Bloomberg News

CO2 Fix May Boost State Revenues by Half, EU Note Shows

December 06, 2012

European Union government revenue from carbon permit auctions may increase by an average 51 percent in the three years to 2015 should member states approve a plan to delay some sales, according to an EU document.

The measure drafted by the European Commission to postpone selling 900 million allowances until 2019-2020 would boost the cost of emission permits in the EU market to 10 euros a metric ton in 2013, compared with a scenario where no volumes are postponed, according to the document obtained by Bloomberg News. Poland, which opposes the proposed EU strategy, said its own analysis showed it will cut revenue for some central and east European countries.

At stake are prices in the world’s biggest cap-and-trade emissions system after they plunged 76 percent since the beginning of 2008 as the economic crisis hurt industrial output. The proposed stopgap measure, known as backloading, would alleviate oversupply which swelled to almost half of the average annual pollution limit in the 27-nation EU amid the downturn.

“Backloading is expected to deliver positive fiscal impact for member states in times of austerity,” Isaac Valero-Ladron, climate spokesman for the commission, said today by e-mail. “Fiscal impact is one element considered by member states in forming positions on back-loading.”

Total Revenue

The price of permits would rise to 11 euros in 2014 and 12 euros in 2015 should backloading enter into force, according to the note sent by the commission to 27 member states. That would earn a total 21 billion euros ($27.6 billion), compared with 14 billion euros without backloading. EU carbon permits for December rose 0.7 percent to 6.19 euros a metric ton at 1:35 p.m. London time.

Total state revenue from auctioning in the 27-nation EU will rise by 12 percent to 5.1 billion euros in 2013, by 48 percent to 6.8 billion euros in 2014, and 91 percent to 9.3 billion in 2015, assuming that countries approve the delay, the commission said in the document.

Delaying some sales would boost revenue by 59 percent for the 19 countries whose power producers won’t get any permits for free when the next phase of the carbon market starts next month, according to the EU.

Slower Increase

Six countries in central and eastern Europe, which won an exemption in 2008 from the bloc’s requirement that power plants purchase all their allowances from 2013, would see a slower increase in revenue. Those countries are Bulgaria, Czech Republic, Estonia, Hungary, Lithuania and Romania. Revenue from carbon-permit auctioning in two other countries with the exemption, Poland and Cyprus, would fall should backloading be implemented, the document showed.

The EU opt-out allows utilities to get for free in 2013 allowances corresponding to 70 percent of their average annual emissions for the period 2005 to 2007. That number will decrease gradually each year and in 2020 power plants will have to buy all their permits at auction or in the market.

The more free permits a country with the exemption receives, the less backloading increases its revenue from auctions, the commission said in the document.

“In such cases, it rather increases the implied value of free allocation,” it said.

A fiscal impact analysis by Poland showed the proposed measure would cut revenues for countries with opt-out for auctioning permits to power plants, according to a government official. The biggest of the member states who have joined the EU since 2004 is concerned about the issue and would like to raise it at the next meeting of ministers, said the official, who declined to be identified, citing policy.

To contact the reporter on this story: Ewa Krukowska in Doha at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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