POLISH CHAMBER OF CHEMICAL INDUSTRY

Transcription

1 POLISH CHAMBER OF CHEMICAL INDUSTRY POLSKA IZBA PRZEMYSŁU CHEMICZNEGO Member of the European Chemical Industry Council (CEFIC) Warsaw, PIPC/ /2012 Polska Izba Przemysłu Chemicznego Polish Chamber of Chemical Industry ul Warsaw Tel.: Register ID: Subject: Communication from the Commission: Guidelines on certain state aid measures in the context of the greenhouse gas emission allowance trading scheme post 2012

2 In view of the significant financial burdens that implementing Stage III of the ETS places on Polish industry and, in particular, the chemical industry, the form that the compensation system for indirect emissions takes is of fundamental importance to the future of the Polish economy as a whole. Please find below some comments by the Chamber and its members on this paper. Paragraph 5, in which you indicate your concern to achieve a higher overall level of environmental protection, should make provision for a sustainable development rule which takes account of each Member State s economic and technological capacities and its access to and use of fossil fuels (i.e. in Poland s case, coal). In paragraph 7, in the event of plants being classified within sectors which are exposed to a significant risk of carbon leakage, the clause on the award of aid should be more prescriptive, i.e. may should be replaced by should so that the sector is not treated differently in different Member States, thereby distorting competition. Paragraph 8 raises concerns that aid could distort the internal market. In our view these concerns are without foundation. On the contrary, it is the introduction of the ETS that is distorting competition in the internal market, because where there are two modern plants it is the one which happens to be based on low-carbon energy sources which will gain the advantage. In the light of the significant differences in average CO 2 /MWh emissions between the Member States (ranging from around 40 kg CO 2 /MWh in France to 950 kg CO 2 /MWh in Poland), and the concomitant difference in costs incurred by producers consuming the same quantity of energy, the internal market would be distorted if there were no aid mechanism. Aid should therefore be ordered in such a way as to reduce differences resulting from circumstances beyond operators control, like affordable access to low-carbon energy sources in a given region, this being determined by historical or geographical factors, but it should not exceed the costs actually incurred by the operator as a result of indirect emissions. In the light of the above, applying the formulae put forward in point 27 (a) and (b) which use the regional CO 2 emission factors proposed in Annex IV without referring to the actual indirect costs incurred by the producer would seem to be inadequate. In view of the power generation system in place in individual countries like France or Denmark, in the case of most producers, using the proposed CO 2 emission factors would enable aid to be awarded which was excessive in terms of consumption of power generated by nuclear power stations or RES respectively. In our view, concerns about possible distortion of competition which affects trade between Member States as a result of the provision of transitional free allowances to power generators (paragraph 17) are also without foundation. At the same time the authors fail to tackle the fundamental danger that if no state aid is forthcoming carbon leakage may occur, giving rise in turn to job losses. The number of cross-border connections and their capacity is so small that additional free allowances for energy generators would have a negligible impact on electricity prices and the structure of the market in the neighbouring country. The authors themselves refer to this argument in Annexes I (p. 21) and IV. In this case (low capacity of cross-border connections), however, distortion of competition occurs not on the electricity market, but in production involving high electricity consumption. The draft is based on an assumption that aid intensity will be reduced during Stage III of the ETS, which is designed to stimulate investment in low-carbon technologies

