Power sector to reap further ‘windfall’ profits, says report

Over the next four years, power companies in five EU countries could reap profits in excess of €70 billion because of the continued allocation of free CO2 emissions permits, says a new report commissioned by WWF.

The report, prepared by the carbon market research firm Point Carbon, provides a calculation of the likely windfall or excess profits that will be made by energy firms in Germany, Italy, Poland, Spain and the UK during the second phase (2008-2012) of the EU Emissions Trading Scheme (EU ETS).

Most of the profits are expected in Germany, where firms could cash in on up to €34 bn. The UK's power sector could collect up to €15bn, with significantly lower profits estimated for firms in the three remaining countries.

EU consumers will inevitably face higher energy bills over the coming years as firms face higher costs for producing 'clean' or low CO2 electricity, according to the Commission, which estimates that energy prices will rise by 10% to 15% by 2020.

But the handing out of free pollution allowances under EU ETS pushes prices even higher, as firms are simply passing on to consumers the extra cost of CO2 even if they did not have to actually purchase the emission rights, according to Point Carbon.

In addition, "providing a free allocation to an individual plant that is carbon intensive does reduce the incentives provided by the scheme to invest in low emissions generation technology - thereby off-setting one of the main aims of the [EU ETS]," the company says in its report.

This situation has led to strong criticism of the EU's nascent carbon market. WWF, which commissioned the report, laments in particular that coal-fired power plants will be given free CO2 allowances under the scheme, as this "could lock us into decades of soaring emissions" if carbon capture and storage (CCS) technologies are not used, said Sanjeev Kumar, the group's EU ETS coordinator.

The Commission intends to correct this situation for the third phase of the EU ETS, which begins in 2013. After that date, power companies will need to obtain all of their CO2 emissions permits at auction, according to plans tabled by the EU executive on 23 January.

Source: wbcsd.com