FROM 2013 onwards the system for allocating greenhouse gas emissions allowances will significantly change in European Union countries to reflect new EU-wide harmonised rules. Under this new system the majority of allowances under the EU Emissions Trading System (ETS) will no longer be allocated for free. Slovakia is adopting the change through a brand new law on the auctioning of greenhouse gas emissions quotas. The Slovak cabinet interrupted the discussion of its draft bill, however, due to some still-unresolved issues, one of which pertains to how the money obtained in this way will be used. The government will deal with the bill in a fast-track legislative proceeding so that it will become effective as of January 1, 2013.
“We agreed that the bill will go through a shortened legislative proceeding,” Environment Minister Peter Žiga said after ministers interrupted the discussion over the bill on September 28. “There are still unanswered questions, especially toward the industry and the Association of Employers' Unions (AZZZ) and the National Union of Employers (RÚZ). We also discussed this with the finance minister from the viewpoint of the priorities of the state budget. We agreed that we will solve it in a short period of time.”
So far the industry sector has received emissions allowances free of charge. Based on the new EU rules some companies, especially those in the energy sector, will purchase EU emission allowances (EUA), and manufacturing companies should receive a portion of them free of charge while purchasing another portion, the TASR newswire wrote.
The Environment Ministry would like to use proceeds from the sale of the allowances for state support schemes and use them to provide loans or grants which companies may then use for purchasing technologies that emit less CO2. This would mean that in future they would need to buy fewer allowances.
RÚZ explained to The Slovak Spectator what it views as several problems with the new legislation. RÚZ secretary Martin Hošták specified that apart from some technical questions, RÚZ also objects to the proposed scheme for the distribution of proceeds from the sale of allowances.
“The proposed distribution of proceeds from the auctions remains problematic,” Hošták told The Slovak Spectator. “The RÚZ proposes to use 40 percent of these proceeds for financing the state support scheme for companies.”
RÚZ believes that since compensation in sectors with the risk of so-called carbon leakage [which may occur if, for reasons of costs related to climate policies, businesses were to transfer production to other countries which have more relaxed regulations on greenhouse gas emissions] is claimable based on the EC directive 2012/C 158/04, it is necessary to allocate enough proceeds from the auctions for this purpose. Otherwise the risk of the loss of competitiveness in energy-intensive industries, which Hošták stressed “are not only pillars of Slovakia’s economy but also significant employers in the regions”, will deepen. From this point of view RÚZ sees the sum proposed for these objectives as unsatisfactory.
RÚZ proposes allocating 40 percent of the proceeds from auctions to finance projects for achievable and measurable reductions in greenhouse gases, enhancement of energy efficiency, reduction in consumption of primary energy sources, replacing fossil fuels with renewable energy sources and introduction of the most available technologies leading to reduction of emissions of greenhouse gases and polluting agents.
It proposes to use another 40 percent to finance the state assistance scheme to businesses significantly endangered by the carbon leakage risk and 10 percent to support activities that achieve the goals of the state environmental policy.
The American Chamber of Commerce (AmCham) is closely watching the changes in the allocation scheme.
“AmCham strongly supports the Slovak government’s clear commitment to EU intentions to reduce CO2 emissions via energy efficiency improvements as well as the ‘Europe 2020 – A Strategy for competitive, sustainable and secure energy’,” AmCham wrote in its position paper. “However, we believe that all the measures have to be implemented with the sustainability and global competitiveness of energy-intensive industry on both the Slovak and EU level in mind.”
According to AmCham, installations covered by the ETS Directive must not be subjected to any CO2 taxation, nor to the revised Energy Taxation Directive or any other legislation.
“This consequently includes installations whose emissions are either fully or partially covered by free allocation of allowances,” writes AmCham, adding that free allocations are granted to counter leakage. “The extent of the free allowances granted is aimed to be set at the borderline between CO2 efficiencies whose costs can be absorbed by the operators (because respective investments are technically possible and will improve competitiveness in the long term) and those costs which cannot be absorbed and thus foster leakage. Any attempt to tax these free allowances will unbalance the construct and render achievement of climate change policy objectives impossible.”
The Slovak arm of Greenpeace has voiced its concerns. It wrote in a press release issued after the cabinet interrupted its discussion of the bill that environmentalists are afraid that the cabinet plans to make sure that the money ends up in the state budget.
“This has also happened in previous years, where the Finance Ministry wanted to use money from the sale of emissions to patch holes in the state budget,” wrote Pavol Široký, a climate campaigner from Greenpeace Slovensko.
“Not only does the cabinet plan to use part of this money to support the coal industry; a large portion of the finances will end up in completely different areas. How can we protect the environment, which is the most precious [resource] we have, when we are constantly taking funds from the Environment Ministry?”