Emissions Performance Standards

Memorandum submitted by EURELECTRIC (EPS 16)

EURELECTRIC is the sector association representing the common interests of the Electricity Industry at pan-European level, plus its affiliates and associates on several other continents. The European Electricity Industry recognizes the responsibility of the power sector as a major emitter of GHG and is taking actions. That is why sixty one electricity companies' CEOs - representing well over 70% of total EU power generation - signed in March 2009 a Declaration whereby our sector clearly committed itself to carbon-neutrality by 2050. As a requisite, the declaration also draws attention to the need for a properly-functioning electricity market in Europe, the desirability of an international carbon emissions market and the role of all technologies, including nuclear, renewables and CCS, to efficiently evolve to a low carbon electricity system.

EURELECTRIC had already expressed its concerns with attempts made to introduce an EPS for CO2 at European level or to allow Member States to introduce such a standard. We would like to use the opportunity of this inquiry to submit our arguments on the implications of the introduction of a national Emissions Performance Standards for CO2.

The introduction of an EU-wide EPS for CO2 would cause no additional reduction in emissions

EURELECTRIC regards the EU-ETS as the key policy instrument to reduce CO2 emissions in Europe. Properly constructed and with continued political support, the EU-ETS will provide a reliable carbon price, which will act as a signal for market participants, including power generators, to direct their investment towards less carbon-intensive production in an economically efficient manner. As a result, CCS and other low-carbon technologies will over time become competitive. It is important that EU-ETS remains technology-neutral. The European electricity industry will be subject to full auctioning of CO2 emission allowances from 2013. The power sector will therefore pay the market price for all its CO2 emissions and this cost will be taken into account in any plant investment and operation decision.

However, EU ETS can only operate efficiently if market players can freely choose between various abatement options. In EURELECTRIC’s view, there is therefore no role for mandating or banning any particular technology under the EU-ETS, and such approaches can only undermine the carbon market and reduce its economic efficiency. Moreover, there is no environmental justification for introducing regulation in this area, as CO2 emissions from the ETS sectors are in any case capped.

Banning or making mandatory any particular technology by setting an EPS for CO2 would be counterproductive

As a consequence of the introduction of an EPS for CO2, advances in CO2 capture technologies would be derailed. EPS would immediately make CCS mandatory for coal-fired power stations. It must be noted that in its impact assessment of the proposal for a CCS Directive, the Commission had found that a hasty and mandatory CCS would cost
€6 bn more than when the technology is more mature. An EPS would limit technological and cost-efficient options to reduce CO2 emissions and would thereby increase marginal costs of CO2 reduction. In addition, energy supply would become more dependent on imported gas. Since electricity generation at CCGT plants with CO2 capture would be more expensive and less efficient, unabated gas plants would be built instead of coal-fired plants ready for CCS – depending on the threshold. If coal is driven artificially out of the market by an EPS, the efficiency of the carbon market would be reduced impacting short-and medium-term investments in low carbon technologies. This would have a negative impact on security of supply and cause higher price volatility. It is impossible to consider the introduction of an EPS for CO2 before the potential and costs of CCS have been properly assessed, both for coal and gas.

The introduction of a domestic EPS for CO2 would cause no additional global reduction in emissions

A domestic EPS for CO2 would increase the domestic cost of electricity production (and price to customers). It would reduce the overall demand for CO2 allowances from the EU ETS and, as a consequence, reduce the price of allowances in the EU market. In parallel, electricity costs (and prices to customers) in other EU Member States would be reduced. It would lead de facto to a transfer of revenues from the sponsoring Member State to all others.

Article 193 TFEU and introduction of national EPS for CO2

EURELECTRIC would also like to challenge the legal interpretations claiming that member States should be allowed to introduce CO2 EPS based on article 193 TFEU (ex-article 176 TEC). A national EPS for CO2 would not constitute "more stringent protective measures" according to 193 TFEU (ex-article 176 TEC). Indeed, more stringent measures are measures which go in the same direction as the EU measure but achieve outcomes beyond those envisaged at EU level. The objective is to further enhance the level of environmental protection achieved at EU level. The implementation of national emissions performance standards in addition to the ETS would not lead to a stricter environmental approach but would indicate the choice of an altogether different approach. Member States would be choosing other measures and not "more stringent protective" ones.

EU ETS has delivered on the objectives

EURELECTRIC would like to repeat its support for the EU ETS. It provides long-term transparency and stability as well as near-term clarity, which is essential for investors in the European electricity industry. It delivers agreed carbon reductions at least cost by setting a market carbon price and it has succeeded to date in this aim.

September 2010