Examination of Witnesses (Question Numbers
420-439)
Professor Jerzy Buzek and Professor Krzysztof Zmijewski
22 OCTOBER 2008
Q420 Chairman: At any one time, if you
have the most efficient technology and that is used as your criterion
and then you have a cost that you have to pay if you are not applying
the most efficient technology, where is the price incentive to
improve the technology?
Professor Buzek: I can explain it in
such a way: If you are producing electricity today and having
efficiency of 35% in old power stations, old power plants, and
today it is possible to produce electricity using coal with efficiency
of 46% not 35%, so the difference between the emissions of CO2
is very big—two power stations producing the same amount
of electricity, one with efficiency of 35% and another one with
efficiency of 46%—the first one is producing 30% or 40%
CO2 more than the second one, the more efficient one, and this
difference it is necessary to buy on the market, but not everything.
Because if we have the most efficient today -we can say that everybody
would like to have the most efficient technology. And the technology
which is less efficient we must improve, we must change the technology
as quickly as possible to improve it and to have a better one,
as not to spend money on allowances. If we are talking about cost-free
allowances in the system, which are awarded to the best technology,
we can say, "You can sell cost-free allowances, but which
ones?" Let us say that you improve your technology from 46%
(the benchmark one year ago) to 50% during one year, so you "spare"
another amount of CO2 in comparison with the last benchmark, you
can sell this small portion.
Q421 Chairman: I see.
Professor Buzek: So you can save additional
money. We cannot sell any free allowances; except these allowances
which we can save improving efficiency. This will be money in
our pocket. For these producers who are having a very bad efficiency,
a very low efficiency, it is a horrible situation, because they
must pay for a lot of allowances, because they need to be on the
level of the best. And the best? What do they want, the best?
They want to sell allowances and to improve efficiency from 46%
to 48% to 50% or even more, and then to sell on the market and
to have money for new investment. So incentives are absolutely
clear. Absolutely clear. It is not so much money in our budget,
of course, but we do not like it very much. This is a different
question, of course—because it is going to the national
budget but we do not like it very much.
Professor Zmijewski: The benchmark is
established ex ante and the allowances are given ex
post. We know the benchmark from the real technology: "If
you can improve, that is your money." That is a big incentive
for every one.
Q422 Chairman: I have got the model.
Professor Zmijewski: The level of emission
is granted by the level of the supply from the European Commission,
so the path to reach the goal is guaranteed 100%. There is no
threat.
Q423 Baroness Sharp of Guildford: If
I am right in understanding your model, the idea would be that
between 2013 and 2020 you would gradually move towards auctioning.
Professor Zmijewski: Right.
Professor Buzek: Yes—well, if we
could explain this very important question, my Lord Chairman.
There is some problem with the period of 2013-2020. If you are
going towards the benchmarking system, both in the energy-intensive
industry and the electricity sector we can say it could be forever:
because we have always incentives and it is working also in 2030
and in 2040. But talking about the problem very honestly, it was
a proposal from the European Commission to have full auctioning,
100%, for the electricity sector from 2013. At the beginning,
if we do not have the proposal of a benchmark, we wanted to have
a phase-in to this system between 2013 and 2020. But it is not
very good solution and much better is benchmarking. But if it
would be necessary to buy everything on the market, it is better
to go in this model step-by-step during eight years; let us say,
20% 30%, 40%, 50%, 60%, every year and more, and to get used to
the new rules. It is only something like a preliminary proposal:
phase in, instead of jumping into the water when we do not know
if it is hot or cold, but better, much better, is a benchmarking
system, of course.
Q424 Lord Wallace of Tankerness: When
you talk about a benchmark, are you talking about a national benchmark
or a European benchmark?
Professor Zmijewski: Fuel specific European
benchmark.
Professor Buzek: Benchmark for fuel,
and also for cement industry. We can explain. In the cement industry,
we have now in Poland the best technologies all over the world,
if you have comparison. Just in this industry: in others we are
not so good, of course—in chemistry or something. So it
should be for the whole of Europe. For Europe. Also, for coal
and for lignite, a different benchmark. For gas, for oil, a different
benchmark, because it is a different position. And European fuel
specific, of course.
Q425 Lord Cameron of Dillington: Perhaps
I could bring you back to the possible reality whereby you do
not have any free allowances and in the energy sector they all
have to be auctioned. The Commission has calculated that Poland
will receive approximately €3 billion a year for the auctioning
of its own emissions permits and a further €1 billion a year
from the redistributive element through the rest of Europe. I
am wondering if you have had any thoughts about how you might
use that quite considerable amount of money. Would you use it
to protect consumers who might be badly affected by higher energy
prices or would you prioritise the encouragement of alternative
energy production or even encouraging electricity savings in businesses
or even in the homes?
