Electricity users want revamp of EU carbon market

Europe’s industrial energy users are proposing significant changes to the EU Emissions Trading Scheme in an effort to avoid paying higher electricity prices. But the Commission and electricity producers say the plans would undermine the EU’s carbon market and send the wrong signals to consumers. 

EU energy consumers, including both industries and households, could save up to €85 billion per year if the EU Emissions Trading Scheme (EU ETS) is revised, the International Federation of Industrial Energy Consumers (IFIEC) told a seminar in Brussels on 17 April.

Instead of subjecting all energy producers to full auctioning of CO2 emissions permit as of 2013, as currently proposed by the Commission, a certain number of free permits should be handed out based on a ‘clean production’ benchmark, according to IFIEC. Such a benchmark would be established based on the level of CO2 released for every unit of electricity produced, whereby ‘dirtier’ production above the benchmark would need to be offset through the purchase of emissions rights. 

In addition, IFIEC proposes that free allowances be given for the actual amount of electricity produced rather than on the basis of historical production or so-called grandfathering. This would reduce “electricity costs for end-users in the order of, on average, 10-30% of industry’s electricity bills and 5-20% of household bills,” found a study conducted for IFIEC by the environmental consultancy Ecofys. 

As part of the proposed revision, national authorities would be able to withdraw free emissions permits after they have already been issued. IFIEC argues this would remove the possibility for energy producing firms to reap excessive profit.

During the previous EU ETS trading period (2005-2007), many of Europe’s large energy firms were given more CO2 emissions allowances than necessary, which contributed to a collapse in the market price of CO2 and allowed energy firms to make billions in ‘windfall’ profits by passing non-existent CO2 compliance costs on to consumers, according to IFIEC. 

There are concerns that the profit-making frenzy could be repeated during the next four-year EU ETS period (EURACTIV 07/04/08). 

But Eurelectric, which represents the EU’s electricity industry in Brussels, says “there was no over-allocation of allowances to the power industry in phase one of the ETS. The electricity industry was the only sector to be short overall on allowances to meet the targets set”, Chris Boothby, the organisation’s head of communication, told EURACTIV. “The reason for the price collapse during phase one was largely over-allocation to energy-intensive manufacturers”, he said.

Eurelectric also argues that IFIEC’s proposed changes to EU-ETS would not send the right price signals to consumers, leading to higher energy use and CO2 emissions. And the ‘ex-post’ withdrawal of emissions permits would undermine the proper functioning of the market, says Eurelectric’s John Scowcroft. 

The Commission has also expressed its opposition to the IFIEC proposal, despite a November 2007 European Court of First Instance judgement which found that the Commission was wrong to keep German authorities from withdrawing emission permits that had already been placed on the market.

This kind of ex-post approach is a “complete no-go”, according to Commission official Hubert Fallman, ENDS Europe reported.

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