EU Parliament negotiators are holding out against keeping lax carbon market rules for another decade that have already seen the bloc’s flagship climate policy divert billions of euros towards big-emitting coal power plants.
Envoys from Parliament, European Commission and EU Council of member states are due to meet at 1800 Brussels time on Wednesday in talks that are widely expected to finalise the post-2020 EU ETS reform bill.
During the previous round of closed-door negotiations last month, MEPs held out for an unprecedented 13 hours until 0330. They refused to budge from an explicit demand to restrict cashflows from the EU’s Modernisation Fund and Article 10C derogation programme to projects that exceed 450g of CO2e/kWh, effectively banning the financing of new coal-fired power using public funding from ETS allowances.
“As the EU’s climate tool number one, we cannot accept an ETS that redirects billions of taxpayers’ money to investments in dirty coal power for decades,” Swedish MEP Jytte Guteland, representing the centre-left S&D political grouping, said shortly after those talks broke.
FUNDING FUELS
On Tuesday, EU officials released data that confirmed that 86% of funds from Article 10c had so far been spent on coal-based generation rather than emission-free renewables.
“The total value of reported investment between 2009 and 2015 was around €9.5 billion, with approximately 80% of the investments dedicated to the upgrading and retrofitting of infrastructure. The remaining investments supported clean technologies or the diversification of supply,” the European Environment Agency (EEA) said in its ‘Trends and Projections in the EU ETS in 2016’ report.
“To date, the majority of Article 10c allowances have been distributed to lignite-fired and hard coal-powered plants, mainly in Bulgaria, the Czech Republic, Poland and Romania,” it added.
As the biggest power user, Poland was entitled to divert over three quarters of the 680 million Article 10c allowances, worth around €5.4 billion at today’s prices, to its utilities for free.
These rules were agreed in 2009 and designed to appease reluctant poorer coal-dependent eastern member states, giving them a higher proportion of allowances to sell and allowing them to give away some more for free to their power companies if they invested in upgrading their fleet and diversifying supply.
But campaigners say the rules lack stringency and have merely allowed these governments to extend the lifespans of highly polluting power plants or plug holes in their national budgets, wasting billions meant to be spent on cutting emissions.
This is because the EU’s centralised climate change policy overlaps with energy and spending, areas EU members have agreed to be largely determined at national level – resulting in little transparency over which projects receive funding.
POLAND PROTEST
Poland has pointed out that the current ETS rules don’t stipulate any particular technology for the funding. Unlike many western EU states, the country is also on track to meet its part of a separate EU target for 15% of its final energy use to come from renewables by 2020.
Polish Prime Minister Beata Szydlo has threatened to put the ETS and all other parts of the bloc’s climate policy up for revision at the next meeting of EU leaders in December if the new ETS bill cuts funding to the country’s existing plants.
“If the EU is serious about its commitments under the Paris Agreement, it must not bend to the Polish government’s demands … [the EU] must put an end to subsidising coal through the ETS funds,” said Joanna Flisowska of green group coalition CAN Europe.
Environmentalists fear time is running out to transition to cleaner energy and point to modelling from the International Energy Agency, which shows that unabated coal power in Europe must fall to zero by 2030 to meet the climate change goals of the UN Paris Agreement that require all nations to reduce their net emissions to zero by the second half of the century.
The ETS bill negotiators are under pressure to strike a deal this week to allow ministers to demonstrate the EU’s global leadership on climate action at the UN climate summit in Bonn, Germany.
Estonia, steering the ETS talks on behalf of EU member states, had previously rejected the Parliament’s demand for a 450g limit on funding in favour of a vaguer formulation to ensure spending is in line with Paris’ goals.
But a group of seven western EU nations including France and Germany are moving closer to MEPs’ view, and insist that any final deal must not allow funding to be used to support coal power.
FACTFILE:
- The so-called trilogue negotiations are between the EU Commission, Parliament and Council of member states and are held in private.
- The reforms’ main EUA-price driving element – a doubling of the MSR’s annual absorption rate to 24% until 2023 – has already gained widespread approval by the institutions.
- A more recent compromise is to start cancelling allowances held in the MSR in 2023 rather than 2024, a move expected to have no price bearing until the late 2020s once the MSR is due to start returning allowances to the market.
- A trilogue deal still needs to be formally rubber-stamped by both the Council and the full EU Parliament in a process that can run for weeks and months but that is rarely an obstacle.
- Carbon Pulse’s 63-page EU ETS dossier features a Phase 4 reform tracker with the positions of the three institutions on all the key elements of the bill and its predicted price effects.
By Ben Garside – ben@carbon-pulse.com
