Financing woes plague EU climate technologies

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Discussions between EU policymakers and energy sector stakeholders reveal sharp differences about how, and by whom, expensive CO2 capture and other 'green' technologies should be financed.

  • Money's tight

On 21 February, EU Energy Commissioner Andris Piebalgs reportedly told a group of representatives for 14 major energy sector firms that, until 2013 and possibly beyond, "there is no money" in the EU budget for supporting carbon capture and storage (CCS) projects.

CCS is considered a crucial technology for the prevention of CO2 emissions during the production of electricity in coal-fired power plants. But the techology is highly expensive, and both public authorities and the private sector have been reluctant to offer the financing necessary to jump start the uptake of CCS on a commercial scale.

The European Investment Bank (EIB) in 2007 put €8.2bn into green technology financing, and Citigroup is expected to invest €50 bn over the next five years in clean energies.

But Europe's overall investments and venture capital flows into the sector have been steadily declining since the 1980s, and currently amount to only one-third of US efforts, according to figures presented during the closing plenary of the 21-22 February European Business Summit (EBS) in Brussels. 

The energy sector "does not invest", said Glyn Evans of the Commission's Transport and Energy Directorate, who was among the panellists who debated the issue during a 26 February conference in Brussels.

  • Carbon pricing

Most experts agree that the right price signals for carbon would encourage the private sector to sink more money into more expensive low carbon technologies, particularly if non-emitted CO2 can be credited to companies and sold at a high price in the EU's (and eventually a global) carbon market.  

Brussels has responded by revising the rules for the 2007-2013 trading period of the EU Emissions Trading Scheme (EU ETS) in order to allow CO2 captured through CCS to be sold in the form of emissions permits (EurActiv 16/11/07). 

But building CCS plants will become profitable only if the price per tonne of CO2 increases considerably to €40 or €50, according to Neil Eckert of the carbon-trading firm Climate Exchange. Currently, the CO2 price is hovering around the €20 mark, according to the latest figures cited by EU Environment Commission Stavros Dimas during the EBS.

  • ETS auction revenues

The Commission has floated the idea of siphoning off a certain percentage of the proceeds obtained through the auctioning of CO2 permits under the EU ETS in order to transfer those monies towards a fund for clean technologies.

But Peter Vis of EU Energy Commissioner Andris Piebalgs' cabinet says this is a "tricky issue" for member states, who are opposed to Brussels setting 'earmarks', or percentage-based obligations, on how the proceeds from auctioning should be spent (see EurActiv 11/02/08).

Member states are also opposed to any specific time-frame and target for committing funds to the SET Plan, according to Evans.

Energy ministers will be in Brussels on 28 February to discuss the SET Plan during a meeting of the Energy Council. Apart from financing issues, ministers are expected to discuss the plan's overall strategy. 

Council sources indicate that Austria, for example, is opposed to the inclusion of nuclear fission as one the focal points of the SET Plan.

Positions: 

Hans van der Loo, head of Royal Dutch Shell's EU liason office, argues that the EU's climate change efforts will be "wasted" without CCS. But van der Loo, who addressed the issue during a conference in Brussels on 26 February, argues that companies like Shell should not be the only ones responsible for footing the bill for expensive technologies that benefit the public good. Shell, like other large energy firms, is calling on public authorities at EU and national level to help companies cover initial costs for CCS until the technology becomes commercially viable.

The Commission has made it clear, however, that EU funds can only provide limited assistance in the area and that member states should do more. "Frankly, we do not have enough money from the Community budget so we have to see whether the member states are actually putting their money where their mouth is, and we have to see how we can create the appropriate networks at EU level in order to give a little start to CCS-demonstration projects, which will then allow them to be projects of European interest," Matthias Ruete, director-general of the Commission's Energy and Transport Directorate, told EurActiv in an interview.

Jerome Guillet, director of energy projects at Dexia, argues that the Commission's separate drive to further liberalise the EU's energy markets (see our LinksDossier) is "completely incompatible" with the EU's quest to fund low carbon technologies that can reduce CO2 emissions and ensure the security of Europe's energy supply. Liberalisation pushes the EU towards investments in more traditional and more carbon intensive energies like gas, coal and oil, because private capital seeks a shorter return on investment, says Guillet, who argues that EU policies should be focused on energy demand reductions rather than on "technical issues" like ownership structures in energy markets. 

Greater emphasis on demand reduction, rather than on finding monies for expensive supply-side technologies, is also advocated by Andrew Warren, senior advisor at EuroACE, the European Alliance of Companies for Energy Efficiency in Buildings. "Almost all" efficiency upgrades in the buildings and construction sectors, which account for up to 45% of the EU's total CO2 emissions, are "cost-effective", according to Warren. 

Timeline: 
  • 28 Feb.: EU Energy Council conclusions on SET Plan expected.
  • Nov. 2008: Commission Communication on SET Plan financing (tentative date). 
External links: 
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