A Brussels ruling has frozen billions of euros in free carbon allowances that Poland was claiming for 30 high-emitting but as yet non-existent coal plants, under the little known '10c derogation' from the EU's Emission Trading System.
A EURACTIV investigation earlier this month revealed that one of the 30 plants – ??czna, near the Ukrainian border – was a phantom installation, currently being used by local farmers to grow maize crops.
But after the EU's decision, “??czna is out”, an official in Poland’s environment ministry confirmed.
Karla Hill, the programme director for the environmental group ClientEarth, called for the EU to launch infringement proceedings against Warsaw.
“We are pleased that the Commission has sent a message that new coal is not diversification, modernisation or clean,” she said in a statement.
But “we cannot ignore the fact that the Polish government issued empty greenhouse gas permits in breach of EU law to gain unfair advantage for coal investment,” she added.
In an intricate ruling, the EU decided that although the 30 plants’ investment processes had technically been “physically initiated”, they had also been double-entered in Poland’s national plan for clean energy investments.
As a result, any free carbon allowances issued to them would have to go into a ‘basket’ that plant operators could only use to compensate for other green investments, once the 10c installations were already up and running.
Because of the time it takes to build an operational power plant – and the 2020 deadline by which 10c carbon allowances must be used – few, if any, of the operators are thought likely to exercise this option.
“It’s a huge amount of money that Poland did not get,” one Brussels insider said.
However, the total value of the energy investment programme covered by Poland’s carbon allowance application is close to €50 billion, and officials in Warsaw had privately feared worse.
One told EURACTIV that the EU’s decision “looks good but we still have to calculate how the investment programme will look after all the installations are deleted.”
“We got all the allowances we applied for,” he added, “and we are not considering appealing the result. It’s something we accept.”
An 'elegant' solution
An EU source described the 10c decision as an “elegant” solution that allowed all parties to save face.
Of the power plants whose investment programmes have been excluded from the no-strings-attached free carbon allowance issue: six belong to GDF Suez; PGE, EDF and Tauron own five each; Vattenfall has two; and ?EZ, Kulczyk, Fortum, Melamina and Stora Enso all have one apiece.
With a turnover of some €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. It aims to force companies to invest in low-carbon technologies by setting a CO2 cap and then allocating or selling firms allowances to pollute. The most efficient companies can then sell unused allowances or bank them.
The ETS’s ‘10c derogation’ allows newer EU member states – mostly from the former eastern bloc – to claim exemptions from power plants which were planned and whose investment process was ‘physically initiated’ before the ETS came into effect.
Poland claims that under its national law, ‘physical initiation’ could include: Geodesic marking of objects on a construction site, levelling of the construction site, management of the site including temporary construction objects, and connections to technical infrastructure networks for construction purposes.
But the EU’s definition is different, requiring: Demonstration that an investment decision was not influenced by the option of receiving free allowances, substantiated evidence that construction work has physically started on-site before 31 December 2008, or substantive evidence that explicitly-approved preparatory work for the construction of the power plant has been “physically started”, where contracts for the plant’s construction have been signed before 2009 between an investor and a company in charge of the construction work.
Other documentary evidence that an investment decision was not influenced by the prospect of receiving free allowances would also be considered, the EU rules say.
- December 2012: DG Competition to rule on whether Polish free carbon allowances constitute fair state aid
- 2013: Phase III of the EU's Emissions Trading System is scheduled to begin until 2020
- 2020: The EU is pledged to reduce carbon dioxide emissions by 20% and increase the share of renewables in national energy mixes by 20%, both measured against 1990 levels. The EU has also inked a voluntary target to increase energy efficiency by 20% on 2005 levels.
- Emissions Trading System
- Roadmap for moving to a low carbon economy by 2050
- Guidance document on application of the 10c derogation
- Polish Environment Ministry: Polish Policy Paper on the Future of the ETS up to 2030
NGOs and think-tanks
- Client Earth: Report - Eligibility of proposed fossil-fuel power projects in Poland for transitional free allowances under the EU emissions trading scheme
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