3 (paragraphs 12 and 26). This assumption, however, is wrong, because purchasers of heat and power have no say over the technology used by the generator, and therefore the incentive mechanism will not work. Furthermore, there is no justification for reducing the level of compensation because this will not correlate to a reduction in the risk of carbon leakage to third countries in which power generators are not subject to additional, proportional CO 2 costs or otherwise incentivised to use the most efficient technologies. Indeed, the outcome of the Durban Conference suggests that there is no appetite for introducing systems similar to the ETS before Aid is awarded with the aim of creating a level playing field between EU and other producers to prevent production being relocated outside the EU. Therefore, as long as aid remains subject to conditions, aid intensity should be maintained at 100% of the increase in indirect costs and not phased out. Aid should not be reduced or withdrawn until a global agreement has been signed in which all countries in the world agree to be bound by uniform rules whereby the costs of improving air quality are shared e.g. along the lines of the 3x20 package in the IED. The amount of this aid should be solely contingent on the actual difference between energy costs incurred by operators of plants based in the European Union and plants outside the EU-27 as a result of CO 2 emission costs. We take the view that compensation should cease only if the grounds on which it was awarded no longer obtain. By the same token, since aid intensity is also supposed to be appropriate for state-of-the-art technology, paragraph 15 should be expanded to include technology for each fuel separately. The Commission Guidelines should not discriminate against other fuels with higher emission levels if they are extracted and used in a given Member State. With reference to Annex III and paragraph 27 of the draft guidelines, it should be borne in mind that some plants (e.g. ammonia plants) are unable to provide a separate power consumption benchmark and heat consumption benchmark. For these plants the Commission has incorporated exchangeability of fuel and electricity into the ETS method. These plants have received an allocation of free allowances which is less than their product benchmark measured against direct emissions as a percentage of total emissions in accordance with the following formula: [product benchmark]*[direct emissions]/[direct emissions + indirect emissions]. Accordingly, with a view to avoiding major distortions of competition in the internal market, plants using the exchangeability of fuel and electricity method should be automatically authorised to receive compensation for electricity consumption. Financial compensation should top up the benchmark and be calculated as follows: [product benchmark 1 ]*[indirect emissions]/[direct emissions + indirect emissions]. As a result these plants will reach the level of support (free allowances + compensation) at product benchmark level. The draft guidelines on the compensation system are based on the rules laid down in the ETS Directive. Therefore fundamental differences in the wording of these two documents, as in the definition of start of work (Annex I), which could result in most Polish investments not qualifying for the aid provided for in the ETS Directive, are unacceptable. We propose a similar wording to the one in the Directive and its 1 The product benchmark is calculated in accordance with Article 10a of the Directive.

4 associated documents, i.e. start of work taking up any activity for the purpose of implementing the investment*. The guidelines also fail to indicate whether industrial power generation is covered by the notion of combustion plant. Failure to spell this out may result in industrial power generation being excluded from the compensation scheme. With a view to avoiding differences between the draft guidelines and the ETS Directive, the wording of paragraph 16 ( (...) to electricity generators in operation by 31 December 2008 or to electricity generators for which the investment process was physically initiated by 31 December 2008 should be replaced by the wording contained in the ETS Directive ( (...) to installations for electricity production in operation by 31 December 2008 or to installations for electricity production for which the investment process was physically initiated by the same date. The reference period proposed in the document is We can see no reason to deviate from the rules enshrined in the Directive whereby or can be chosen as the reference period, depending on when emissions were higher. The introduction of new criteria is totally incompatible with the principle of uniform lawmaking. For that reason we take the view that the wording of the guidelines should reflect that of the ETS Directive wherever possible. We also take the view that the definitions of baseline output and baseline electricity consumption should be clarified, particularly in the following paragraph: (*Translator s note: Free translation from the Polish. The Directive does not appear to contain a a definition of start of work ).

5 The aid will be increased by 40 % if average production during the aid granting period increases to more than 40 % of baseline output. The aid will be reduced by 40 % if average production during the aid granting period decreases to less than 40 % of baseline output; This is unclear and leaves considerable scope for interpretation. It is equally important that maximum regional CO 2 emission factors in different geographic areas (Annex I) concern all electricity produced in the geographical area, and not just electricity produced from fossil fuels. Failure to take account of this requirement will result in significant distortion of competition on the internal market (for example, companies in France could receive compensation in excess of the CO 2 emission costs which they have incurred for electricity consumption). We are in favour of establishing an emission factor by the method indicated in the draft guidelines, which is based on a calculation of the weighted average of the CO 2 intensity of electricity produced from fossil fuels (coal, gas and oil) only. The amount of compensation payable would then be calculated only for part of the energy consumed, determined with reference to electricity produced from fossil fuels as a percentage of total electricity production in a given geographical area. Pursuant to paragraph 36(e) Member States must demonstrate that aid will not unduly distort competition. Since no definition has been provided of the criteria for 'undue' distortion of competition, the whole paragraph should be deleted as it could be overinterpreted by the European Commission. The meaning of paragraph 34 is unclear. Presumably the author is referring to plants which are CCS-ready but will not introduce CCS before In its current wording this paragraph may be incompatible with paragraph 33. The necessary access should also be provided not just to the main text of the guidelines, but also to all related documents. If such access is not provided, as in the case of Addendum to I/A Note from the General Secretariat of the Council to COREPER/COUNCIL 8033/09 ADD 1 REV 1 of 31 March 2009, it is not possible to properly examine the crucial matter of the use of revenue generated from the auctioning of allowances (paragraph 13). To sum up, I should like to emphasise once again the need to construct an aid system which ensures that our producers can compete not just with companies from outside the EU but also with companies inside the EU. For example, the German Government is preparing a bill which will enable almost all costs incurred by German companies purchasing emissions permits to be refunded. If Poland does not draft corresponding legislation our companies will be less able to compete with their counterparts in Western Europe.