Trilogue Negotiations on the Emissions Trading System: Recommendations for Greece’s priorities

By Tassos Chatzieleftheriou

Energy Policy Analyst, The Green Tank

We are approaching the final, crucial stage of the trilogue negotiations for the revision of the Emissions Trading System Directive where European Commission, European Parliament and the Council will negotiate to reach a final compromise on the revised EU ETS Directive starting from their respective initial positions.

So, how is each of the three positions influencing Greece and what should Greece’s priorities be on the key points of the file?

The three different positions would lead to different outcomes for the EU as a whole and for Greece in particular in terms of overall emission reductions under the EU-ETS, the volume of the allowances distributed to Greece and the corresponding revenues (i.e. the Member State revenues, the Modernisation Fund and the Innovation Fund) and the speed of the phase-out of the allowances offered to the industrial sectors for free along with the phase-in of the new Carbon Border Adjustment Mechanism (CBAM).

In the following we use a model built by CLIMACT to comparatively evaluate the impact each of the three positions have on the abovementioned parameters for Greece.

Impact on the climate

Regarding the emissions reduction target for the sectors covered by the EU ETS, the European Commission (EC) and Council positions propose a 61% reduction in 2030 compared to 2005 levels, while the European Parliament (EP) proposes a 64% cut. This means that the volume of greenhouse gases allowed to be released in the atmosphere by all EU ETS sectors according to the EC and Council positions will be higher compared to those resulting from the EP proposal. The cumulative supply of emission allowances for the entire 4th ETS phase (2021 – 2030) for the position of each of the three institutions as estimated by the CLIMACT model can be seen in Graph 1. The EP’s position results in 341 million allowances or 341 million tonnes of CO2,eq less supply during the period 2021-2030 compared to the emissions corresponding to the positions of the EC and the Council.

Market Stability Reserve (MSR)

Other than the increased emission reduction ambition of the EP position, another factor that contributes to the reduced supply of emission allowances of the EP position compared to the positions of the European Commission and the Council is the functioning of the Market Stability Reserve, the mechanism aimed to reduce the oversupply of allowances in the carbon market[1].

The EP supports the most ambitious review of the functioning of the MSR, supporting lower thresholds, leading to higher reduction of the emission allowances in the market.

National revenues

The auctioning volume that will be distributed to Greece (Graph 2) if the positions of the EC and the Council are adopted (around 172 million allowances from 2021 until 2030), is higher than the corresponding volume resulting from the EP’s position (145 million allowances). However, Greece’s resulting revenue may be higher if the EP’s position prevails since the carbon price may rise to higher levels due to the aforementioned higher overall climate ambition and stricter MSR embedded in the EP’s position.

The Modernisation Fund

Regarding the extension of the Modernisation Fund for which Greece is eligible, very small differences exist between the three positions in terms of the volume of allowances Greece will receive. Specifically, between 2024[2] and 2030 Greece will receive 19.9 million allowances if the EC’s original proposal is adopted, and 19.7 and 19.5 million, according to the EP’s and the Council’s position, respectively. The slightly smaller size of Greece’s share of the Modernisation Fund under the Council’s position is mainly attributed to the inclusion of Slovenia among the eligible Member States for the extension of Modernisation Fund. The marginal difference in Greece’s share between the EP’s and the EC’s position is attributed to the overall smaller supply of allowances to be auctioned under the EP’s proposal. Using a conservative estimate of 80 Euros/ tonne for the average carbon price during the 2024-2030 period, and also adding the 25 million allowances Greece is set to receive for the decarbonisation of its islands under the current EU ETS Directive,  the EU ETS will provide Greece with approximately 3.6 billion euros to modernise its energy sector. Graph 2 shows the sum of the member state auctioning volumes together with the Modernisation fund and the 25 million allowances for the decarbonization of the islands.

Despite the similarities between the three positions regarding Greece’s share of the Modernisation Fund, there is a fundamental difference on the type of investments that are eligible for funding. Specifically, the EC and the EP completely exclude investments on energy-related infrastructure using all fossil fuels. On the contrary, the Council’s position allows investments in fossil gas, thus directly undermining the overall climate goal of the EU, as well as the REPowerEU plan to tackle the energy price crisis, according to which, the EU’s fossil gas consumption, independent of the source, should be reduced by 64% by 2030 compared to 2020 levels, more than doubling the previous 30% reduction target included in the initial fit for 55 package.

