Poland unwilling to yield on back-loading of EUAs – ministry

The Polish ministry of economy has told ICIS that it is against the principle of back-loading emissions allocations, even if the proposed volume of allocations set-aside were reduced.

“Poland does not agree with aims of back-loading. It would increase prices of allowances undermining competitiveness of the industry in times of austerity and increasing unemployment,” said a ministry spokeswoman. “Back-loading would also affect different member states differently. Some of them will have little to sell due to back-loading and therefore their gains from higher prices would be limited.”

“Therefore, Poland is against such a short-term fix in principle,” she continued.

According to Jacek Kawalczewski, an associate director at Fitch Ratings, the resulting rise in carbon prices from back-loading would be detrimental to the Polish economy. “At Fitch, we are analysing the impact of the EU’s emission policy on cash flow. We believe that the utilities will have to internalise some of the costs related to CO2 prices. They will not be able to pass on the costs to the customer,” he said.

“Price increases will force Polish utilities to choose between hard coal and gas. This will have a negative impact on the utilities, especially in the long-term [when their free allocations expire]. The impact of a price rise would be minimal for the first few years, but much greater in the mid-to-long term.” He added that it is too early to say which utilities will be hit the hardest.

EU documentation

Poland also said that it was opposed to the issues raised the in EU’s documentation published in November that outlined potential structural changes to the EU ETS (see EDCM 14 November 2012). According to the ministry of economy, the documentation is too vague. “We are waiting for more substantial analyses from the Commission,” it said.

“The ETS has been designed as a market system and should work as a market system without administrative meddling. As a market-based instrument, the ETS should deliver emission reductions and not a certain price level,” added the ministry spokeswoman. “Price is just a result of reduction efforts and information as to what state of the market is. Poland is against undermining the market-based mechanism and destroying trust in the mechanism.”

Susanne Dröge, head of the global issues division at the German Institute of International and Security Affairs pointed out that alternative strategies exist. “The EU has other options apart from back-loading. It could reduce the supply of certificates by other means. Back-loading is a way of reducing supply, but only temporarily. A reduction of the volume back-loaded could also be an idea for a compromise. Once everybody subscribes to back-loading, the volume that is set aside could be negotiated,” she said. “The Commission brought forth other ideas. One was the 30% target, which would be difficult to achieve.”

“The linear factor is another option – we could start the yearly reduction of 1.74% earlier. Also, a discretionary measure, where a floor price is introduced is another option. I think these two strategies are very interesting,” she continued.

Poland hosts the next meeting of the United Nations Framework Convention on Climate Change (UNFCCC), the 19th Conference of Parties (COP19). However, it has not disclosed the items on the agenda. “We are currently working on the planning of COP19,” the ministry spokesperson commented. KM