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Czech government infighting could jeopardise free emission allowance allocation

01 Sep 2011 18:40:41 | edcm

Opposition from the Czech finance ministry could derail plans to give 108m emissions allowances for free to electricity producers such as ČEZ and EnBW.

The finance ministry is objecting to the plan, backed by the environment and industry ministries, to use a derogation in the EU Emissions Trading System (ETS) directive and let power producers opt out of full auctioning in Phase III (see EDCM 31 August September 2011).

It instead wants to limit the emissions allowances given out gratis and secure state revenues from participating in EU-wide carbon auctions, a spokesman confirmed on Thursday: "You have to keep in mind the state of the budget. If you have a deficit, why give something away for free without any monetary compensation?"

Opting for free emissions allowance allocation to the power sector under the EU ETS derogation delivers a double hit on state carbon revenues.

The first hit is the state losing out on money from the auctions. The second is that the government also has to invest the estimated market value of the allowances given out for free in clean technologies.

The finance ministry spokesman said a compromise would now be negotiated with the industry and environment ministries. He declined to comment on whether the ministry would push for a reduced free allocation or any payback mechanism from the utilities.

At current benchmark EU allowance prices, the potential Czech free allocation would be worth €1.4bn, according to ICIS Heren data.

The Czech government has to resolve the ministry infighting before 30 September - the deadline for countries to apply to the European Commission for the auctioning derogation.

"There's not a lot of time, but we hope we can solve this soon," the finance ministry spokesman said. IS

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