Overall, the total number of allowances that will be distributed to Greece in the period 2021-2030 including those from the new Modernisation Fund and the 25 million allowances earmarked to decarbonize the islands is 216.4 million according to the EC’s original proposal; 216 million according to the Council’s preliminary position and 189.6 million according to the plenary vote of the European Parliament. It can be estimated that if the average carbon price resulting from the more ambitious position of the EP is more than 14.1% higher compared to the average price resulting from the more conservative positions of the EC and the Council, then Greece will end up with more funds from the EU ETS[3]. This percentage difference in the carbon price for which the revenue from the EP’s position will be higher than the one resulting from the positions of the EC and the Council, becomes even smaller than 14.1%, if the revenue from the Innovation Fund that will end up supporting Greek industries is taken into account, assuming of course the exact same number of allowances financing industrial decarbonisation in Greece under the three positions.

Innovation Fund and Ocean Fund

The Innovation Fund that is used to decarbonise the EU’s industries is not distributed to Member States by a fixed share; it is rather channelled to industries on a case-by-case basis, following a centrally managed evaluation process for each application submitted by the Member States. The overall size of the Innovation Fund varies significantly between the three proposals. Specifically, the Council proposes to channel only 669 million allowances to support the reduction of the EU’s industrial carbon footprint, whereas the EP’s and the EC’s proposals result to 901 and 899 million allowances, respectively, for the same purpose. In conjunction with the increased carbon prices that the EP’s position will probably lead to due to the higher climate ambition (-64% by 2030 vs -61%), the larger size of the Innovation Fund will likely result in a significantly higher revenue for decarbonization investments in the industrial sectors[4].

In addition to being the most ‘’generous’’ on the Innovation Fund, the EP proposed the establishment of a new fund, called the “Ocean Fund” which is similar to the Innovation Fund, but dedicated to the maritime sector. According to the EP’s position, 75% of the revenues from the allowances auctioned to shipping (i.e. revenues from 332 million allowances) will support projects that aim to decarbonize the maritime sector. Since the EC and Council do not have such a Fund, any projects to reduce the carbon footprint of the maritime sector will be financed through the Innovation Fund according to these two proposals. In this sense, the EP’s position lead to a much larger fund for the direct support of the decarbonization of all industrial sectors included in the ETS (1233 million allowances) compared to the 899 and 669 million proposed by the EC and the Council, respectively (see Graph 3)

Free emission allowances

There are also considerable differences in the number of free emission allowances distributed to Greece’s industrial sectors according to the different positions of the three institutions. As shown in Graph 4, the Council’s position would result to the highest volumes of free emissions allowances for the industry (92.5 million allowances for the period 2021-2030), followed by the corresponding volumes resulting from the EP’s position (91.2 million) and the EC’s position (88.9 million). Thus, the Council’s position undermines the most the efforts to decarbonize the industrial sectors, which has had only a minimal contribution to the emission cuts achieved in Greece by all EU ETS sectors during the first three EU ETS phases. On the other hand, even though the EP’s position has the earliest full phase-out date for free allowances offered to industries (2032), the phase out speed until 2030 is lower than that proposed by the EC, hence resulting to higher volumes of free allowances compared to the EC’s proposal. In that sense, if one focuses on the reduction in free emission allowances that will be achieved until the end of the 4th EU ETS phase (i.e. 2030), the initial proposal by the EC can be considered as the most ambitious among the three positions, despite the fact that the complete phase out of free emission allowances will occur 3 years earlier if the EP’s position is adopted.

Thus, taken together with the overall bigger size of the Innovation Fund, the EP’s position contributes much more substantially to the long-term competitiveness of the EU industry by phasing out the obsolete and unsuccessful so far free emission allowance system faster (2032 vs 2035) and by channeling more funds for industrial decarbonization.

