Isra-Mart srl : East European Governments May Deny Utilities Free Carbon Permits in 2013

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Isra-Mart SRL news:

Some East European governments may waive their option to allocate free emission permits to power producers in 2013, opting instead for auctions that would generate public money, a senior European Union official said.

Eastern and central European nations led by Poland won an exemption in 2008 from an EU requirement that utilities purchase all their carbon dioxide permits in the next phase of the bloc’s emissions-trading program, the world’s largest. The opt-out limits the share of allowances that must be auctioned to power plants to 30 percent in 2013, with the portion gradually rising to 100 percent in 2020.

The Czech government agreed last week that electricity producers including CEZ AS should buy a greater portion of CO2 permits than mandated. Prime Minister Petr Necas said proceeds from auctions would be used to offset higher power prices.

“There will be some countries that will go for full auctioning,” Jos Delbeke, director general for climate at the European Commission, said in an interview today in Brussels at a Platts seminar on emissions. “The debate is still on. I expect the debate to heat up.”

An eastern European decision to auction more permits than required would bolster government revenue while raising the threat of an unlevel playing field in the region. At issue is whether nations want to steer more revenue to finance ministries rather than increase the supply of free permits for utilities. In the next phase of the European emissions-trading system, running from 2013 through 2020, western utilities will have to buy their full allocation of permits at auctions.

Cap and Trade

The EU carbon-trading program, started in 2005, covers about 12,000 facilities that produce energy or goods ranging from paper to cement. Polluters must have an allowance for each ton of CO2 they let off. Those emitting more than their cap must buy more; those that emit less can sell their surplus. Unused allowances may also be carried over to the next trading period.

The Czech government said it has yet to decide what share of the allowances for utilities it will sell. EU permits for December 2010 fell 1.6 percent to 15.14 euros ($30) a metric ton at 2 p.m. in London.

CEZ could incur additional costs of 39.4 billion koruna between 2013 and 2020 if the state-run utility were to buy all carbon credits, according to a report published last week by Prague-based brokerage Atlantik FT.