Memorandum by the European Association
for Coal and Lignite (EURACOAL)
PRELIMINARY REMARKS
With its Proposal dated 23 January 2008, the
European Commission intends to completely revise and thereby clearly
strengthen the CO2/GHG Emissions Trading Scheme after 2013. A
policy dominated by climate protection alone is foreseen; major
energy and industrial structural issues are not considered appropriately.
In its proposed form, the Directive would probably
lead to a drastic increase of energy prices both for European
industry and also for EU citizens. Distorted competition for European
industry compared with non-European competitors and a drop in
the standard of living for the population, resulting from significant
increases of energy prices and the delocalisation of employment
outside Europe—not subject to the stringent European emissions
reduction system-, can also be foreseen.
The European Commission's Proposal would result
in competence for energy policy being transferred from Member
States to the European level. Furthermore, the considerable time
pressure to discuss to what extent major elements of national
energy and industrial policies will be managed centrally, with
national characteristics at best only playing a minor, role is
not acceptable.
The fast tempo for the procedure concerning
the Directive is due to the forthcoming European Parliament elections
in 2009. On the other hand, swift approval of the Directive enables
national economics to see early on which regulations they will
have to adapt to as from 2013. On the other hand, hastily adopting
an economically disadvantageous Emission Trading Scheme already
creates the conviction that the European economy must consider
that its worst fears have come true, with all the negative impacts
on decisions to invest. Furthermore, as experience with constantly
high CO2 prices is lacking, the time pressure required by the
European Commission for approving the Directive means that with
the given qualified reduction objectives, initially, the milder
and more balanced forms of the Emissions Trading Scheme would
be selected.
SUGGESTIONS TO
IMPROVE THE
PROPOSAL
— The Proposal is based on CO2 reduction
in the ET sectors of—21% (2005 till 2020). The total objective
amounting to only 14%, this results in the ET sector being over-burdened.
The European Commission did not give a proper explanation for
this. Potential that is achievable at less cost in other sectors,
as shown for example for Germany by the BDI/McKinsey Climate Study,
remain unexploited.
It is therefore suggested to establish 14% as
reduction objective for all sectors.
— By choosing 2005 as reference year
and by imposing an identical reduction factor of—21% for
all Member States, "early actions" (ie reductions achieved
between 1990 and 2005) are penalised. Here, a "level playing
field" and also consideration of respective national circumstances
have to be ensured.
— For climate protection, it does not
matter in which region of the world emissions are reduced. We
agree with the European Commission that if possible all states,
all sectors and all greenhouse gases be integrated in a climate
protection policy. As this is difficult to achieve for the time
being, the European coal industry considers unlimited JI/CDM is
necessary. This is also true for linking up with other Emissions
Trading Schemes.
— The main criticism of the European
coal industry is the planned 100% auctioning of CO2 certificates.
It would lead to citizens and the national economies of the Member
States with a considerable share of coal in their electricity
mix having to carry the financial burden of European climate protection
policy. Already for the first eight years till 2020, with an average
price for certificates under €30/t, a burden in the range
of up to €200 billion (!) for coal-fired power stations and
consumers of coal-fired electricity alone would have to be reckoned
with.
Coal-fired electricity generation will have
to continue making a substantial contribution to European energy
supply for decades. A responsible policy must acknowledge this.
The EU can significantly contribute to climate protection and
at the same time set an example for the world by implementing
well-timed and available opportunities to reduce CO2. Already
replacing older coal-fired plants with average efficiencies of
approximately 30% by techniques already available today with 45%
efficiency achieves a specific reduction of CO2 emissions by coal-fired
power stations of more than 1/3. Unfortunately, CCS cannot make
a substantial contribution to climate protection before 2020.
The abrupt introduction of 100% auctioning of
certificates would deprive enterprises of means they need to modernise
the power plant portfolio. This would also be questionable in
terms of industrial policy because it would weaken the energy
economy of precisely those states with a high share of coal-based
electricity generation, without giving them a chance to adapt
their power plant portfolio in time.
To reduce the negative effects of auctioning,
the European coal industry suggested introducing fuel-specific
benchmarks combined with fuel-specific compliance factors. In
this case, the operator of an installation would have to acquire
certificates not for all emissions, but only for the difference
with Best Available Technology. The economic incentive to reduce
emissions is maintained. New investments in the energy industry
remain possible, also because the enterprises are not deprived
of the necessary capital. A varied energy mix is maintained. Bottlenecks
and increasing prices for electricity would generally be avoided.
Auctioning, on the contrary—after including the requirements
of auctioning-, results in the total cost of producing electricity
(new installations) being higher than price of electricity. Auctioning
thereby encourages power plant projects to be abandoned. Less
efficient installations continue to be operated and the share
of highly efficient power plants does not increase.
If benchmarks, as alternative to 100% auctioning,
were not to obtain a majority, the European coal industry's opinion
is that, if necessary, cautious auctioning would be possible.
The following considerations would have to be taken into account,
in order to combine investment styles, cost-efficiency, competitiveness
and security of supply:
— Gradual auctioning over a longer
period, also for the electricity sector eg parallel to energy
intensive industries and establishment of the share of auctioning
by Member states.
— To support investments in modern
plants, free of charge allocation to these plants on the basis
of fuel-specific benchmarks.
— Use of the proceeds from auctioning
primarily for climate protection, eg power-plant related R &
D and demonstration (improved efficiency, Carbon Capture and Storage).
— Full acceptance of JI/CDM.
30 April 2008
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