Poland demands free carbon allowances for ghost coal plants

Leczna 2.jpg

EXCLUSIVE: At least one of the coal plants for which Poland is requesting €7 billion of free carbon allowances under the EU Emissions Trading System (ETS)’s little-known ‘10c derogation’ does not exist, a EURACTIV investigation has found.

Poland has applied for €33-million worth of free allowances for the ??czna coal plant, near the Ukrainian border, but there is no visible evidence that any construction work has begun at the sleepy greenfield site.

Chris Davies, the Liberal Democrat MEP and environment spokesman, said he was "outraged" at the lack of work at ??czna. "The dirty tricks brigade is out and there's an attempt to cheat the system," he told EURACTIV.

"I think there will be enormous anger if the European Commission finds ways of stretching or re-interpreting the rules to accommodate Poland," he added.

Under EU rules, exemptions from the ETS until 2020 can only be granted to power plants if their investment process was “physically initiated” before 31 December 2008, and if their greenhouse gas permits were issued before 30 June 2011.

A Polish government official told EURACTIV that the ??czna coal plant fell into a category of sites for which “construction is in progress”, even if the work was not completed. 

But a 20 kilometre drive around the backwaters of ??czna’s Stara Wie?-Stasin site on 5 July revealed a rural landscape of green fields, crop allotments, and country paths.  

No buildings, installations or other power plant-related activity were evident at the coordinates for the installation submitted by the GDF Suez group to the regional authorities in June 2011.

“It’s not certain if there will be a plant,” one local farmer at the site told EURACTIV. “We are still working the land like normal.”

He and another farmer were growing maize on the site, where the two 800 megawatt installations were to be built.

Legal challenge

The environmental group Client Earth, which is challenging the legality of the ??czna plant and 12 others, says that the Polish authorities did not even apply for building permits at sites such as ??czna before the December 2008 deadline.  

EURACTIV has also seen photos of the Pó?noc installation, for which Poland is claiming €98.3 million of free carbon allowances, taken in November 2010. They too show empty fields with no apparent installations or other construction works.

“When you see an empty field without any other works there, it is obvious that the process was not physically initiated by the cut-off date three years ago, and the Polish application is not valid,” said Marcin Stoczkiewicz, a lawyer for Client Earth.

“The law has been broken,” he added.

One well-placed source at the Polish environment ministry said that the government could not check all 187 '10c' installation venues, and that if the European Commission ruled that some companies had breached the application rules, Warsaw would accept it. 

Poland's list of proposed power plants had been compiled without checking the eligibility criteria, the source added.

Officials from Warsaw’s environment and economics ministries were unable to comment directly on the situation at ??czna but the Polish environment spokeswoman, Magda Sikorska, did add one caveat.  

“The 10c [derogation] is not [being] used as a negotiation tool in any other field of European policy,” she said.

10c derogation intent

When the EU adopted the climate and energy package in December 2008, the 10c derogation was included as an exception to the rule that from 2013 onwards, all allowances for power companies should be auctioned rather than granted for free.

The derogation was intended to smooth the path of the 10 new EU members on their way to Europe’s futuristic low-carbon economy, without giving them an unfair competitive advantage.

Power plants that were physically planned and initiated before 2009 could be eligible for allowances, it said, so long as the resulting funds were used to modernise, diversify, and clean up electricity generation.

Applicant states just had to issue greenhouse gas permits to such installations before a 30 June 2011 deadline, to prevent an open-ended stream of central and east European coal plants gaining free allocations that could distort the European power market. 

Exchange of letters

However, the Polish authorities appeared to misunderstand this point, according to an exchange of letters between the EU's then-environment commissioner Stavros Dimas and Poland’s economics minister Waldemar Pawlak, which EURACTIV has seen.  

In a missive dated 11 March 2009, Pawlak complained of “contradictory wording” in the ETS and requested an amendment to it, which would extend the free allocations of carbon allowances for 10c applicants. 

Commissioner Dimas replied that as the legislation had already passed into law, “it is no longer possible to make any changes to the wording of the legislation”.

Poland’s subsequent transposition of the ETS into national law in June 2011 contained an Article 50, authorising ‘greenhouse gas permits’ without CO2 emissions rights to be issued, in stark contradiction to the EU's rules.

Such permits could apply to 10c installations which had not been built, like ??czna.

“The European Commission must shine a light on the Polish government's fraudulent implementation of the ETS directive,” said Julia Michalak, a policy officer for Climate Action Network Europe, an environmental NGO.

Polish veto

Poland produces 95% of its electricity from coal, and is currently blocking the EU's low carbon roadmap which aims for an 80-95% cut in the continent’s CO2 emissions by 2050.

Krysztof Bolesta, the advisor to Poland's environment minister, Martin Korolec, told EURACTIV that Warsaw would continue to veto any solely European 2050 targets because "we need a policy that protects industry".

"If it's a global [CO2 reductions] deal or a carbon tax at the [EU] borders, both solutions are fine," he said.

On the 10c issue, Polish officials stress that all monies raised through the derogation will be reinvested in new coal plants that deliver a substantial claimed CO2 saving on the installations they are replacing.

Last week, the European Commission conditionally ruled that three 10c applicants – Bulgaria, the Czech Republic and Romania – could temporarily continue to receive free allocations despite claims by environmentalists of irregularities in the Czech application in particular.

But because the ETS covers all of Europe's major installations, Chris Davies called for Brussels to draw a red line there.

"There should be one rule for the whole of Europe," he insisted, "no exceptions, no ifs and buts, no competitive advantage being gained by the worst polluters. There has to be a level playing field.”

Polish officials privately complain that the Commission “is keeping its cards close to its chest” about its 10c application but a decision is thought to be imminent.

“The analysis will be concluded soon,” an EU spokesman told EURACTIV.

“The resentment in the case of Poland is bound to be the greater because we know that it has been responsible for blocking the energy and low carbon roadmaps, and has failed to demonstrate that it’s a team player,” MEP Chris Davies told EURACTIV, after a detailed briefing on the evidence from Leczna. “Everyone understands how dependent Poland is on coal for its electricity and there is a genuine desire to help it to meet its CO2 reduction requirements without curbing its economic development but Poland has done less than help itself by the attitude its shown over recent months. And no exception should be made.”

Each 10c derogation application should be judged on its merits, the representative for North West England said. “But this could never pass a public test,” he added. “If Poland presented this evidence to residents in a public hall and asked ‘Yes or No?’, then by a massive denunciation it would be ‘No’. The public would be outraged if it realized that rules were to be bent in such a way and the rules are there."

"The Polish rules aim to give an unfair advantage to dirty coal," Julia Michalak, the policy officer for Climate Action Network Europe added. "Rather than clinging futilely to a future based on coal, Poland should be boosting clean energy solutions for its businesses and people."

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.

  • Summer 2012: The EU is due to rule on Poland's application for a 10c derogation
  • 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. 


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