Isra-Mart srl: Energy efficiency targets risk EU carbon price collapse – utilities

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The EU’s proposed energy efficiency directive could lead to a collapse in the carbon price if the European Commission doesn’t act to reduce the supply of EU allowances (EUAs), five utilities have warned.

In a statement released yesterday, Scottish and Southern Energy (SSE), Dong Energy, Eneco, Public Power Corporation and Sorgenia warned that energy savings from the implementation of the directive – due to be published on 22 June – “will have the unintended consequence of causing the collapse of or tremendous decline in the carbon price”.

The utilities are calling for the European Commission to set aside EUAs equal to the expected greenhouse gas reductions delivered by the energy efficiency directive.

“We urge the European Commission to ensure that Energy Efficiency and the [Emissions Trading System] remain complementary instruments in the fight against climate change. Failure to do so could severely hamper business incentives to invest in low-carbon technologies, as the price signal will be skewed in favour of fossil [fuel-] based solutions,” they added.

The companies say they are supportive of the directive, which “will hopefully constitute an important step towards achieving the EU’s 20% energy savings target by 2020”.

Bas Batelaan, head of European affairs at SSE told Environmental Finance's sister publication Carbon Finance that is was difficult to predict the exact impact of the directive on the carbon price, but noted its effects could be felt “over the coming decades”.

However, according to a draft impact assessment under preparation by the Commission, dated 19 April and seen by Carbon Finance, a 20% energy efficiency target is likely to push the carbon price down to €14/tonne by 2020, from €25/t under the reference scenario.

Other modelling suggests energy efficiency measures could push the carbon price to zero.

Batelaan added that there is a battle ongoing within the Commission regarding a potential allowance set-aside, with DG Energy opposed to the suggestion, while DG Climate Action is supportive. In March, Peter Zapfel of DG Climate Action suggested that a 500 million-800 million EUA set-aside could be used to balance energy efficiency measures.

Three months ago, the five utilities were joined by Statkraft in calling for the EU to increase its 2020 greenhouse gas target to 25% below 1990 levels, from the current 20%.

Batelaan said that this latest statement was put together at short notice, and there hadn’t been time to get the necessary approvals from Statkraft.