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Commission's rules on ETS-related state aid prove controversial

22 May 2012 18:14:53 | edcm

The European Commission has confirmed rules that will allow some energy companies to receive free carbon allowances next year, in a move it admits will give a competitive advantage to certain power generators.

Under finalised rules on Emissions Trading System (ETS)-related state aid published on Tuesday, EU member states will also be allowed to compensate their energy-intensive industry for up to 85% of the cost of emissions in energy prices from next year.

The Commission has already confirmed that 35m free EU allowances (EUAs) will be handed out to utilities in Cyprus, Estonia and Lithuania between 2013 and 2019 under these rules.

Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Lithuania and Poland have applied to the Commission for permission to give their utilities free allowances (see EDCM 16 May 2012).


The Commission was criticised by energy-intensive industry and environmentalists for its finalised guidelines.

"The level of maximum compensation determined in the guidelines is by far insufficient," David Valenti, climate change manager for steel lobby group Eurofer, said.

"Furthermore, only capacity increases taking place after 1 January 2013 are taken into consideration for compensation. Our sector has invested in capacity extensions before that date, ie during the baseline period 2005-2011," Valenti said, adding that this would create distortions in the internal EU market for steel.

His views were echoed by metals association Eurometaux, which said it was disappointed by the guidelines. It said they would fail to mitigate the risk of carbon leakage due to higher energy prices from next year. As of 2013, most energy companies will have to buy 100% of their carbon allowances at auction, which could see energy prices increase.

But Greenpeace EU climate policy director Joris den Blanken said current low carbon prices meant the risk of carbon leakage from Europe was extremely low and that any state aid for industry was unjustified.

The benchmark EU allowance contract was trading at €6.95 per tonne of CO2 equivalent (tCO2e) on Tuesday, down from €16.85/tCO2e a year ago, according to ICIS data.

Energy companies

Under the guidelines, poorer countries or those with a higher share of fossil fuels in their energy mix are allowed to request the Commission's permission to deviate from the rules for phase III of the ETS (2013-2020) by granting free allowances to power generators.

In return, the power generators must invest the value of the free allowances in cleaning up their technology and diversifying their energy mix and sources of supply.

Utilities that receive free emissions EUAs will still be allowed to compete with generators in other countries "which may, as a result, distort or threaten to distort competition and affect trade in the internal market", the Commission said in the finalised guidelines.

Energy sector lobby group Eurelectric was still analysing the guidelines, so declined to comment.

But an Eurelectric spokeswoman emphasised that the sector is "very supportive of the ETS, which we think should act as the main driver of decarbonisation and low-carbon investment".

"In general, any state aid to fossil-fuel generation is not justifiable and [is] contrary to the EU's principle that the polluter pays, and it's against the EU's principle of phasing out fossil fuels," Greenpeace's Den Blanken said. VF

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