Environmental Engineering Reference
In-Depth Information
factors such as the number of sectors in the
economy that are not subject to the scheme
or the inter-period transfer of allowances.
13
See www.pointcarbon.com. Further sources
would be, for example, www.enervia.com
and www.carbonriskmanagement.com.
14
With regard to replacing free allocation with
competitive auctioning, this competitive ex-
posure of industries other than electricity also
provides reason for the EU Commission's
proposal for the third phase of the EU ETS
suggesting a gradual phasing of auctioning
for the industry sectors other than electricity
from 2013 to 2020. To a certain extent, the
EU Commission and Member States would
have the ability to recycle some of auction-
ing proceeds back to the industry sectors to
compensate for the additional cost burden
the the latter are unable to pass on. But it is
unlikely and politically difficult to imple-
ment total revenue neutrality.
15
In regulated electricity markets, as still
found in some EU Member States like for
example in Poland and Hungary, electricity
is usually priced on an average cost basis.
Electricity producers may only recoup out of
pocket costs plus a regulated return so that
total costs are covered and there is a return
on investments in the generation plants. In
fact, similar pricing patterns could be found
in electricity markets characterized by long
term electricity purchase agreements with
upstream supply businesses backed by long
term fuel supply contracts. However, there
is a strong drive for greater liberalization in
European energy markets.
16
Varian (2003), for example, emphasizes
the point that in economics, the concept of
opportunity cost must be taken into account
whenever a resource can be used in alter-
native ways. See also Grafton and Devlin
(1996) and Nentjes et al. (1995).
17
For example, according to IPA (2005) elec-
have made £ 800 million in windfall profits
within the initial phases.
18
Please note that there is indeed the alternative
for governments to directly sell emission
allowances into the market on a discretion-
ary basis. This approach has been taken in
Germany in 2008 and 2009 of the second
trading phase of the EU ETS. 10% of the
total amount of allowances was sold by state-
owned bank Kreditanstalt fuer Wiederaufbau
(KfW). The remaining 90% were subject to
free allocations. In principle, this approach
proved to be reasonable when volumes to
sell are small compared to daily trading
volumes. However, Germany moved from
direct selling to auctioning for the remaining
years 2010 and 2011 of the second trading
phase.
19
See also Van Damme (2002) for a discus-
sion of the differing designs and results of
European UMTS auctioning.
20
According to EU Commission consultation
paper “Technical Aspects of EU Emission
Allowances Auctions”, August 2009, the
2003/87/EC directive covers around 11 000
- 11 500 installations across the EU from
the most intensive CO2 emitter sectors;
specifically combustion plants, oil refineries,
coke ovens, iron and steel plants, and fac-
tories producing cement, glass, lime, brick,
ceramics, pulp and paper. See also http://
ec.europa.eu/environment/climat/emission/
citl_en.htm.
21
To supervise the commitment of the objec-
tives, the European Community has estab-
lished that each Member State must submit
a report of the verified emissions in a given
year by March 31 of the following year. For
example, the Member States must submit
a report of verified emissions in 2009 by
March 31, 2010. In that report, compliance
of emissions of each company covered by
the directive must be specified. Additionally,
these companies must surrender the allow-