Recommendations

Based on this analysis, we propose that Greece supports the following positions in the trilogue negotiations:

Higher climate ambition and a stronger MSR: Greece should support a higher ambition level than that of the Council’s and the EC’s preliminary positions of at least 64% emission reduction by 2030 compared to 2005 levels, as well as a stronger Market Stability Reserve (MSR) leading to a tighter control of the oversupply of allowances in the carbon market. In addition to being closer to the climate commitments the EU has undertaken by signing the Paris Agreement and the leadership role it aspires to play in global climate politics, such a position will be more aligned with the REPowerEU plan which aims at decreasing the dependence on fossil fuels -especially fossil gas- more rapidly. Furthermore, higher climate ambition and a stronger MSR, will most likely lead to increased carbon prices due to the reduced number of allowances in the market, which, will in turn, translate into bigger revenue for Greece from the auctioning of the allowances that it will receive during the rest of the 4th EU ETS phase, as well as from the Modernisation and Innovation Funds.

Faster phase out of free emission allowances to industry in conjunction with a larger Innovation Fund: Greece should support a faster reduction rate of the emission allowances that are offered for free in the industrial sectors until 2030 and a complete phase-out by 2032 at the latest. At the same time Greece should support a larger Innovation Fund for the decarbonization of its industry. This will contribute the most in the long term competitiveness of the Greek industry, and will reduce its carbon footprint which has remained almost stagnant over the years. Moreover, incentivizing the investments necessary to decarbonize the Greek industry and increasing the available funds for this purpose, will provide a realistic chance for Greece to achieve its ambitious 2030 national climate target set in the first National Climate Law (-55% in net GHG reductions by 2030 compared to 1990 levels).

Fossil fuel-free ETS-related funds: Funding fossil gas infrastructure through the Modernisation Fund or leaving the door open to do the same with the national revenue from the auctioning of ETS allowances, goes fundamentally against the very scope of the EU ETS, the overall climate targets the EU has committed to, as well as the objective of the REPowerEU plan to tackle the energy crisis. Therefore, Greece should support the full exclusion of all fossil fuels investments (including fossil gas) via the Modernisation Fund, as well as dedicating 100% of the revenue from the auctioned emission allowances to climate action in line with the proposal of the European Parliament, thus contributing to a faster and cheaper transition towards carbon neutrality.

[1] For more information on the oversupply of allowances and the MSR: https://thegreentank.gr/en/2022/06/14/eu-ets-guide-life-etx-en/

[2] Expected date when the revised Directive will come into force

[3] For example, let us assume that the limited climate ambition in the EC’s and Council’s position lead to an 80 euro/tn average carbon price during the period 2021-2030 and that the corresponding average carbon price resulting from the more ambitious position of the EP is more than 14.1% higher (i.e. more than 91.3 euro/tn). Then the revenue that Greece will accumulate during the same period will be larger (17.31 billion euro for an average carbon price of 91.3 euro/tn, for the period 2021-2030)

[4] All the abovementioned emission allowance volumes of the Innovation Fund will be reduced, if the Council’s position from the 4th of October on the EU ETS resources that will be used to collect the additional 20 billion Euros needed for financing REPowerEU, is adopted. According to this position, the Innovation Fund volumes will be reduced by a number that corresponds to a revenue of 15 billion Euros (approximately 190 million allowances in current carbon prices).

Greece seeks over €3bn from new EU climate-change fund

The Greek government is seeking more than three billion euros from the EU’s new climate-change fund, roughly the cost of measures designed to reduce the cost of power bills, for its electricity subsidies program.

The distribution plan for the new climate-change fund, approved in European parliament last week, is expected to offer Greece 5.5 percent of its 57 billion-euro starting sum.

Distribution details are still being negotiated by the EU’s 27 member states. Environment ministers will meet in Luxembourg today.

The new EU fund is expected to gradually grow through contributions raised by an extension of the carbon tax system (ETS II), planned to also cover buildings and transportation. The rise in fuel prices is expected to contribute many billions of euros in extra revenues to the climate-change fund.

The plan to extend the carbon tax system (ETS II) into transportation has prompted a strong reaction from the sector, representatives fearing additional costs without incentives for a shift away from fossil-fuel usage.

Country’s first climate-change law headed for parliament

The country’s first climate-change draft bill, carrying binding 2030 and 2040 carbon emission targets, as well as a climate neutrality commitment by 2050, is expected to be submitted to parliament within the next few days after having adopted many comments forwarded during consultation.

Deadlines that had been set for the use of heating fuel boilers as well as vehicles with internal combustion engines appear set to be granted extensions of a few years.

A ban on the installation of heating fuel boilers in areas equipped with sufficient natural gas networks will now probably not come into effect until 2024 or 2025, instead of 2023, as was intended by the draft bill prior to revisions.

A plan for the withdrawal of all carbon-emitting taxis in Athens and Thessaloniki by early 2025 also appears set to be given an extension, of two years. The same applies for new rental cars and new company cars.

It remains unclear if the draft bill will include revisions to binding targets for industrial activity emissions, especially energy-intensive enterprises subject to the EU’s Emissions Trading System (EU ETS).

EVIKEN, the Association of Industrial Energy Consumers, during consultation, supported that this category of enterprises must be exempted from a 30 percent emission reduction target between 2023 and 2030, as stated in the original draft bill.

 

PM calls for European unity to counter impact of energy crisis

Prime Minister Kyriakos Mitsotakis has called for the establishment of a single line of defense by the EU as protection against the impact on energy prices by Russia’s invasion of Ukraine.

This proposed stance, expressed by Mitsotakis during a meeting in Bucharest yesterday with Romania’s leadership, as well as during an extraordinary summit of the European People’s Party, is expected to be reiterated at today’s emergency European Council meeting.

Europe must establish a common response to rising energy prices as a means of protecting consumers and businesses and limiting the continent’s exposure to gas price fluctuations, through a diversification of energy sources, the Greek Prime Minister supported during yesterday’s meetings.

According to sources, Mitsotakis will go into today’s European Council meeting with a specific proposal believed to entail utilization of the EU Emissions Trading System’s Market Stability Reserve that could lead to energy crisis support worth as much as 100 billion euros.

Last month, energy minister Kostas Skrekas presented a similar proposal at a meeting of EU energy ministers in France.

The Greek proposal could gain wider acceptance this time around given the grim forecasts of even higher energy costs.

Natural gas strategic reserve among EU thoughts for crisis

A series of measures to be announced today by the European Commission to help EU member states counter the energy crisis may include a strategic reserve for natural gas, complementing respective supply contracts, for abnormal periods such as the current energy crisis affecting the world, especially Europe.

EU member state participation in this strategic reserve would be optional. The initiative, still at a preliminary stage, is being examined. No decisions have been taken.

The EU’s energy market integration and transboundary grid interconnections have helped avoid even more extreme developments in the current crisis, Brussels has observed.

Measures taken by member states at a national level will need to comply with EU law and not contravene Europe’s energy transition towards renewables, Brussels has made clear.

The European Commission has defended its views on the causes of the energy crisis, insisting that increased natural gas prices have been primarily responsible, while noting that the EU’s Emission Trading System (ETS), through which carbon emission right prices have been driven higher, has played a lesser role.

Brussels hesitant on hedging mechanism for energy prices

A Greek proposal for the EU’s adoption of a temporary hedging mechanism as a means of easing the burden of sharply risen energy costs on consumers, to be tabled at a Eurogroup meeting of EU finance ministers today, will be met with hesitancy as the European Commission would not want to bring to the negotiating table issues linked to the Emissions Trading System, fearing any potential need of a compromise with member states opposed to the ETS, such as Poland, well-informed sources anticipate.

The European Commission has fought hard to establish the ETS as a means of combating climate change.

The temporary hedging mechanism would draw funds from the Emissions Trading System’s auctions of CO2 emission rights.

The hedging mechanism was proposed several weeks ago by Greek energy minister Konstantinos Skrekas and will be officially presented by Greek finance minister Hristos Staikouras to his European counterparts at today’s Eurogroup meeting.

The EU finance ministers will be focusing on the alarming increase in energy prices, prompted by a combination of international factors, though finalized decisions at this session are considered unlikely.

Greece tables hedging fund plan to soften energy crisis

Energy minister Kostas Skrekas has proposed the adoption of a temporary hedging mechanism by EU member states as a means of easing the burden of increased electricity costs on consumers.