Professor Buzek: Thank you very much
for this question. Starting from the figures, of course it will
be about €4 billion together in our budget from selling the
allowances. But, as a matter of fact, our industry and the electricity
sector in 2013 should buy more, and it will be bought in the European
market, so, as a whole, our economy will lose something like €2
billion more or less. It is very easy to count it. We have, also,
in our information sheets how we can calculate it very easily.
Of course, in our budget will be €4 billion, but, together,
our industry and the electricity sector will have to be buy much
more allowances.
Q426 Lord Cameron of Dillington: Why?
Professor Buzek: Talking about the figures,
we can say that it will be 90% cent of emissions from 2005, and
it means that we must strongly diminish emissions. If we take
all the figures together, we must buy more than we will have in
our budget. But still we can say that we have a lot of money in
the budget and we can spend that. Mainly in Poland 80% of income
to budget revenues—80%—will be from the electricity
sector; the rest will be from the energy-intensive industry. What
does that mean? We are giving something like tax for electricity,
and electricity is used everywhere, so we have general taxes.
Having more money in the budget—we have this money thanks
to taxes—we do not like it very much, because it means that
the competitiveness of our industry is declining, because it is
a tax for everything, from offices to householders to industry,
everywhere. If you want to go with revenues back to householders
or to industry, as it was the question, it is very difficult to
recognize where we should add money. We will have in our budget
money from revenues later, because, first of all, the prices will
be higher. So, first of all, we have no competitive economy, generally
speaking, having high electricity prices—even 80%, 90% higher
than it was without ETS system. Having such a situation is not
very convenient for us to go back with revenues. Well, in Poland,
we are against it. Our Minister of Finance was fighting against
such a solution, probably because, 44 years out of the war, we
have just experienced such a budget. Everything was artificial:
taxes, payments, and it was redistribution from the central budget.
It is something similar. We would like to have money in our budget
and then to redistribute it. We prefer to have money in customers'
pockets—and even companies' pockets, to force them to change
technology on the level of companies. Of course, it is a problem
of windfall profits. They are now. If we can diminish the windfall
profits or check them in companies, it is much better not to have
a flow of cash from customers to budget and from budget back to
customers or industry, and it does not mean so much as losing
the competitiveness of our economy, generally speaking. In the
case of Poland, because electricity costs could grow by even 80%
or 90%. It is a much different situation in France or Sweden,
not having such a big change in electricity costs. There is also
a problem of carbon leakage straight away from electricity, because
in Ukraine or in the Kaliningrad regions they are preparing themselves
for producing electricity from coal very cheaply, because they
are not obliged to pay for CO2 emissions they think, and to send
it to Poland. It will be straight away the same in Slovakia and
Romania. In our part of Europe, therefore, we could have also
direct carbon leakage outside the EU, producing electricity from
coal in the Kaliningrad region or Ukraine, and sending electricity
to EU countries. From this point of view, 100% of auctioning is
very dangerous. It is of course promoting new technologies—of
course, we agree—but from the point of view of electricity
costs, overall costs, competitiveness, it seems to be very, very
dangerous—and not for every one economy on the same level,
of course. In every one EU country there will be a different situation
from this point of view. So it is the reason, as it was the question,
that we are not very interested to have money in our budget. We
prefer to have it in customers' pockets and even in companies'
pockets to force them to change the situation in the electricity
sector.
Q427 Lord Cameron of Dillington: If the
permit price went up, that would presumably, in your argument,
make things worse not better.
Professor Buzek: Yes.
Professor Zmijewski: Much worse. May
I add figures? Our county's income is €4 billion. The spending
from the power sector is €5.2 for the year 2013 and the spending
from the industry is €1.5 billion. Together, it is €6.7
billion. So we have €6.7 billion costs for the society and
€4 billion income for the budget. It is not a good business
for society. Maybe it is a good business for the budget, but society
does not like it. Of course this money should be spent for energy
efficiency and to help the vulnerable families, that is for sure.
There is no doubt about it.
Professor Buzek: But it is not very easy
to recognize where to send the money—as it was not during
the communist economy. We remember it very well. It was very difficult
to say where we should send money, and every year it was worse
and worse.
Chairman: It reminds me of the Common
Agricultural Policy, but never mind.
Q428 Baroness Sharp of Guildford: You
need to have an incentive on the part of individuals and companies
to move towards energy efficiency. Insofar as you are saying that
the money is better in the pockets of the individuals—
Professor Zmijewski: Or companies.
Q429 Baroness Sharp of Guildford: —or
companies, it is nevertheless important that the price signals
are there.
Professor Zmijewski: My Lord Chairman,
we only say to reduce the cost for the society, not to make them
zero. We agree it must be a cost for the society—we need
money for improvement—but let us make these reductions at
the lowest possible cost for the society. Still the same reduction,
20% for the year 2020. We are not against this. It was not stated
at the very beginning, but we should say it now.
