07
Apr 2008 - Polluting electricity generators
in Europe are set to reap another round
of extraordinary windfall profits from the
carbon trading scheme meant to curb their
carbon emissions, a new report revealed
today.
The study, commissioned
by WWF from world-leading carbon market
analysts Point Carbon, estimates that the
windfall to electricity generators in just
the five states of UK, Germany, Spain, Italy
and Poland over the current five year phase
of the EU Emissions Trading System (ETS)
could be between 23 and 71 billion Euros
($US 36 -111 billion ).
Windfall profits are
generated when generators benefit from electricity
prices reflecting the cost of carbon emissions
while receiving the bulk of their carbon
emission allowances (EU Allowances) for
free under National Allocation Plans.
“Windfall profits are
highest in countries that have a high level
of pass-through of CO2 costs into wholesale
power prices, countries with emissions intensive
(coal) plant setting the price the majority
of the time, and countries that allocate
the highest percentage of free allowances
to the power sector,” Point Carbon said
in the report.
Coal fired power stations
account for 20 percent of the EU's total
carbon dioxide emissions, and its grip on
the European power sector looks set to increase
with plans to construct 40 major new coal
fired power stations in Europe in the next
five years.
WWF has always supported
the EU ETS as a crucial mechanism to tackle
emissions within the EU, but notes that
careful implementation is required for such
schemes to achieve their potential.
“We have long been critical
of the ETS design faults that provide cash
for coal in the name of emissions reductions”,
said Sanjeev Kumar, WWF Emissions Trading
Scheme Coordinator at WWF. “But Europe’s
experience should be a stark warning to
the rest of the world on the danger of free
allocations of pollution permits.”
Point Carbon identified
the free handouts of EUAs as the central
mechanism of the windfall profits, which
on various carbon price and cost pass-through
estimates are expected to be worth €14-34
billion ($US 22-53 billion) to Germany’s
generators (70 per cent dependant on coal
power), and €6-15 billion ($US 9.5-23.5
billion ) to UK generators where coal and
gas thermal capacity is more evenly balanced.
The findings of the
study are highly relevant to nations like
the US, Japan and Australia, where the desirability
and design of emissions trading schemes
are being considered as key elements of
national responses to the challenge of climate
change.
WWF is concerned that
power generators in these areas will lobby
for free allocations under “grandfathering”
schemes where allowances are provided for
free to power stations on the basis of historic
or anticipated emissions or “benchmarking”
where free allowances are allocated on the
basis of industry or emission reduction
plans.
Point Carbon notes that
windfall profits for carbon intensive power
generators fall towards zero where all permits
are auctioned, the allocation method preferred
by economists and environmentalists.
European nations were
entitled to auction up to 10 per cent of
allowances in the second phase of the ETS
(2008-2012), but in practice Member States
overall have opted to auction only four
per cent.
“The free handouts of
pollution permits to the power sector must
not be allowed to continue beyond 2012,”
said Kumar, noting that WWF commends current
EU proposals that the power sector buy all
required permits from 2013 on.
However, there are increasing
concerns that the requirement will be reversed
or weakened during political negotiations
on the future design of the scheme.
“WWF would like to see
revenues from the auctioning of the pollution
permits re-invested in climate protection
measures in Europe and developing countries,
in line with the financial commitments made
at the Bali climate change conference at
the end of last year” Kumar said.
“We feel sure that European
power consumers would prefer this over funding
windfall profits for the most polluting
of power generators.”
