Report: EU carbon market will not raise power prices[fr][de] 

"The auctioning of allowances in the [EU Emissions Trading Scheme] market in 2013 and beyond is unlikely to have a material impact on power prices," says the report, prepared by New Carbon Finance, a carbon-market consultancy based in the UK.

The EU Emissions Trading Scheme (EU ETS) is the cornerstone of EU efforts to tackle climate change. New rules proposed by the Commission for the period 2013 to 2020 call for 100% auctioning of emissions permits for the EU power sector, after power companies were accused of reaping windfall profits during the first round (2005 to 2007) of the EU ETS, when numerous permits were handed out for free but were nonetheless factored into electricity prices as purchased.

New Carbon Finance argues that since power generators factor in the price of emissions allowances into their operating costs whether obtained for free or purchased at auction, a shift to full auctioning will have little impact on prices. This is particularly true in an environment of increased electricity market liberalisation, according to the report, which examines current and future power market trends in Germany, Poland, the Czech Republic and Hungary.

"Under competitive market conditions, whether allowances are allocated for free or auctioned should make little difference, because they still represent an opportunity cost to electricity generators. It should therefore be expected that opportunity costs of allowances will be passed through in full to wholesale electricity prices. This means that the impact on wholesale electricity prices of replacing free allocation with full auctioning from 2013 should effectively be minimal," says the report.

The proposal to revise the EU ETS is currently the topic of heated debate both within the Parliament and between EU member states. Countries like Poland, which rely on CO2 intensive coal-fired power plants for electricity production, are calling for a continuation of free allowances amid fears that auctioning would double or even triple power prices.

The Commission itself has admitted that the scheme is likely to raise power prices by up to 15%.