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Common Statement on the Revision of the EU ETS

Date

12 Dec 2016

Sections

Energy
 
COMMON STATEMENT ON THE REVISION OF THE EU ETS
 
Since the adoption of the first Climate and Energy Package in 2009, the European electricity sector is undergoing the process of modernisation towards a low-carbon power generation, in line with EU climate policy. According to the latest reports, the EU is on track to meet its 2020 targetsin terms of both GHG emissions reduction and RES share in final energy consumption. 
 
Our associations recognise the need for the transition to a low carbon economy through the modernisation of energy infrastructure and the development of sustainable energy systems. Therefore, we strongly support European climate policy goals, while acknowledging that different starting points and economic conditions require a coordinated effort, providing support for Member States with historical reliance on fossil fuels and lower GDP per capita.
 
Current legislative proposals with regard to the 2021-2030 EU ETS reformrequire additional modernisation investments and will increase operational costs for utilities in all EU Member States. This will inevitably result in a substantial increase of both capital and operational expenditure during the transition to a system based on RES, as well as of electricity prices for end consumers, particularly in Member States historically relying on fossil fuels in power generation and with lower GDP/capita levels. Such a negative impact on the competitiveness of less wealthy Member States is bound to hurt their economy disproportionately, effectually hampering EU convergence efforts irreparably. 
 
Therefore, our associations consider that it would be best to maintain the difficult compromise achieved by the European Council in 2014 with regard to the level of climate policy ambition – namely the 40% GHG emissions reduction target by 2030 and the 2,2% annual linear reduction factor (LRF).Given the conclusion of the Paris Agreement and the global climate policy targets, any further increase of the LRF at this point will in effect lead to a more stringent EU climate target than politically agreed, without justification through the prism of the global GHG emissions reduction process at this stage. The UNFCCC framework agreed last year in Paris calls for ambition reviews every five years and the first global stocktake is due in 2023. 
 
For the same reasons, we are also in principle against complementary interventions in the EU ETS market by increasing the Market Stability Reserve (MSR), or any other form of regulatory interference which harm the market-based nature of the system.These interventions only add further uncertainty for market participants and may lead to an outcome which is contrary to intentions – namely lower credibility of the EU ETS. The EU ETS is a mechanism to deliver CO2 emissions reductions at the lowest cost – and it is delivering precisely that.
 
However, in the case that a higher LRF and MSR are decided nevertheless, then it is imperative that the most vulnerable countries should be provided with adequate additional support, given that the success of the European climate policy and its core instrument – the EU ETS – depends on ensuring coherence between all elements, including an appropriate level of compensations for more carbon-intensive and/or lower-income economies.These compensations should help address the modernisation challenges for power generators and facilitate a cost-efficient transition of the power sector. 
 
This has also been recognised as a key to successful implementation of the revised EU ETS policy by EURELECTRIC, which recommends in its position paper of November 2016 that any increase of climate policy ambition should be implemented only with a proportionate increase of compensations stemming from Articles 10c (derogation for the modernisation of the electricity sector) and 10d (the Modernisation Fund) of the draft EU ETS Directive. According to EURELECTRIC, a proportional increase of compensation mechanisms in the framework of Articles 10c and 10dis needed to allow financial sources to be used for the modernisation of the power sector in Member States with lower GDP per capita levels, which are going to bear higher compliance costs, as shown in a dedicated study. Moreover, the governance of funds stemming from Articles 10c and 10d has to be simplified in order to give more flexibility and more control to the beneficiary Member States in line with the EU subsidiarity principle. 
 
The list of eligible beneficiaries for these compensation mechanisms should also better reflect the actual economic situation – namely it should be expanded to Greece. 
 
Impact of the proposed EU ETS reform measures on CAPEX and electricity prices in selected Member States with high level of carbon intensity and low level of GDP/capita (national associations’ estimates):
 
Country/
Association
Additional  investment cost in  2021-2030 period
Increase of electricity prices
 
Croatia / 
HGK
€1 billion 
of  additional  investment  cost  on  top  of  the
investment  cost  otherwise  projected  by  the
Commission proposal (€1.7 billion)
18%  increase  in  electricity  prices  /  €8/MWh  higher  than otherwise projected by the Commission proposal
Estonia /
ETL
€1.7 billion the impact on the Estonian power sector of the EU ETS reform measures - in total additional investment cost
 
15%  increase  in  electricity  prices  /  €7/MWh  higher  than
otherwise  projected  by  the  Commission  proposal,  which
amounts to approx. €600 million of additional electricity costs
Greece /
HELAS
€6.1 billion 
in total additional investment cost on top of
the investment cost otherwise projected by the
Commission proposal (€8.8 billion).
14%  increase  in  electricity  prices  /  €11/MWh  higher  than
otherwise  projected  by  the  Commission  proposal,  which
amounts to approx. €6 billion of additional electricity cost on top
of the electricity cost projected for the baseline scenario (€48
billion).
Poland /
PKEE

€65 billion the overall capital expenditure for the Polish power sector 

to achieve emissions reduction required by the draft EU 
ETS Directive (baseline scenario) by 2030
20% increase of the electricity prices / €10/MWh higher than
otherwise projected by the Commission proposal
Romania / 
IRE
€15 billion 
in total    investment   costprojected
by   the   Commission proposal
12% increase of the electricity prices / €6/MWh higher than
otherwise projected by the Commission proposal
 
The proposed measures are also expected to have a significant impact on CAPEX and electricity prices in Bulgaria, as reported by the Bulgarian electricity association.
 
1“EU ETS Reform – EURELECTRIC recommendations on proposals to strengthen the EU ETS” 
2ICIS Study: „Options to stregthen the EU ETS” 
3“EU ETS Reform – EURELECTRIC recommendations on proposals to strengthen the EU ETS” 
 
 

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