Revision of the European CO2 market:
Changes in the governance of electricity emissions
23rd International Climate Policy PhD Workshop
Malta University, 20-21st October 2011
Romain Riollet!
PhD Candidate in Sociology Motivation for research
•  Revised EU-ETS imposes “polluter pays” principle on
electricity after 20 years of resistance?
–  1992-96: Failure of first EU attempt of economic GHG regulation
•  Carbon tax
  Pay emissions (price set by institutions)
  Rejected by key MSs and industry, Kyoto context
–  1998-2005: launch of controversial ETS « 1 »
•  Free allocation of quotas by Member States (NAPs)
  Pay Emissions (-) Free Allocation (market price)
  Least efficient but most common (acceptable) methodology
  Overallocation, distortions, “perverse effects”, frauds
–  2008 ETS « 2 »: a new instrument for electricity after 2012
•  Harmonisation of allocation rules
•  Electricity /industry differentiation
  Pay Emissions (market price)
2
State of the art and our contribution
•  Question of CO2 quota allocation central in ETS “1” literature
–  “Policy analysis”: interest groups & government failure
–  Political science: multilevel governance, instruments
–  Sociological approaches
•  Policy network, knowledge and entrepreneurs (Braun, 2009)
•  Practical focus and decision-making process (MacKenzie, 2007)
•  A sociological approach on the EU-ETS “2”
 Economic and political aspects interact in a dynamic social system
 The organization as the sum of individual actors’ strategies
3
Empirical approach
•  Focus on one concrete issue
–  Electricity largest EU emitter (25% GHG emissions, 50% ETS)
–  End of free decentralized allocation the major change in revised ETS
•  Research question
–  How did we get there?
•  art 9 Dir. 2003/87/EC (free allocation)
•  art 10a §2 (auctioning), 10c (derogations) Dir. 2009/29/EC
 What does it reveal on the governance of EU electricity emissions?
•  Methodology
–  Reconstruct decision-making process with documents
•  2005-2007 « ETS Review » stakeholder consultation (Commission)
•  2008 Climate Energy Package codecision process (Council, Parliament)
–  Interviews with participants, requests for documents
4
The EU-ETS discriminates generation technologies
 Internalize C02 costs to make low emitters competitive
5
The EU-ETS discriminates generation technologies
 Not all EU electricity is sold at wholesale market price
6
The EU-ETS discriminates generation technologies
 Switch is not always possible
7
The EU-ETS discriminates generation technologies
 CO2 “opportunity” cost
8
CO2 intensity varies among MSs and generators
•  1990-2007 evolu4on of electricity mix in 4 EU Member States 5,43 5,12 2,30 68,29 20,37 63,03 93,77 140,53 166,11 439,73 Fuel oil
Gas
299,79 136,69 25,74 24,45 Coal, lignite
84,12 145,57 Nuclear
Renewable (TWh)
After DG TREN 2010
•  « Carbon factor » of EU electricity generators Source: PWC 2008
9
Full auctioning is -again- a political compromise
•  « Windfall profits » central in electricity allocation debate
–  « Polluter paid » effect of free allocation politically unacceptable
•  Auctioning interesting for most actors of the EU system
–  Theoretically efficient
•  End of distortions and overallocation
–  Transfer of €12-30bn/y. « carbon rent »
•  ...redistribution opportunities
–  « Punishes » CO2 intensive generators for gaming the system
•  Relative benefit for low carbon generation (RES, nuclear)
–  « No impact on electricity price » (consumers)
•  But refused by some new players
–  2004-2007 NMSs fight and obtain transitory free allocation (Art 10c)
10
The EU-ETS is a dynamic social system
•  A broader and deeper field
–  ETS auction a central element of « package »
•  Auction rights replace free quota and change the “regulatory game”
–  Increased overlap/cooperation between environment and « high
politics » energy issue
•  Commission’s « incremental » implementation strategy
–  Framing of preparatory stakeholder discussions
•  With support of NGOs and economists
–  Underrated role in codecision
•  Key role of MSs
–  Merkel’s new energy policy
–  NMS’s struggle for recognition
–  French influence on procedure and final outcome
•  Electricity generators “accept” auctioning…
11
Thank you!
romain.riollet@sciences-po.org
12