The minister’s proposal, which would enable funds to be drawn from the Emissions Trading System through extraordinary auctions offering additional carbon emission rights or prepayment of potential ETS revenue, was tabled at a meeting of EU energy ministers in Ljubljana yesterday.

The ministers assembled in search of a solution to counter the relentless rise in carbon emission right costs.

Skrekas’ proposal is similar to household mitigation measures recently announced by the Greek government for which electricity subsidies will be financed by revenues generated at carbon emission right auctions, through the Energy Transition Fund.

According to estimates by Greek officials, a sum of between 5 and 8 billion euros will be needed to cover the EU’s overall energy support needs this coming winter. Distribution of this amount to member states would take into account respective electricity consumption levels, heating needs and GDPs.

At the Ljubljana meeting, Greece, Spain and Italy were the only member states to propose the adoption of EU-wide measures as an effort to restrict the effects of the energy crisis, seen worsening for households and businesses this coming winter.

 

Brussels fears electricity prices could reignite Euroscepticism

The European Commission is pressing for an antidote to counter the sharp rise in electricity prices around Europe, fearing a prolonged period of escalated prices could spark a new wave of Euroscepticism that would put EU citizens at odds with the continent’s energy transition plan, a key Brussels climate-action strategy.

Allegations of market manipulation and doubled CO2 emission right prices since the beginning of the year, at 59.43 euros per ton yesterday, have reinforced the overall reaction against the EU’s energy policy, placing governments under pressure and fueling unrest.

With fears growing of a resurgence in France’s yellow vest movement, the European Commission is seeking to convince citizens that the Emissions Trading System (ETS), a cornerstone of the EU’s green-energy transition policy, is not the cause of the electricity price rises, instead laying the blame on natural gas and fossil fuels.

European Commission president Ursula von der Leyen, in her State of the Union Address, delivered yesterday, was clearly distressed by the situation, offering strong support for the European Green Deal. But, judging by the overall response, she has not appeased the concerns about rising energy prices.

The president’s thinking was reiterated by her deputy Frans Timmermans, in charge of the European Commission’s climate action portfolio, according to whom, only one-fifth of the electricity price increases can be attributed to the elevated CO2 emission rights prices.

 

 

EU’s ‘Fit for 55’ package to spike heating, auto fuel costs

The EU’s new, more ambitious climate-change package, “Fit for 55”, aiming for a 55 percent reduction of carbon emissions by 2030, compared to 1990 levels, will prompt sharp price increases in diesel heating fuel costs as well as fossil-fuel powered transportation.

The prospective package, announced yesterday in the form of twelve legislative proposals, has already raised the question as to who will cover its cost – consumers, producers, or both.

The package will lead to wider implementation of the ETS for buildings and transportation.

Inevitably, less affluent households and smaller enterprises whose heating and transporation needs are exclusively covered by fossil fuels will face even greater pressure.

The European Commission has proposed a 61 percent reduction of carbon emissions from sectors covered in the EU’s existing Emissions Trading System (ETS), compared to 2005 levels, up from the previous target of 43 percent.

EU ‘Fit For 55’ climate package to bring about many changes

To be presented today by the European Commission, the EU’s upcoming “Fit For 55” package of climate-change measures, setting stricter and more ambitious objectives for a 55 percent carbon emission reduction by 2030, compared to 1990 levels, will bring about a series of revisions.

These will include changes to the Emissions Trading System (ETS) and fuel taxation, as well as the introduction of new taxes and a Carbon Border Adjustment Mechanism (CBAM), promising transboundary taxes on non-EU countries regarded as making a lesser effort, than the EU, to combat climate change.

It still remains unclear if consumers or polluters, or both, will cover the cost of the “Fit For 55” measures.

Heating and transportation costs are expected to rise considerably over the next few years, according to a Euractiv report.

The package’s draft proposes an expansion of the ETS into the heating sector, for buildings, as well as into transportation, as a disincentive restricting high-polluting practices, including use of diesel.

The CBAM is expected to be launched on a three-year trial basis, beginning in 2023, before it is officially implemented in 2026.

