There was a distinct lack of representation from key stakeholders from industry such as banks or other financial institutions and equipment suppliers, as well as from NGOs. The panel presented widely diverging and often contradicting arguments on an EPS.

The panel was composed of German Member of European Parliament Holger Krahmer, Jörg Kerlen from Dutch utility RWE, Powen Wilson from Eurelectric and Mark Johnston from green NGO WWF.

An EPS can be defined as setting a ceiling on amount of CO₂ emitted per kilowatt-hour of electricity produced. Kerlen and Wilson spoke from the utility companies’ perspective when emphasising that an EPS would make CCS compulsory, thus making electricity more expensive. They denied that mandatory CCS would accelerate research and development in the technology.

To this, Johnston reminded the attendees of the inconvenient speed at which climate change was taking place and the inadequate emission reduction trajectory that current EU legislation entails.

As Eurelectric itself has made clear through its commitment to carbon-neutral power supply by 2050, all fossil fuel power generation will need to be equipped with CCS in the next few decades. CCS is an essential part of any climate change abatement curve and an EPS would necessarily speed up investment in CCS.
 
Marianne Wenning, head of unit in charge of the proposed Industrial Emissions Directive, from the European Commission summed up her view on the panel discussion by asserting that an EPS would affect the EU Emissions Trading Scheme (ETS) and that this was reason to reject an EPS.

Her fear was that with an unchanged cap of the ETS, an EPS for power generation would reduce this sector’s demand for emission allowances, thereby reducing the price of the allowances and increasing emissions in other sectors. She argued an EPS as a result would lead to no overall emission reductions.

“An EPS would affect the carbon market which we have so carefully crafted and worked so hard to build,” she said.

“Of course the ETS cap cannot remain constant if an EPS is introduced,” said Eivind Hoff of Bellona Europa.

“That’s a false good argument against an EPS: We want an EPS in order to make it politically feasible to further lower the cap of the ETS so that we deliver the emission reductions we know are needed to prevent a climate crisis,” he said.

Johnston made it clear that the ETS was a good tool that should not be rejected – an EPS would be a supplement.

 “As occurs with most regulation introduced to disincentivise an activity which is detrimental to the public – such, as for example, the consumption of cigarettes – there is a need for a mix of tools to fix the problem, not just one,” he explained, referring to the combination of taxes and prohibitions to curb smoking.

“The same also applies, for example, to cars, where policy-makers use a mix of fuel taxes and product standards to reduce environmental impacts,” he added.

Progressive industry left out

In effect, the ETS does not today give the predictability needed to invest in low-carbon power generation. Different industry stakeholders have therefore already expressed a need for further regulatory certainty in the wake of uncertain carbon price movements. Alstom, Siemens, Shell and General Electric have at different occasions supported the idea of an EPS or other regulatory incentives to complement the ETS.

At the hearing, however, neither the equipment suppliers – who know what is possible to build at commercial terms and what is not – nor the banks – on whom utilities depend for investments – were present.

“Where are the banks? They are crucial in any discussion about what drives investments and what discourages it,” said Hoff.

Efficiency standard yes, emission standard no?

Wilson commented that introducing national efficiency standards would be possible for power generation. But he argued against an EPS.

“A minimum efficiency standard for converting fuels into electricity and a maximum limit on CO₂ emissions per kilowatt-hour is in fact the same thing when the CO₂ limit is put at moderate levels.

Whether branded as an EPS or an efficiency standard, the fact remains that a regulatory add-on to the ETS is needed. So Mr Wilson contradicts himself,” Hoff pointed out.   

The next formal step for the Industrial Emissions Directive in the EU legislative procedure is a vote in the European Parliament’s environment committee, scheduled for April 7th.

For further reading, see: The ETS review: unfinished business. Mark Lewis, Isabelle Curien. 23 February 2009, Deutsche Bank Global Markets Research.