The EU’s free CO2 allowances: A gift to the rich

22 September 2011, EurActiv

The Czech Republic’s intention to hand out free CO2 allowances to CEZ, an already profitable energy company, would turn it into a dominant actor on the EU energy market and paradoxically threaten competition, writes Barbora Hanzlova, from the Centre for Transport and Energy, a Prague-based non-profit group.

Barbora Hanzlova is a climate campaigner at the Center for Transport and Energy, which is part of the CEE Bankwatch Network. She contributed this commentary exclusively for EurActiv.

“The Czech Republic announced yesterday (September 21) that it intends to continue distributing free CO2 allowances in the third phase of the EU ETS (Emissions Trading System). National energy giant CEZ will receive most of these allowances.

Alongside Poland, the Czech Republic is one of the ten EU member states that have negotiated with the European Commission the possibility of still giving out free CO2 allowances to the energy sector until 2019.

Prague will be applying for free allowances to emit 108 million tonnes of CO2, and it has announced that 78 million of these are to go to CEZ, the largest public electricity provider in Central Europe, which operates in twelve other European markets apart of the domestic one.

The decision made in Prague yesterday is problematic. Not only is CEZ one of the largest and most profitable European energy companies, it is also the only power producer in the EU not forced to purchase EU ETS allowances in the current (second) period due to over-allocation.

One of the main justifications of new member states in their search for free allowances has been that their fragile national energy companies could not face up to international competition in lack of such support. However, CEZ is in fact a dominant actor on the EU energy market and supporting it further could, paradoxically, threaten fair competition.

The decision of the Czech government to lend so much support to CEZ is misguided also for other reasons.

By selling the free allowances on the carbon market, Prague could have gained €2 billion – a hefty sum, even for a country that has managed to push through the economic crisis relatively unscathed. According to our studies at Czech environmental NGO ‘Centrum pro dopravu a energetiku’, €2 billion could be spent for the thermal isolation of 250,000 houses, creating 50,000 job opportunities in the construction sector over the next seven years.

Such an investment would be particularly welcome since a national green investment scheme to support the thermal insulation of residential buildings launched by the Czech government in 2009 and meant to last until the end of 2012 already ran out of money this year.

ETS auction revenues could have also constituted an opportunity for the Czech Republic to contribute to climate measures in developing countries by earmarking new and additional sources of finance for this purpose, following commitments made by our country in Cancun.

Yet at the moment it seems that we would rather support an already successful energy company to make even more profits rather than start paying off some of the climate debt accrued by us and other Europeans towards the rest of the world.

Instead of making investments that would clearly benefit national and global efforts against climate change, the Czech government has decided to pass free allowances to its favourite CEZ and a few other energy companies.

Supposedly, the free allowances will have a greening effect on the Czech economy: in exchange for free allowances, companies like CEZ are expected to invest in energy efficiency and other CO2 emission reduction measures. But, for the moment, at least in the Czech Republic, there is little transparent information available about the real added value of the innovative measures proposed by beneficiary companies in their application for free allowances.

The Czech Ministry of Environment is not offering enough information to the public regarding the green measures proposed by the companies. Apparently, we simply have to trust the likes of CEZ.

After the end of September, when all the eligible member states are supposed to apply to the Commission if they want to make use of the free allowances, the European Commission will evaluate and approve the National Investment Plans detailing the use of these allowances submitted by governments.

At that time, Brussels could still make a difference: firstly, it could seriously assess whether the support meant for CEZ is not hampering free competition on the EU energy market; secondly, it could make sure to approve the granting of free allowances only in the case of those projects whose green added value is obvious.”