EU to present tougher climate change rules with ‘Fit For 55’

The EU’s upcoming “Fit For 55” package of measures, setting stricter and more ambitious objectives for a 55 percent carbon emission reduction by 2030, promises to bring about widespread change in the energy sector, impacting renewable energy, energy efficiency, the Emissions Trading System (ETS), energy taxation and forestry regulations.

National Energy and Climate Plans will need to be adjusted once the package comes into effect.

The package, whose details are planned to be presented by the European Commission on July 14, will, without a doubt, have an immediate impact on CO2 emission rights, seen rising even higher than yesterday’s new all-time high of 57.90 euros per ton, even though some time will be required before disagreements are overcome and the package is ratified in EU parliament.

“Fit For 55” has already prompted negative reaction from EU members states in the east.

The ETS is expected to apply to a greater number of sectors, the objective being to push CO2 emission right prices higher so that polluters are forced to reduce emissions rather than pay exorbitant amounts.

The RES sector’s representation in the EU energy mix, currently set at 32 percent for 2030, will be pushed higher to levels of between 35 and 40 percent, according to sources. Environmental organizations have been pressuring for an even more ambitious level of 50 percent.

Also, the measures will introduce transboundary taxes on non-EU countries regarded as making a lesser effort, than the EU, to combat climate change.

The new rules are also expected to reinforce Land use, land-use change, and forestry (LULUCF) regulations set by the UN Climate Change Secretariat.

EU lawmakers vote in favor of carbon levy on certain imports

EU lawmakers have adopted a resolution for a carbon levy on certain imports from less climate-ambitious countries, with 444 votes in favor, 70 against and 181 abstentions.

Through the adoption of a Carbon Border Adjustment Mechanism (CBAM), to be implemented in 2023, the aim will be to create a global level playing field and prevent carbon leakage, which could create competitive disadvantages for European industrial producers.

The resolution underlines that the EU’s ambitious climate change targets should not lead to carbon leakage as global climate change efforts will not yield results if European production simply relocates to non-European countries with less ambitious emission standards, European Parliament announced in a statement.

European lawmakers, therefore, are in favor of a carbon tax on goods from non-EU countries that have not set ambitious targets for tackling climate change, as the EU has done with its ETS emissions trading system.

Besides creating a level playing field worldwide, the resolution should also serve as an incentive for both European and non-European industries to accelerate decarbonization procedures in line with the Paris Climate Agreement objectives.

 

Lignite unit exit ‘must not be influenced’ by EU directives

The implementation of new EU directives concerning state support amid the EU’s Emissions Trading System framework must not affect the rate of progress of the lignite unit withdrawal schedule decided on by the government and power utility PPC, market authorities have noted.

According to latest EU directives, CO2 emission cost recovery levels for eligible energy-intensive industrial producers will not depend on their energy supply sources, be they polluting or green, but, instead, on an independently determined constituent resulting from the national electricity production mix of the previous year.

This effectively means industrial producers will be eligible for CO2 emission cost recovery even if supplied green energy.

The new EU directives are intended to counter industrial facility relocations to territories beyond the EU as a result of increased European electricity production costs, driven higher by costlier CO2 emission rights.

Though EU state members are theoretically free to shape their own CO2 cost offsetting mechanisms as support for energy-intensive producers, these mechanisms must be approved by Brussels ahead of implementation. Ultimately, the European Commission would not endorse any mechanism that does not comply with its EU directives.

The new EU directives concerning state support within the ETS framework were forwarded for public consultation on January 14. They will be applied in 2021 and are expected to remain valid until 2030. The current system expires at the end of this year.

 

EU industry seeking ETS revisions to remain competitive

A transformation plan seeking cost-recovery revisions for a more competitive European industrial sector has been presented to the European Commission by a group established in 2015 and represented by industries, EU member states and various agencies.

The group is pushing for energy cost-recovery revisions that would make European energy-intensive industrial enterprises more competitive against rivals with lower costs and, as a result, repel the need for relocations to non-EU bases.

Revisions requested by the group include ETS (Emissions Trading System) cost recovery adjustments effective all the way through to 2030.

At present the ETS system, operating on a voluntary, short-term basis, is on a downward trajectory. EU member states can opt to not implement this cost recovery system.

