Energy utilities call for more flexible ETS

  

As the European Commission is working to revive the EU's ailing Emissions Trading System (ETS), big energy companies say that making the system more flexible should be the first priority. EurActiv Czech Republic reports.

An initiative of twelve European utility companies calls for a resuscitation of the emission trading system. The EU ETS does deliver on its goal to reduce CO2 emissions. However, reductions are mainly due to the economic crisis and not because of a structural shift towards low carbon technologies, the companies say.

The carbon market currently does not encourage the industry and utilities to invest into low carbon technologies as the price of its allowances is too low, the companies say. They argue that this situation is mainly caused by a fixed supply system design that could not adjust to demand dropping as a result of economic recession.

Last year, the European Commission came up with a plan to reform the ETS on a structural basis. But the proposed moves do not eliminate the risk of external economic shocks and the need for administrative intervention, according to ČEZ Group, a leading power producer in Central and Eastern Europe who has recently joined the “12 CEO’s Initiative”.

The company proposes loosening the supply side of the ETS. It advocates a predefined decreasing emission intensity path for industrial and power production in the framework of European climate policy. Accordingly, this intensity would be multiplied by real production numbers taken from public statistics.

As a result, the supply of allowances would by changed automatically according to these indicators. This would allow the supply to respond flexibly to the economic cycle, the company says. It also expects that the effect would be to push companies to improve their technologies as the emission intensity limit would decrease every year. 

Towards flexibility

The rest of the system including the overall cap or auctioning rules should remain the same, just as the practical principles followed by market participants.

“The only thing such system needs is a buffer, which the French in the present debate refer to as a ‘carbon bank’. This reserve could be used in a situation of growing GDP. When the economy slumps, the flexible mechanism will make it possible to withdraw allowances from the market,” EurActiv.cz was told by Ivo Hlaváč, director of public affairs of ČEZ.

The Commission said it could not comment on particular submissions which appeared during the stakeholder consultation process. But the EU executive is going to present its own structural proposal in mid-January.

In its plans, the Commission also seems to be favourably disposed to some kind of “flexible cap and trade”. EurActiv.cz understands that there is an agreement among various stakeholders that more flexibility in the system is needed.  

Stable for investments

In the current situation, the Czech company possesses millions of allowances which are of low value. Therefore it seeks a way to increase their price, one source from a Czech climate-focused NGO guessed. However, ČEZ says it will already have to buy new allowances this year. 

The company says the main aim of the ETS reform is to make the system transparent and stable, although the Commission sees its objective as being to bring the trajectory of its CO2 emissions in line with the 2050 low carbon roadmap's decarbonisation plans.

ČEZ wants to increase the value of its investments in modern gas fuelled plants, which emit less than coal, oil and older gas plants.

Such investments are not currently advantageous as it is cheaper to run older coal power plants when the price of allowances is low.

Is 40% enough?

According to the NGO source, a flexible mechanism could have benefits for the system. “But the benefits would depend also on how the absolute emission cap would look,” she added.

“If there was a 40% greenhouse gas emissions reduction target for 2030, combined with an actual surplus of allowances and a flexible mechanism, the whole ETS would lose its meaning,” the source said. “It would mean that until 2030 we would not have to do anything with CO2.”

“All twelve firms unanimously agree that Europe needs one binding and perhaps even very ambitious goal in reducing CO2 emissions within the EU by 2030,” Ivo Hlaváč of ČEZ said. According to the company, with a 40% reduction target the current surplus of allowances would cover only about 20% of the required additional emission savings in the EU.

Inactive utilities 

James Atkins, president of environmental commodities broker company Vertis, welcomed the energy utility's engagement with these issues. Atkins is engaged in a working group of the International Emissions Trading Association which is preparing a paper to describe different approaches for ETS reform. 

“One or two other organisations have come up with their proposals, as for example Fortum,” he told Euractiv.cz. This energy company based in Finland suggests introducing a so called optimal surplus band which would basically create a reserve where redundant allowances could be placed.

But the other utility companies have not been very active in this topic, Atkins said, although they are those most affected by the system. 

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Comments

Eamonn Bates's picture

"ČEZ wants to increase the value of its investments in modern gas fuelled plants, which emit less than coal, oil and older gas plants."

...sounds smart but what if local supplies of natural gas are not available? If coal is the only option for the near to medium term and the technological options are close to being optimised (without breakthrough technologies emerging) then this will penalise some manufacturing sectors in some countries unfairly.

It is clear that reform is needed but flexibility is also needed in EU climate action policy in regards to local energy situations and to the status of technology in individual industrial sectors. "One size fits all" policy hasn't worked and it probably won't.

Mike Parr's picture

Euractiv might want to look at editing in the article there is a "not" missing 2nd para 2nd sentence. As Christian Egenhofer noted (ditto various people in the EC involved in the (unfortunate) birth of ETS) in the late 1990s this was what politicos in Europe would accept. Carbon taxes (as Helm et al noted) although econometrically more efficient and less open to gaming were off the table. This was due to the then (and now zeitgeist that "markets" were the solution to the world's ills in general and climate change in particular.

CEZ and similar companies are trying to preserve the value of their "investment" (= ETS EUAs) by tinkering with the system - the tinkering will have minimal impacts on CO2 reduction - but that's not the point. In his book "Never let a Serious Crisis Go to Waste" Mirowski deals with the EU ETS on page 339 - and notes, that it was never designed to work and identifies the fact that EUAs can be "banked" as one indicator (amongst others) demonstrating this.

The CEZ et al proposals are "more markets" despite the evidence that the approach does not work. As even Stern noted in an address to the EP back in early 2012 (I think) climate change is an existential crisis for humanity. So far the response of one of the major emitters has been deck chair rearranging into which category ETS falls (the minor adjustments proposed being "what direction would sir or madam like the deckchair to face"). Before some dolts compare EU emissions to the USAs or China's, they should take a look at the rise in imports to the EU from China and the CO2 emissions embodied in these - there is no lack of good studies on the subject.

As I have already profiled in other Euractiv articles, the 40% CO2 target for 2030 is nothing more than BAU (= steam on ahead, don't worry we don't have a bloody great hole in the ship). Things became clearer with a recent exchange of e-mails with some EC people who noted that the issue now is to manage humanity's die back - they did not use these words but the meaning was clear enough. This will doubtless be a comfort for those in "vulnerable" regions of the world (please die quietly?).

It does not need to be like this. There are plenty of solutions. However, they will require collective action of a type that has been noticeable by its absence in the past couple of decades as neoliberal marketism has infiltrated many institutions including the EC and most member states. Marketsim ideology at its core is anti-human and places markets and their "correct" functioning before the needs of humanity - not so much "Terminator" as "Markinator".

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