Carbon market fix a boost for most in EU: Commission note

Written on 2012/12/18 by Barbara Lewis


(Reuters) - EU countries will get an estimated 59 percent increase in revenue from the sale of carbon allowances over the next three years if plans to strengthen the EU Emissions Trading Scheme (ETS) are implemented, an internal commission note said.

Some countries, such as Poland, would see an initial drop in income because of its decision to hand out free permits to its power generators to shelter them from the cost of paying for their emissions.


Poland, which is heavily dependent on carbon-intensive coal, is strongly opposed to a proposal from the EU executive to reduce a glut of allowances, generated by recession, that has pushed the price of carbon permits on the ETS to a record low.

Allowances sank to a low of 6.15 euros per metric tonne early this month and traded just under 6.50 euros on Monday.

The Commission proposal, known as backloading, would remove permits from the first three years of the next phase of the carbon market (2013-2015) and put them back on the market at the end of it (2019-2020).

The commission note seen by Reuters shows price assumptions of 5 euros for 2013-2015 without backloading and an assumption of 10 euros next year, rising to 11 euros in 2014 and 12 euros in 2015, if backloading is agreed. It underlines other factors can also affect the price.

"Backloading would result in auctioning revenue increases of 59 percent for all member states in 2013-15 compared to the situation without backloading," the paper says, discounting free allocation.

For member states that hand out free permits, the revenues are lower because they would not gain from an increase in auction revenue as a result of a stronger carbon market.

Instead, the value of the free allowances would rise to 4.3 billion euros in 2013-2015 from 2 billion if the Commission's proposal of temporarily withholding 900 billion allowances is implemented, the note said.

A Polish explanatory paper, also seen by Reuters, raised concerns backloading would "deprive the (Polish) national budget of the envisaged incomes for 2013.

"The effect of the backloading proposal will significantly vary between the member states. In the case of Poland, it would imply an estimated total net loss for the state budget in the value of over 1 billion euro over the period 2013-2020," the note said.


Climate Commissioner Connie Hedegaard said Poland could not give out free allowances and also expect revenue.

"You can't both decide you want to give away allowances for free and then when you have chosen to do that, you say: 'by the way, I don't get a lot of revenue for selling allowances'," she said.

Commission spokesman Isaac Valero-Ladron also questioned the Polish analysis.

"In contrast to Poland, the commission firmly believes that the short-term fiscal impacts of backloading will generally be positive for member states. We believe the analysis presented by Poland is based on a flawed use of the various market analysts' estimates," he said.

He said it was true some nations would see "lower or no benefits," but said this was only when member states had voluntarily chosen to apply the legal derogation that allows them to give out free allowances to power generators.

The backloading proposal was debated by a committee of experts representing all 27 member states last week and discussed by EU environment ministers on Monday.

"Far more countries supported the commission proposal than were against it," Sofoclis Aletraris, environment minister of Cyprus, holder of the EU presidency, said following Monday's meeting.

(Additional reporting by Francesco Guarascio; Editing by Anthony Barker, M.D. Golan and Phil Berlowitz)