RES sector seen dominating electricity generation by 2050

The renewable energy sector is forecast to be in a clearly dominant position by 2050, especially in electricity generation, projections involving various scenarios agree.

The RES sector’s share reaches levels of 82 percent in 2050, driven by favorable policies anticipated for the sector, according to projections.

A reduction of renewable energy investment costs combined with a continual increase in CO2 emission right costs, within the ETS framework, is anticipated in all projections, justifying the spectacularly increased presence of the renewable sector in electricity generation over the coming decades.

Projections for considerably higher CO2 emission right costs between 2030 and 2050 result from the Market Stability Reserve (MSR), implemented automatically until 2050, according to EU law.

The anticipated ascent of the renewable energy sector in electricity generation is also expected to sharply boost other RES domains concerning heating, cooling and transport.

 

 

Industrial sector updated on forthcoming ETS revisions

EVIKEN, the Association of Industrial Energy Consumers, and counterpart associations from all over Europe, have met with Directorate-General for Climate Change (DG CLIMA) officials to be updated on forthcoming EU Emission Trading System (ETS) revisions.

Organized by IFIEC Europe, the International Federation of Industrial Energy Consumers, the meeting involved the participation of over 20 national and sector representatives, including representatives from EVIKEN, Alliance, Eurofer, Eurometaux, EU Lime, EU Fertilizers and EU Salt.

Particpants were informed that the ten-year period to cover 2021 to 2030 has been divided into two five-stages for most matters, the objective being to faciliate corrective interventions.

A finalized ETS directive is expected in March, while a preliminary Carbon Leakage List is planned to be published in May, the DG CLIMA officials informed, timed to allow for national-level reactions concerning sectors that could be marginally beyond the limits. Any reactions will need to be officially forwarded by June 30.

The European Commission is working on an arrangement that would free emission rights for a variety of industrial activities without undermining energy efficiency efforts.

Three-way ETS talks, stagnant, to be suspended until autumn

Problems encountered over the past few days in three-way negotiations involving the European Commission, EU member states and European Parliament, looking to make revisions to the ETS (Emissions Trading Scheme), appear set to suspend the ongoing talks until autumn.

The future, beyond 2020, of the ETS, a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively, is at the core of these negotiations.

Officials are seeking to restrict excess emission rights currently available in the market.

Also being discussed is an emission rights offer for EU member states with smaller GDPs, as well as the establishment of emission limits for new power stations. Both the GDP and emission limit issues concern Greece.

An understanding of the interconnectivity of all these matters has been gained during the ETS talks, while thorough analyses of all related tangents have been carried out and positions adopted, one participant informed. “The difficulties faced have to do with revisions of one issue prompting the need to make changes to others,” the official informed.

As a result, the European Commission appears to have requested further data and technical processing before the three-way negotiations resume.

The ultimate objective of these ETS talks is to have adopted a single European position ahead of an upcoming UN climate change conference scheduled for November. At present, this objective appears to be out of reach.

 

Greece backed by Eurelectric for ETS, modernization fund

Eurelectric, the European electricity industry association, has backed Greece’s positions concerning revisions to the EU ETS, a cornerstone of the EU’s policy to combat climate change and its key tool for reducing greenhouse gas emissions cost-effectively.

Eurelectric favors a proposal made by the European Commission and EU member states for the absence of criteria regarding emissions by electricity generating units in order for them to receive emission rights when upgraded, as foreseen in an article for revisions to the ETS.

Three-way negotiations involving the European Commission, European Council and European Parliament are taking place this year on the future of the ETS.

The European Council supports the institutionalization of specific limits that units will need to meet in order to receive carbon emission rights from now on. These standards promise to limit lignite-fired units and, therefore, impact Greece.

Eurelectric is backing both the European Commission and European Council on the matter. The association has also stressed that a “robust structure ensuring full transparency and investment based on the objectives of the directive, without top-down management and control measures. Investments must not affect the functioning of the market, must respect competition and give priority to the modernization of production as well as to networks and energy efficiency.”

Another detail of interest for Greece concerns the country’s inclusion into a category of low GDP member states. Inclusion in this category promises benefits from the EU’s modernization fund in the form of financial support for new projects.

