy NetworkPromoting Human Rights and Democracy in the Next Eu Multiannual Financial Framework
  6. Mission of China to the EUDigital Cooperation a Priority for China-EU Relations
  7. ECTACompetition must prevail in the quest for telecoms investment
  8. European Friends of ArmeniaTaking Stock of 30 Years of EU Policy on the Nagorno-Karabakh Conflict: How Can the EU Contribute to Peace?
  9. ILGA EuropeCongratulations Finland!
  10. UNICEFCyclone Season Looms Over 720,000 Rohingya Children in Myanmar & Bangladesh
  11. European Gaming & Betting AssociationEU Court: EU Commission Correct to Issue Guidelines for Online Gambling Services
  12. Mission of China to the EUChina Hopes for More Exchanges With Nordic, Baltic Countries