Posted by: carboncreditsusa | December 11, 2008

German Power Companies Have Abused, Manipulated And Reaped Huge Profits From European Emissions Market

“…Under the plan that the European Union originally approved for Germany, electricity companies were supposed to receive 3 percent fewer permits than they needed to cover their total emissions between 2005 and 2007, which would have forced them to cut emissions. …Instead, the companies got 3 percent more than needed, according to the German Emissions Trading Authority, the regulatory agency, a windfall worth about $374 billion at the peak of the market. German lawmakers also approved exemptions and bonuses that could be combined in dozens of ways and allowed companies to gain additional permits…”

“…RWE, a major German power company and Europe’s largest carbon emitter, received a windfall of about $6.4 billion in the first three years of the system, according to analyst estimates…”

 

 

 

 

http://www.nytimes.com/2008/12/11/business/worldbusiness/11carbon.html?_r=1&ref=science&pagewanted=print

The case of Germany, Europe’s largest economy, illustrates the many problems in Europe’s approach. For instance, RWE, a major German power company and Europe’s largest carbon emitter, received a windfall of about $6.4 billion in the first three years of the system, according to analyst estimates. Regulators in that country have accused utilities of charging customers for far more permits than was allowable.

This week, leaders of the European Union are meeting in Brussels to shape the next phase of their system, and find ways to cut greenhouse gas emissions by 20 percent by 2020. They also seek to close loopholes worth billions to various industries, while confronting the same tug of war between long-term environmental goals and short-term costs that proved so vexing the first time around.

The European summit meeting coincides with a round of negotiations among 190 nations to establish a new global treaty limiting greenhouse emissions, a treaty the Obama administration might seek to join.

Pressure From Lobbyists

During long negotiations on the landmark Kyoto climate treaty more than a decade ago, the Clinton administration pushed to include emissions trading as a means of achieving the goals, favoring that approach over energy taxes or traditional regulatory limits on emissions.

Even after the Americans backed out of ratifying Kyoto, Europe decided to set up the world’s first large, mandatory carbon-trading market. “I was eager to put it in place as soon as possible,” said Margot Wallstrom, the European Union’s environment commissioner then.

From the start, Ms. Wallstrom, now a vice president of the European Commission, said she was lobbied heavily by governments and by companies seeking to limit the financial burden.

The initial idea of charging for many of the permits never got off the ground. Many politicians feared that burdening European industries with extra costs would undercut their ability to compete in a global marketplace. In the end, the decision was made to hand out virtually all the permits free.

With European Union oversight, individual countries were charged with setting emissions levels and distributing the permits within their borders, often to companies with strong political connections.

Jürgen Trittin, a former Green Party leader who was the German minister of environment from 1998 to 2005, recalled being lobbied by executives from power companies, and by politicians from the former East Germany seeking special treatment for lignite, a highly polluting soft brown coal common around central Europe.

The framework of the European system put governments in the position of behaving like “a grandfather with a large family deciding what to give his favorite grandchildren for Christmas,” Mr. Trittin said in an interview.

The debates on what limits to set for carbon dioxide emissions were particularly arduous. Mr. Trittin recalled a five-hour “showdown” in March 2004 with Wolfgang Clement, then the economy minister, in which he lost a battle to lower the overall limit. It was eventually set at 499 million tons a year, a reduction of only 2 million tons.

In a recent e-mail message, Mr. Clement did not challenge the details of his former colleague’s account, but he characterized as “just nonsense” Mr. Trittin’s claims of undue industry influence. He said the Greens were unrealistic about what could be achieved.

“I reproached them — and I’m doing this still today — that at the end of their policy there is the de-industrialization of Germany,” Mr. Clement said. “That’s our conflict.”

Eberhard Meller, the president of the Federation of German Electricity Companies, which represents companies like RWE, said, “Good sense triumphed in the end.” For his part, Mr. Clement eventually joined the supervisory board of RWE Power, in 2006.

The benefits won by German industry were substantial. Under the plan that the European Union originally approved for Germany, electricity companies were supposed to receive 3 percent fewer permits than they needed to cover their total emissions between 2005 and 2007, which would have forced them to cut emissions.

Instead, the companies got 3 percent more than needed, according to the German Emissions Trading Authority, the regulatory agency, a windfall worth about $374 billion at the peak of the market. German lawmakers also approved exemptions and bonuses that could be combined in dozens of ways and allowed companies to gain additional permits.

“It was lobbying by industry, including the electricity companies, that was to blame for all these exceptional rules,” said Hans Jürgen Nantke, the director of the German trading authority, part of the Federal Environment Agency.

Higher Bills Draw Inquiry

After the system kicked off, in 2005, power consumers in Germany started to see their electrical bills increase by 5 percent a year. RWE, the power company, received 30 percent of all the permits given out, more than any other company in Germany.

The company said its price increases from 2005 to 2007 predominantly reflected higher costs of coal and natural gas. But the company acknowledged charging its customers for the emission permits, saying that while it may have received them free from the government, they still had value in the marketplace.

The German antitrust authority later investigated. In a confidential document sent to RWE lawyers in December 2006, that agency accused RWE of “abusive pricing,” piling on costs for industrial clients that were “completely out of proportion” to the company’s economic burden, according to the document, which was obtained by The New York Times.

Without admitting wrongdoing, RWE last year agreed to a settlement that should provide lower electricity rates to industrial customers in Germany from 2009 through 2012.

Meanwhile emissions have risen at RWE’s German operations since the trading system began. The company emitted nearly 158 million tons of carbon dioxide in 2007, compared with 120 million tons in 2005, according to its annual reports.

The company said its emissions rose in part because one of its nuclear power stations, which emit no carbon dioxide, was off line for a while.

Jürgen Frech, the chief spokesman for RWE, said that charging customers for the carbon permits was “beyond reproach,” and added that the company will spend more than $1 billion this year to comply with the emissions trading system. RWE also said it is investing $41 billion over the next five years in projects including renewable energy and developing cleaner ways to generate electricity from coal mined in Germany.

For all the problems with the European system, some experts say it is simply too early to judge whether it will succeed. As the region that went first with mandatory carbon trading, Europe was bound to make some initial mistakes, they said.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: