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03/12/2016

Polish opposition threat to quit ETS seen as political manoeuvre

Energy

Polish opposition threat to quit ETS seen as political manoeuvre

Poland is Europe's third-largest emitter and its power plants are large buyers of carbon credits under the scheme..

[Kris Duda/Flickr]

Threats from Poland’s opposition to quit the European Union’s Emissions Trading System (ETS) should they prevail in an October election are political posturing and unlikely to translate into concrete action, analysts said.

Such a decision by the conservative Law and Justice party – expected to win in next month’s parliamentary polls – would also isolate eastern Europe’s biggest economy within the 28-member EU, analysts added.

“Given that participation in the EU ETS is mandatory for every EU member state, such an exit would likely involve the renegotiation of the European treaties,” Thomson Reuters Point Carbon analyst Marcus Ferdinand said.

>>Read: The true cost of coal in Poland

“That seems a hypothetical scenario and rather sounds like election bluster than a realistic option.”

The ETS, which forces more than 12,000 power plants, factories and airlines to surrender a permit for every tonne of carbon they emit, was launched a decade ago as the EU’s main tool for engineering a shift to lower-carbon energy sources.

Poland, which depends on heavily polluting coal, has repeatedly opposed ETS reforms designed to boost the price of pollution permits. A debate on deeper reforms to the laws governing the ETS is under way in Brussels.

Opponents say such changes would add to energy costs and undermine the international competitiveness of EU industry.

>>Read: Poland says allowances, not reforms start date, focus of carbon talks

“Coal has to be the basis of Poland’s energy industry,” Beata Szydlo, the Law and Justice candidate for prime minister, said in July.

The party’s pointman for energy, Piotr Naimski, said last month that Poland’s quitting the ETS “is not impossible”.

Carbon traders said while it is unlikely, any signals that Poland could leave the ETS would be bearish for the market. Poland is Europe’s third-largest emitter and its power plants are large buyers of carbon credits under the scheme.

Coal-fired Belchatow, owned by Poland’s biggest power generator PGE, is the plant with the largest emissions under the scheme, churning out around 37 million tonnes of carbon dioxide in 2014.

But market analysts say they do not see how Poland could leave the ETS without quitting the EU, something even the Eurosceptic Law and Justice party does not want.

“Leaving the EU ETS would be a miscalculated overreaction […] The government would be forgoing significant revenues, which it is currently relying on to modernise its energy system,” Point Carbon analyst Emil Dimantchev said.

>>Read: Poland to seek EU approval for state aid to coal mines

The Polish government would also be losing out on revenue and financial concessions it has been given to make the ETS more palatable to a nation heavily dependent on coal.

Point Carbon analysts forecast Poland could generate around €25 billion euros ($28 billion) in revenue from the sale of EU carbon allowances over the next 16 years.

Other experts say the opposition’s threats to quit the ETS could be an attempt to pressure the EU into giving more free allowances and other financial incentives.

“I think they are threatening to pull out of the EU ETS for the sole purpose of trying to get even more out of it,” said Femke de Jong, EU climate policy adviser at Carbon Market Watch.

Poland’s pro-coal stance sits awkwardly with EU efforts to lead the push for a new climate deal at UN talks in Paris at the end of the year.

“If politicians who are against ETS are in power, we would be marginalised in the EU,” said Maciej Wisniewski, chief executive at Warsaw-based Consus Brokerage House.