The CO2 emission factor corresponds to the CO2 emissions per MWh of electricity generated and the questionnaire prepared by the Commission raises the issue what CO2 factor to use as a basis for calculating the compensation for costs relating to greenhouse gas emissions passed on in electricity prices. The Directive 2003/87/EC didn’t precisely specify this issue and the said question is now at the centre of discussion. The outcome of the debate may impact on the competitiveness of the whole industries.
The European Commission has currently published the Consultation paper “New State aid Guidelines in the context of the amended EU Emissions Trading Scheme” and has invited Member States and other interested parties to respond to the questionnaire by 11.05.2011.
Beneath a few remarks on emission factor, which appears to be one of the most important issues from the practical point of view as regards indirect emissions.
1. The Directive 2003/87/EC in Article 10a(6) clearly states that aid for indirect emissions shall be based on ex-ante benchmarks of the indirect emissions of CO2 per unit of production. The ex-ante benchmarks, furthermore, shall be calculated for a given sector or subsector as the product of the electricity consumption per unit of production corresponding to the most efficient available technologies and of the CO2 emissions of the relevant European electricity production mix.
In the reference, contained in Article 10a(6) of the Directive 2003/87/EC, to the “relevant European electricity production mix” the most important word is “relevant”. It is because at this stage the exact meaning of this notion has not been specified and the Directive gives only general guidelines how to fill this gap. The question, however, could have a vital impact on the competitiveness of the industries of some Member States in the EU.
The CO2 emission factor corresponds to the CO2 emissions per MWh of electricity generated and the questionnaire prepared by the Commission raises the issue what CO2 factor to use as a basis for calculating the compensation for costs relating to greenhouse gas emissions passed on in electricity prices. The problem raised by the Commission is in practice exactly the same as the answer to the question, what does the word: “relevant” (used in Article 10a(6) of the Directive 2003/87/EC) mean.
The questionnaire conceived four potential methods that could, in the opinion of the Commission, be used to resolve the said ambiguity in accordance with the general objectives and principles of the Directive. For the complete description of the these methods the reader should refer directly to the questionnaire because in the rest of these remarks I concentrate solely on subjectively chosen, particular issues.
It seems generally that a balanced approach will be the choice between methods 3 and 4 - among those conceived in the questionnaire.
Method 3 consists in using emission factor for the average plant in a geographical pricing area (where electricity is purchased on the grid). It seems that such method more closely reflect needs of the companies than other three approaches. The application of this method would also mirror current huge differences between particular Member States of the EU as regards the level of average CO2 emissions per MWh. For this reason method three will probably be more advantageous for more coal-dependent Member States.
According to the method 2 the average CO2 emission factor for the EU is used (where electricity is purchased on the grid). As opposite to the method 3, this method appears more beneficial for less coal-dependent Member States and inherently may involve over-compensation in some Member States with greener electricity and under-compensation in Member States with grey electricity. This method has, however, the advantage of simplicity, compared to Method 1 and 3 (but not 4).
2. Another difficult choice in the context of the emission factor used for the calculation of state aid is whether to take into account for this purpose actual terms of supply of electricity for the installation concerned (self-generation and electricity supply contracts that explicitly specify the level of pass through of the EUA price per MWh) or the average CO2 emission factor for the EU, irrespective of the real situation of the particular companies. This is the choice between the methods 1-3 on the one side, and the method 4 on the other.
It could be supposed that the situation where electricity supply contracts explicitly specify the level of pass through of the EUA price per MWh will be rather rare and exceptional. Also the self-generation won’t probably be the most common point. I suppose that the most representative situation will, in practice, be the purchases of electricity not covered by the two instances mentioned above. For solving this issue would be helpful, however, the empirical data on the scale of self-generation in the industry concerned. If the scale of this phenomenon is marginal, maybe it could be passed over as a case that has no impact on the whole issue.
It is necessary to mention that the said questionnaire marks off also the method 1, where the CO2 factor of the marginal plant setting the electricity price for the installation concerned is used (where electricity is purchased on the grid), but it seems that the reasons for simplicity and avoiding excessive administrative burden not opt for this variant.
To conclude, it is surprising that the very Directive has gap in it’s wording as regards such a pivotal element like an emission factor.