Though an initial proposal did not include Greece in this category, a European Council proposal called for special handling of Greece so that the country could benefit from the fund. Eurelectric noted that EU member states with small GDPs will need to benefit from compensation. The association also wants an increase in compensation levels offered.

ETS rift prompts European Parliament to reset debate

Greece’s Members of European Parliament (MEPs) appear to have adopted opposing views over main power utility PPC’s effort seeking free CO2 emission allowances, one side bonding as a national front in favor of the utility’s request, the other maintaining a more reserved stance.

A crucial debate by the European Parliament’s Committee on the Environment, to focus on EU emissions trading system (ETS) revisions, was originally planned to take place yesterday but has now been rescheduled for December 15 to give various opposing sides more time to bridge differences.

Despite the efforts made by Greek officials, PPC’s quest for free CO2 emission allowances is not a given.

It remains unknown whether Greek MEPs will eventually unite for PPC’s quest. Campaigns pursued by environmental groups have strongly opposed the utility’s objective.

PPC has sought to elevate the issue as one of national significance, and has succeeded to great degree. The utility estimates that implementation of a planned fourth stage of the ETS system will cost roughly 7 billion euros, while the adoption of PPC’s positions would offer Greece benefits worth over 2.5 billion euros for the period covering 2021 to 2030.

According to PPC, the issue is one that directly impacts consumers as the cost of acquiring CO2 emission allowances is factored into the cost of electricity production and passed on to consumer electricity bills.

Greece pushing for inclusion into ETS compensation mechanism

Following the Paris Agreement, the discussion on the next phase of the EU ETS, 2021-2030, compensation mechanism has intensified. Greece is strongly arguing for its inclusion in the provisions of articles 10c and 10d, according to energy analysts from PPC, Greece’s Public Power Corporation.

Is Greece eligible according to the criterion of “low-income member states” (member states with a GDP per capita below 60% of the EU average)? Certainly it is. Greece has lost about 27% of its GDP during the last 7 years – it is the country most stricken by the eurozone crisis. Its GDP per capita was 59% of the EU average in 2014 and further declined to 56% last year.

So why is Greece excluded from the compensation mechanisms? Because of a footnote in the European Council conclusions, with the phrase “all references to GDP in 2013”. 2013 was the latest year for which official GDP data were available back then. Greek per capita GDP in 2013 was slightly above the 60% threshold (61,8%). The failure to foresee GDP developments should be corrected to reflect the actual situation in the EU ETS countries.

Apart from the GDP criteria and the dire economic situation in which Greece finds itself, things are made worse for Greece by the country’s geography in two ways: First, Greece is the southeastern-most country of the EU, with limited access to electricity grid interconnections, and in a region where – apart from Italy – every country is either not bound to the EU ETS (Albania, Serbia, Turkey etc.) or is entitled to compensation (Bulgaria, Croatia, Romania etc.), gaining an important competitive advantage over Greece. Second, Greece has a host of isolated islands that rely on oil for electricity generation. Modernising energy assets, developing renewable generation on the islands and interconnecting them to the mainland grid requires funding that Greece finds hard to raise.

According to the proposed amendments to the regulatory framework, allowing Greece to allocate free emission rights to fund energy projects would not affect other member states, since any such free allocation would be deducted by the country’s own share of emission rights.

Regarding the participation of Greece in the Modernisation Fund (art. 10d), it does not seem right that an increase in the number of beneficiaries would lead to a decrease of individual compensations, given that the purpose of this compensation mechanism is to relieve the eligible member states of part of the cost of climate change policies. This problem could be easily overcome by increasing the quantity of emission rights used for the Modernisation Fund, either by increasing the Modernisation Fund percentage from 2% to 2,32% of the EU-wide quantity, or by drawing 50 million allowances from the Market Stability Reserve, in effect utilizing leftover emission rights from the previous EU ETS phase. The latter method has been employed by the European Commission to secure funding for other schemes, such as the Innovation mechanism.

One should always keep in mind the reason that the compensation mechanisms were created: to support vulnerable member states and enable them to reach the common EU climate targets. For the reasons explained, it seems only fair and reasonable that Greece is provided with such support, enhancing climate policy by enabling the crisis-stricken country to invest in emission curbing projects.