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Free allocation for direct emissions carbon leakage list

Energy Forum Compensation arrangements for indirect EU ETS cost effects Presented by Vianney Schyns Brussels 9 June 2011. Financial compensation: Eligibility & Distortions. Free allocation for direct emissions carbon leakage list

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Free allocation for direct emissions carbon leakage list

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  1. Energy ForumCompensation arrangements for indirect EU ETS cost effectsPresented by Vianney SchynsBrussels 9 June 2011

  2. Financial compensation: Eligibility & Distortions • Free allocation for direct emissions carbon leakage list • Sectors exposed to the risk of carbon leakage: 100% of benchmark • Non-exposed sectors: 80% of benchmark in 2013 down to 30% in 2020 • IFIEC proposes: financial compensation for indirect emissions should also be based on carbon leakage list • Otherwise: there would be competitive distortions between installations with direct emissions and those with indirect emissions • We expect the European Commission, especially DG Competition, to prevent such competitive distortions

  3. Financial compensation: Eligibility & Distortions

  4. Financial compensation: General considerations • Carbon leakage is loss for economy and environment • Leakage of e.g. 100 Mton CO2 to same efficiency installations outside Europe = 100 Mton loss for the global GHG balance because EU ETS cap remains unchanged • Restricted compensation contrary to Europe 2020 Strategy • Strategy: not weakening but strengthening competitiveness • Competitive industry needed for growth and jobs, for European welfare, to finance challenging climate change policies • Real issues are: (1) global level playing field, (2) how to provide stability and predictability for European industry • IFIEC promoted indirect allocation of allowances

  5. Financial compensation: General considerations • Electricity prices in Europe are (among) the highest globally • 21% higher than in USA and 197% higher than in China (source: Commission 2020 Energy Strategy) • CO2 cost impact on power prices comes on top and depends on marginal power plant • IFIEC regrets that the carbon leakage list is based on the average emission of European power plants • The marginal effect is correct and well known in the Commission (DG COMP a.o. sector inquiry, DG Climate Action) • Any reduction factor is neither justified nor effective • Neither a general reduction factor nor a CO2-price reduction • Environmental effectiveness is not ensured through a reduction factor but through the benchmarking approach

  6. IFIEC proposal: Financial compensation shall be based on ... • … electricity consumption benchmarks (BMs) • BMs give an incentive to lower electricity use: a) benefit of avoided cost (if worse than BM) plus b) benefit of extra revenue (if - becoming - better than BM) • Thus, a more stringent BM does not affect environmental effectiveness but affects competitiveness significantly (a + b always the same) • … relevant CO2 factor • In general: the marginal CO2 factor • Exception for existing contracts and existing self-generation units with a CO2 factor above the marginal: actual CO2 factor • For new contracts and new self-generation: mechanism that maintains the ETS incentive for low-carbon technologies

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