Post 2012 developments

The “carbon world” is watching the political development for post 2012 very carefully. Will there be a post 2012 Trading Scheme beyond the EU ETS with USA, India, Brasil and/or China or will there only be the EU trading emission rights while the USA supports technical solutions?

How many CERs can the European industry use for their compliance and which sectors will fall under the “leakage” regulation? Which new regulations will there be? These and many other questions should be answered as soon as possible in order to give not only industries but the whole carbon market planning reliability. The questions are many and the answers still hard to find.
We will closely follow the issues under discussion and keep you updated on the developments in this and following newsletters.

Carbon Leakage – Free allocation

Carbon leakage occurs when companies who have an emissions cap in a European country relocate to a country without a strict climate policy, and global emissions will not be reduced. Politicians want to avoid this situation and try to define regulations for those sectors which are more sensitive to this phenomenon due to a very competitive international market. In the EU ETS it may result in many industrial sectors getting free allowances under the EU ETS from 2013 onwards. Steel producers as well as oil refineries have been found to be vulnerable to foreign competition and have started a lobby to avoid having to buy allowances in auctions. Depending on the outcome of these discussions they may receive, along with other vulnerable sectors, 100% free allocation from 2013 on, up to an efficiency benchmark. The number of free allocations will have a significant impact on the buying side of EUAs in the EU ETS market.

However, the largest emitters are the energy suppliers. They usually operate in relatively closed domestic markets and can pass on the costs of the carbon allowances to their clients. On the other hand, they have the highest reduction goals and are looking for alternatives and solutions. One solution, which many energy suppliers prefer, is Carbon Capture and Storage (CSS), a technology which still needs a lot of research and banks are reluctant to finance.

Carbon Capture and Storage (CCS)

Emissions from power plants - especially from those fired by oil, coal and natural gas - account for around 40% of all the CO2 emission in the EU, as estimated by the European Commission. To cut their CO2 emissions, industrial installations and power plants could in future use new technology to capture CO2 and store it "permanently and safely underground" in geological formations.

The parliament voted to support and subsidise the commercial demonstration of large-scale CCS installations with up to 300 million allowances which will be set aside until 2015 " in order to help stimulate the construction and operation of up to 12 demonstration projects aiming at the environmentally safe capture and geological storage of carbon dioxide as well as the demonstration projects for innovative renewable energy technologies, in EU territory "

The value of this support mechanism will depend on the price of CO2 as will the financial feasibility of the technology. So far it has been said that CCS is only financially feasible if the EUA price is around
€ 30.