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BB200803, News in Brief

EU ETS: towards 100% auctioning?

30.04.2008

The European Commission’s draft Climate and Energy package includes a review of the EU Emissions Trading Scheme (ETS) for the trading period starting in 2013. The review proposes 100% auctioning for the power sector. For the other sectors covered by the ETS, a transitional system would be put in place, with free allocations being gradually phased out on an annual basis between 2013 and 2020. “Overall, it is estimated that around 60% of the total number of allowances will be auctioned in 2013”, states the Commission’s text.

The proposed 100% auctioning has raised strong criticisms among the European energy-intensive industry lobby and some Member States. They point out concerns over carbon leakage, potential industry relocations to countries that have less strict emission regulation, and the future competitiveness of the European economy.

The Commission has stated its intention to put in place compensatory measures to prevent carbon leakage by 2011, yet representatives of energy-intensive industry argue that there are too many uncertainties and risks surrounding the future of such measures. If there is no post-Kyoto international agreement by 2009, the Commission has promised to assess the situation of these companies, and potentially to set up adapted measures by 2011, such as 100% free allocation of permits, sectoral agreement at international level and requiring importers to buy allowances.

In EWEA’s view, European leaders need to focus their action on the potential for innovation, job creation and economic growth that measures to tackle climate change could create. Full auctioning in all sectors of the EU ETS is the only fair and effective allocation method that can promote investments in clean technology. It is the only allocation method that applies the polluter pays principle and eliminates windfall profits.

During the first ETS trading period it became clear that the system of free carbon allowances - whereby fossil fuel producers are allocated valuable licenses at no cost - and the possibility of transforming the marginal costs of free allowances into electricity prices, create high profits for conventional power generators and put wind energy competitiveness at disadvantage. Carbon market experts see the situation as likely to arise again in the second trading period. According to a recent Point Carbon study of the UK, Germany, Spain, Italy and Poland, power companies could reap profits in excess of €70 billion over the next four years.

The European Wind Energy Association asks for 100% auctioning for the power sector from 2013, along with a strong EU-wide cap sufficient to create scarcity in the market and ensure a carbon price that makes investment in clean technologies more competitive.

More information on EWEA’s position on climate change and the ETS

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