But these overall figures disguise the impact that the cost of
combatting climate change will have on those sectors where the greatest
effort is needed to cut emissions. Chief among them is the power
generation sector, which has already shouldered the bulk of the burden
in the first two phases of the European emissions trading scheme--the
first ended in December 2007 and the second runs to December 2012. And
its going to get even tougher for power generators in the third phase
that runs from 2012 to 2020, as not only will their emissions be capped,
but they will have to buy all the allowances they need to cover their
greenhouse gas emissions.
Until now member states have been free to choose how they allocate
emissions allowances to the various polluters included in the ETS. And
while in the vast majority of cases national governments have pushed the
burden on to the power sector (which is less exposed to international
competition than industrial sectors like cement or iron and steel), they
have nonetheless awarded emisisons allowances free of charge. From 2012,
the EC has decided that the power sector must buy all of its allowances
in auctions--the EC reckons that 60% of all emissions rights should be
sold at auction by 2012 and that that proportion should rise steadily in
subsequent years.
Who will shoulder the cost of emissions rights bought at auction? Power consumers, ultimately.Consumers can't shop around on the international market for power supplies--if the EU's internal market ever works properly, they will be able to switch suppliers within Europe, but until someone builds a massive power cable across the Atlantic or finds a way of getting power all the way from Russia or China without losing most of it along the way, then European utilities can rest assured that European consumers will continue to buy their product.
But that means that they can pass on the higher cost of emissions abatement to their consumers. And the European electric power association Eurelectric warned yesterday that the EC's revised emissions plans will inevitably lead to higher power prices.
With power and gas prices already on the increase in major European markets, and the threat of a recession looming, this is hardly good news for consumers, but it could be terrible news for energy-intensive industry. And that's why when Barroso announced details of the climate package he made it clear that putting EU industry out of business and moving the pollution elsewhere was not acceptable. And earlier this week he hinted that polluters in countries with no emissions constraints could face tariffs on EU imports.
The cost of combatting climate change may be hard to swallow, but it is a price worth paying, and now Europe has to convince the rest of the world to share in that cost.
Paul Whitehead, Managing Editor, Platts EU Energy