Professor Buzek: I did state it at the
beginning.
Q430 Chairman: Yes, very clearly.
Professor Buzek: I am sorry.
Professor Zmijewski: But because we would
like to go with such a line as it was proposed by the European
Commission, 20% reduction is a straight line from 2008 or 2009
to 2020, and we are going on this line. We are not changing the
line at all, even one millimetre. It is one problem, saying it
honestly, because it is a problem how to use all the revenues
in our budget, our national budget all over the European Union,
because we need support for third countries, and some part of
the money is proposed to be used in third countries outside Europe,
for mitigation and also adaptation. Of course, from this point
of view, it will be less money for that, having such a proposal
like a benchmarking system, because it will be not so much money
in every one national budget. In the Polish budget it is not €4
billion, but maybe €1 billion or half a billion less from
these differences which are buying on the market. So in this case,
probably it is necessary to give third countries money from the
general budget, as it was until now, because in the European Union
we were paying money to third countries to improve economy, and
also adaptation is very costly in some countries, Bangladesh and
so on, and we were sending money in those countries from the overall
European Union budget. We should continue the same in the next
years, if we have a benchmarking system, having less money in
national budgets. I think it is a much better system than taking
money from national budgets.
Chairman: We still have quite a few topics
to cover, so we need to try and speed up a little bit. Let us
change the line of questioning quite significantly and deal with
energy security.
Q431 Lord Palmer: I can completely and
naturally understand why you are reluctant to switch away from
coal fired power generation towards gas fired power generation,
for the obvious reasons of energy security. How long do you envisage
it will take before other technologies—and you did touch
on carbon capture and storage earlier or, indeed, nuclear power—can
be developed into viable alternatives and what policies are you
hoping to put into place to speed up this process?
Professor Buzek: My Lord Chairman, it
is a very short answer. If we work very hard and spend a lot of
money, in 12 years, 2020, we can have 15% of renewables. And we
want to do that. It is our EU task. It is different in every one
EU country. In some countries it is 20%, in some countries it
is 25% or 28%. In Poland, it is 15%, and we want to have it in
2020.
Q432 Lord Palmer: Would you get there
by wind, particularly.
Professor Buzek: Yes, wind, biomass,
and bio gas, nothing else—because we do not have any other
possibilities.
Q433 Viscount Ullswater: You do not have
hydro electricity?
Professor Zmijewski: Three megawatt an
hour. That we can improve!
Professor Buzek: There is nothing. In
comparison with Sweden or Norway, it is nothing—or Austria.
Professor Zmijewski: No alps!
Professor Buzek: So it is 15%, spending
a lot of money, but we want to do that, as a matter of fact. Second,
we can go ahead with nuclear. We are about a decision in this
direction. Because of Chernobyl, we stopped it 20 years ago—because
of Chernobyl, we must say, because it was 250 km from our border.
It was not very far from our society. It was a very, very dangerous
situation. We could have 15% of nuclear energy by about 2020,
if we start immediately, not having any experience, and having
two big reactors during 12-15 years. So that is 30% of electricity
from nuclear and from renewables. The rest must be from fossil
fuels. We do not have gas, we do not have oil. We must take them
from abroad, and we have only one direction until now, from the
East. We do not have any other ways, so it is very difficult for
us to decide in this direction. We must keep close to coal. Carbon
capture and storage we would like to start immediately. We are
very interested to have two demonstrations, full scale industrial
installations, about 400 megawatt every one, for full carbon capture
and storage. Two of them are planned. We would like to finish
it until 2015, and we expect until 2020 this technology will be
ready, as it is said today, in zero emission fossil fuel power
plant European Union technology platform, which is preparing the
whole programme for the European Union. This demonstration plant
will be with the great support of the European Union. There are
also some British projects on the desk in the European Commission,
two or three of them, and 12 will be supported very, very strongly.
From this point of view, we can say that the timetable is quite
visible: renewables and nuclear, the rest must be coal, and we
would like to have carbon capture and storage as quickly as possible,
I mean 2020, and to improve it and to—
Professor Zmijewski: By coal, it means
high efficient coal.
Professor Buzek: Of course. Thank you
very much. It means not 35% but maybe 46%. And in coal generation
or polygeneration, producing not only heat and electricity but
also chemicals, like gas for fertilisers, for example, we can
achieve an efficiency about 60%—it is fantastic, really:
60%. Producing gas during coal gasification is another method.
It is working in South Africa, for example, and it is working
in some places in the United States. We are going to change our
power electricity sector in stronger changes.
Q434 Chairman: Obviously, if you diversify
into gas at the moment, then you are becoming dependent on a rather
large neighbour. Looking forward, are you beneficiaries of the
development of pipeline from the Caspian through the South Caucuses?
