Energia - Środowisko
Dodatek promocyjno-reklamowy do "RZECZPOSPOLITEJ".
13 września 2005 r.

Emissions Trading - selected aspects

Zygmunt Parczewski, Bolesław Jankowski
Systems Research EnergSys Ltd. Warsaw

CO₂ emissions trading in the European Union (EU 25) has officially started on January 1, 2005 with the entrance into force of Directive 2003/87/EC of the European Parliament and of the Council. According to the provisions of the directive the key role in emissions trading is played by the industry - by those who manage the sources of CO₂ emissions. The role of the government of each of the 25 Member States is to establish adequate legislative and institutional framework for the functioning of the new tool of the environmental policy. The actual influence of emissions trading on practically all businesses of the emissions trading system (ETS) participants will often be very significant. It will go beyond the issues of environmental policy and will become one of the key elements of the company's business policy, and, on the national level, of the state economic policy.

At present there are no reliable experiences in the area of CO₂ emissions trading, however, it can easily be said that countries whose energy economy is based on stable fuels will be loosing their competitive position relatively quicker than others. And this necessitates many changes - both on the micro and macroeconomic level.

Such changes will be undoubtedly sped up by the European Commission,s decision which envisages a 16.5% reduction of CO₂ allowances with respect to the allocation scheme proposed in the National Allocation Plan. A possible consequence of such a reduction may be that some of the national companies will be forced to buy allowances on the market already in the years 2005-2007.

Whether and how this new challenge will become a threat and when it could turn out to be a chance for further development depends chiefly on the decisions made already today by the companies themselves. This is a prerequisite of every rational and mature business strategy, but not the only sufficient one. The latter depends greatly on the actions and decisions made by ETS participants operating in the market environment where the "playfield and rules of the game" are established by state administrative bodies. Unfortunately, the Polish act on emissions trading does not form - in our understanding - a sufficiently stable and cohesive competence structure for the smooth and efficient running of emissions trading processes, nor does it ensure their necessary coordination.

Company and emissions trading system - urgent and necessary actions

We would like to stress that emissions trading is not only a tool for environmental management. In reality it will be a very sensitive instrument of the company policy in the following dimensions:

1. functional - urgent and necessary implementation of a number of new obligations (new processes, procedures as well as organizational, accounting, financial and legal tasks)
2. operational - urgent insight into the potential influence of emissions trading on current production and sales plans, review and correction of operational and decision-making procedures - mainly in the area of quality management systems and environmental procedures as well as correction of financial accounting systems etc.
3. strategic - verification of existing business development strategies and the long-term business policy; drawing up an internal actions plan (including methodology and procedures) and new personnel qualifications for carrying out analyses and decision assessment - with regard to the new risk.

A simplified scheme of preparatory actions within the company can be as follows:

1. Allocation of CO₂ allowances for the years 2005-2007, including specification of the number of allowances for the years of the reporting period.
2. Setting up of an implementation task force - chaired by a member of the company’s executive, necessary participation of experts on environmental protection, measuring, laboratory research, technology, energy economy, development and finances, IT as well as experts on business risk assessment and legal advisors etc.
3. Preparation and/or precise verification and correction of the submitted application for Allowances.
4. Detailed identification of the rules of the company's functioning in the emissions trading environment - either through allocating additional responsibilities to employees or with the help of exterior experts; it is of key importance to understand the extent of the potential influence that emissions trading may have on the company's activities.
5. The implementation task force identifies all tasks necessary in emissions trading and defines their potential influence on other stable processes within the company; the end result of the task force's work should be the delegation of experts' competences among defined processes.
6. The implementation task force submits alternatives for organizing emissions trading process and recommends options requiring decisions on the executive level.
7. Definition of emissions monitoring and reporting requirements followed by a decision on how to fulfill them (eg. by designing or acquiring software).
8. Decision of the company's executive on the organizational structure, tasks and competences of the emissions trading task force and its connection with other functional units within the company (new and/or updated processes, procedures, edicts, instructions etc).

To sum up the abovementioned tasks, we emphasize that the main aim of the company's preparations for operating in the emissions trading system should be:

"To provide legal and business security of the company... at rational costs"

With this aim in mind, every company, and in particular every executive, should seek to urgently provide sufficient answers for a number of questions, such as:

• Whether and which organization and management model to chose for the purpose of carrying out tasks in the emissions trading system? (dispersed, unbundled or process model)?
• Whether and which emissions monitoring strategy to adopt? Has the strategy been adequately presented in the allowances application (to leave or to correct the application)?
• Whether and how to prepare the staff, i.e. which tasks to take upon yourself and which to outsource and why?
• Whether and which of the supporting tools at hand can be used and which and why should be bought?
• Whether and how to integrate processes and procedures of emissions trading into the quality and environment management systems already in operation?
• Are the criteria for assessing the impact of emissions trading on the company's current, operational and strategic functioning known?
• Have processes and procedures for reaction to unfavorable conditions on the allowances market been established? (e.g. growing gas prices, high allowance prices on the EU market, signing of new attractive commercial contracts which nevertheless lead to emissions increase, bad weather conditions).

Taking into account the complexity and possible consequences of the implementation of emissions trading system in Poland, we believe that a major and urgent change of behavior of both entrepreneurs, which develop the company's strategy, and national policymakers, who decide on the future economy development paths, is necessary. It is of key importance for Poland to identify rational and cohesive targets in the national energy and climate policy as well as environmental protection goals which will anticipate potential effects of the implementation of the emissions trading system. Wrong and hasty decisions may, unfortunately, have adverse effects, including, for example, a reduction of the company's market value or even potential lay-offs.

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