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Germany and UK have greatest deficit of EU carbon allowances

UK carbon Emissions and allowances by sector
UK carbon Emissions and allowances by sector

Figures show that the UK and Germany have the largest deficit of allowances to pollute under the EU Emissions Trading Scheme (EU-ETS), meaning they have to purchase more to meet their obligations.

The deficit arises exclusively from their power sectors’ burning of more fossil fuels than originally estimated.

Individual Member States implement the trading scheme in different ways and have mixed fortunes.

Each are given allowances, distributed amongst their industrial sectors by arrangement, in anticipation of how they will be “spent”.

The summary below, using up-to-date figures collected by Sandbag shows that Germany and Britain have the greatest deficit, and Romania and France the greatest surplus of allowances.

The figures represent the balance among many EU nations between the total of free allowances (EUAs) given in the current Phase II of the EU-ETS, minus the actual carbon emissions up to date, by country, ranked from the winners to the losers.

Romania: +60.3m
France: +43.7m
Spain: +33.3m
Czech Republic: +27.9m
Italy: +26.4m
Belgium: +19.4m
Poland: +13.3m
Portugal: +12.0m
Bulgaria: +10.3m
Sweden: +5.24m
Austria: +4.4m
Luxembourg: +927,553
Finland: -222,813
Slovenia: -414,803
Greece: -1.9m
Denmark: -5.47m
United Kingdom: -81.9m*
Germany: -174.6m*

* exclusively due to the power sector, which has a considerable shortage of allowances.

This means that, assuming, say, a price of €9 per EUA, Romania’s surplus is worth €542.7m, and Germany’s deficit will cost it €1,571.4m while the UK’s costs it €737.1m.

The UK’s industrial sectors, that is, the heavy energy users which have been complaining that the EU-ETS adds to the cost of their energy use, actually currently have a combined surplus of permits of 46 million EUAs, worth €414m, at the €9 rate, which they were given for free.

Across Europe, some energy intensive sectors still oppose reform despite the fact that they, so far, are not affected by it.

Germany’s severe deficit contributes substantially to an overall shortfall among the above nations of 7.34 million credits.

The UK and Germany’s position has arisen from the need to burn more coal, and to a lesser extent gas, to compensate for closing nuclear power stations (in Germany’s case) and a closed nuclear power station and cold winter, in the UK’s case.

EU may act to boost carbon price

More top businesses have been joined by European Parliamentarians in calling for reform of the EU ETS in order to prevent a new generation of investments being made in fossil fuel intensive technologies.

The danger of this happening was made clear in a leaked Commission document last month, as a low price for carbon makes polluting technology more economically attractive than most renewables and provides less incentive to invest in saving energy.

The business names include: Shell, Alstom, Doosen and Philips, as well as a growing number of power companies, such as E.ON, SSE, ENECO and DONG Energy.

A vote yesterday by EU parliamentarians to withdraw an unspecified number carbon allowances in order to prop up EUA prices, which have reached record lows, means that a move to cut the glut of EUAs on the ETS market looks more certain to happen.

Carbon prices perked up at the news, with the benchmark contract price rising nearly 4% to €8.68 per tonne within hours.

After the meeting, Dutch Green MEP Bas Eickhout reported that negotiators from all parties supported the compromise and there was “a good chance” it would get voted through at a crucial meeting of the European Commission on 28 February.

UK Allowance sales

A sale by DECC of 3.5 million EU Allowances on 9 February showed a healthy demand, with 5.89 times the demand of the supply, such that bidders were only able to obtain 62% of what they bid for.

The EUAs went for €8.11 each, down from €9.72 fetched at the last auction three months earlier.

The price has halved from a peak last summer, as the figures below show:

Nov ’11: €10.38
Sept ’11: €12.31
July ’11: €13.17
June ’11: €16.34
March ’11: €15.59
Feb ’11: €14.36

The price drop underscores the call by the big companies and Parliamentarians for action.

Last month, think-tank Civitas criticised the EU-ETS for being expensive and ineffective.

Sandbag’s research points to the opposite conclusion: that emissions trading delivers carbon reductions at lowest cost, minimises the burden on consumers and businesses, and that the electricity sector has consistently shouldered the greatest effort under the scheme.

The design of the next trading period (2013-2020) is being deliberated now.

It is already determined that the electricity sector will buy all of its pollution permits at auction, and that heavy energy using industrial companies will continue to receive up to 100% of their permits for free, depending on their exposure to international competition and their carbon efficiency compared with their European competitors.

The latter are affected by indirect carbon costs, but the Directive allows member states to compensate them if required, and this is exactly what George Osborne announced in his autumn statement.

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