Professor Buzek: It is another question
that is very difficult. We know we have North Stream and the South
Stream. They are two gas pipelines which are not going through
Central Eastern countries. One of them is going through the Baltic
Sea; another one is going by the Black Sea straightaway to Italy.
From this point of view, it is not a good situation, because,
during the last meeting in the European Parliament, representatives
of the Russian energy sector presented the figures, and gas pipelines
which are going now through Ukraine or through Belarus will be
much less exploited in the future. About 50% less gas, or even
more, through Ukraine and Belarus in the future, when North Stream
and South Stream will be built. From this point of view, our security
will diminish, and also, of course, in Ukraine and Belarus It
would be very important, from the point of view of EU countries,
to have a common foreign and energy policies and to try to negotiate
with our partners—and we need to have them, of course, in
Northern Africa and so on—together, to try to substantiate
optimisation of contracts, because now it is going in such a way
that for Russians, or maybe also for North Africans, it is much
easier than for us on this market and it is not a convenient situation
for us.
Q435 Chairman: I can quite see that.
Professor Zmijewski: This is only one
time, when I am not completely agreeing with my Prime Minister.
Our obligation is to have 15% of renewables. Our calculation is
in order to obtain 20% reduction of CO2, and the result is that
we will have to have 25% of renewables. It does not matter if
you like it or not, it is the must. It is the must.
Professor Buzek: Okay. It could be. I
am not against such a proposal. Being politicians, I must be very
gentle.
Professor Zmijewski: That is why I liked
to co-operate with my prime minister.
Q436 Viscount Brookeborough: Would you
like to say something on your relationship with Russia. Have they
become even less reliable over the last five years in your view,
and can you see it changing in the future, because we are talking
about world trade.
Professor Buzek: We re talking about
the last 10 years, and we had just 10 years ago such a specific
case. We learned that 11 Russian diplomats were not rather working
for diplomacy and it was the official decision of the government
just to send them over to Poland. It was a small crisis for half
a year between Poland and Russia, and after that it was really
very, very good relations—the best during the last 20 years—because
the Russians like if anybody is going step by step, by international
law, and doing everything the very hard way but, also, the very
trusted way. And it was just such a decision about these diplomats:
everything was on the table and everybody could see it. After
that, we had two or three years very good relations, and now it
is much worse. But I think it is not worse for Poland than between
other countries of the EU. We are doing everything to improve
the situation because we think relations with Russia are very
important for both sides—also for Russia. It is our European
interests to have a strong Russia, to have stabilisation of this
country, but we are worried about democracy and we know very well
it is far away from democracy. They understand the democratic
rules in quite a different way, and we do not like it, because
we like our way, not their way. It is one difference, very important,
but we should do everything to improve situation. The key for
that is Ukraine. I am very sorry it is going so badly in Ukraine
today. If we could achieve democracy and free market economy in
Ukraine, it would be fantastic—the best sign for Russians—because
they could understand something which is coming from Ukraine much
easier than it is coming from West Europe. It seems to me that
Ukraine two or three years ago was much closer to democracy and
free market than today. Something is wrong. I had a great privilege
and honour having one million persons during the Orange Revolution
in front of me and speaking to them, at the end of 2004, as the
official representative of the European Parliament and also somebody
from Poland who they could know very well. It was really a very
great hope to prepare something like free market and democracy
in Ukraine, and it would be influencing Russia much, much stronger
than everything we are doing in Western Europe. It also should
be our task to improve—if we can, of course—the situation
in Ukraine and to influence it in this way, because we believe
in our democracy, of course, sitting in the Houses of Parliament
in Great Britain.
Q437 Chairman: We are not awfully keen
on democracy in the House of Lords!
Professor Buzek: Okay. Well, not everything
is visible for outside.
Q438 Viscount Brookeborough: You have
talked about benchmarking and so on, but I know the Polish Government
has argued that the Commission's proposed year for measuring emissions
reduction, 2005, would discriminate against countries whose emissions
fell sharply after the fall of communism. Could you identify which
other Member States share this concern and explain what progress
you have made in discussions on this issue of the base year?
Professor Buzek: It is Estonia, Latvia,
Lithuania, Slovakia, Hungary, Romania, Bulgaria. I omitted a few
countries, and I can tell you which ones very precisely: the Czech
Republic, Slovenia, Malta and Cyprus I omitted. The rest of Central
and Eastern Europe, and of course additionally Italy and Germany,
as a matter of fact, they are supporting. Maybe not so strong
as it was in the eight countries I mentioned before, but still
they are thinking about changing opinion on it. They have not
changed, yet, until now.
Q439 Viscount Brookeborough: Will it
have an effect or will we continue with the base year as laid
down?
Professor Buzek: I am sorry I did not
understand.
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