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Energia - Środowisko
Dodatek promocyjno-reklamowy do "RZECZPOSPOLITEJ".
13 września 2005 r.
High time for a compromise
Interview with Tomasz Podgajniak, The Minister of the Environment
The Ministry of the Environment has finally approved the European Commission's decision to reduce carbon dioxide emission allowances below the level envisaged under first draft of the National Allocation Plan. Shouldn't we be more adamant in defending Polish projects?
 An old football saying goes: you play as your opponent lets you. We have fought for the change of the European Commission's decision till the end. Only two minutes before it was made officially I had spoken with Commissar Stavros Dimas. I had tried to convince him that the methodology adopted by the Commission includes false assumptions and that the allowance ceiling for Poland should be higher by 3 million tonnes.
I would like to emphasize that I have not accepted and I still do not accept the approach adopted on the basis of the directive on emissions trading. I do not, however, dispose with any legal instruments to be able to question it. This is simply how the directive was constructed. From the point of view of Poland, which is a transformation economy, the most important is the aim of the directive - the fulfilment of the Kyoto Protocol objectives by individual countries. Poland has comfortably met the Kyoto commitments and has a surplus over emission targets. That is why we have not deemed it as particularly justified to create solely an emissions trading system. Nonetheless, we had to accept the arguments put forward by the EU: since we are creating a uniform system in the Community, Poland has to participate as well.
Therefore, from our point of view, the priority was not solely to meet emission targets but, more importantly, to develop the possibilities and methodologies for environmental protection. We have expected our emission surplus to generate additional resources necessary for the implementation of restructuring investments. At the same time, we believed that it could help other countries in fulfilling their carbon dioxide emission commitments. There is still a lot to be done in the energy sector, in particular in the area of facility efficiency. At present facility efficiency in Poland amounts to 37% but this is not enough, it should be 4-5 percentage points higher. If it was higher we would not have any problems with allowance allocation.
When the unfavourable decision of the European Commission was announced on the 8th of March this year, we were ready to file a complaint with the European Court of Justice. The basis for the complaint was to be that the European Commission had failed take into account trends in the Polish economy. In order to support our claim we asked companies to inform us on the 2004 emission levels. And what was the outcome? The initial balance has shown that CO2 emissions in 2004 were lower as compared to the 2003 levels. After the data was verified it turned out that there was in fact an increase in emissions but that it amounted to only 2 million tonnes. In our emission forecast we have assumed an annual growth of 3%, which means 6-7 million tonnes. We have thus lost our arguments because the emission surplus of nearly 20 million tonnes against the 2004 levels was too big for us to say that we are lacking allowances, even to cover our growing emissions needs. That is why after careful consideration, we have decided not to argue with the Commission. The experiences of other countries show that it is not worth entering into such arguments if you don't have particularly strong arguments.
I still think that the directive is ill-constructed because the assumption to verify its provisions after the EU enlargement has not been realised. I have called for the verification ever since I joined the process. I am trying to convince also Great Britain, which now presides the EU, that this is necessary. I hope that my voice will contribute to launching of directive revision. In my opinion we should introduce the so-called ex post verification of allowance allocation to individual installations in the counties which have already met Kyoto targets. An interesting solution would be to allocate some of the allowances through national or industry auctions. This would give us greater flexibility.
Many representatives of the energy sector say that the volume of allowances for greenhouse gas emissions does not take into account growth forecasts for individual sectors. But maybe these forecasts are too optimistic; is it possible to verify them?
There are no good tools to verify production growth forecasts. All installations under the emission trading scheme declared a significant growth. For example, professional power industry assumed that in the 2005-2007 period it would produce on average 124 TWh of electricity annually, while last year it produced only 117 TWh. The situation is additionally complicated due to long-term contracts. To fulfil contract commitments we should allocate allowances of 60 million tonnes. The situation is really complicated.
Yet, when I look at all those numbers and calculations in the global dimension, I see that we have enough of allowances not to have to fear its shortage. I do not believe that there will be a sharp growth of electricity production and, particularly, I do not believe in a rapid growth in electricity demand. Of course we must not underestimate arguments which say that the open EU market offers better chances for electricity export, but we should remember that we have limited capacity at interconnections with Western Europe and with the European electricity system.
I would like to emphasize strongly that all opinions saying that electricity price will grow by 35 groszy per TWh because of the need to buy CO2 allowances are purely demagogic. Even if we assume that the production growth will be as high as the electricity sector envisages, and it will be necessary to buy more permits for 2 or 3 million tonnes on the European market, even at 30 euros per tonne, the financial result per production unit will not exceed 1.5 euros per 1 MWH, that is 1.5 groszy per 1 kWh. Such a price increase will not ruin the market. Moreover, a competitive mechanism (TPA principle) will start working and long-term contracts will be dissolved, which could mean that this price growth would not be noticeable at all. For that reason the lack of allowances for the emission of 2 million tonnes in the electricity sector does not scare me. Such catastrophic visions are, in my opinion, a clumsy attempt to apply "black PR" methods. In this way we will not go far. We need a discussion based on facts and figures.
Does Poland face a threat of EU sanctions for not meeting deadlines for the implementation of the emissions trading system?
If this situation continues we can obviously expect problems. That is why I would like that all interested sectors accept and adopt this difficult plan. Although it does not satisfy ambitions of those it concerns, it does satisfy their needs. Of course, in order not to come into conflict with owners, management boards of individual companies fight to get as much as possible. In this way you can demonstrate how efficient you are. It is high time, however, for us to reach a compromise. I am thinking in particular about the professional power industry which consumes over 50% of allowances. If power plants themselves do not reach an agreement, I will have no choice but to make decisions arbitrarily. It is time to understand that there is nowhere to get additional allowances from. I ask everyone who asks for them: who do I take them away from? Even our allowance reserves are symbolic, we have to keep them because there might be new installations that would need them. This is a difficult situation but I hope that we will come to an agreement.
Don't you think that the impossibility to grant the early action premium for previous pro-ecological investments resulted in the punishment of the best companies?
This is a difficult question. Companies which had earlier made pro-ecological investments obtained a certain surplus which they cannot now convert into money. However, if we take into account the excess of allowances over the forecasted supply on the domestic market, it will be difficult to see this as a punishment.
Unfortunately the mechanism we have assumed previously will not start working. The main idea of the first National Allocation Plan was to allocate premium for earlier actions so that the companies which had earlier made investments in CO2 emissions reduction could compensate their costs at least partially. This solution was questioned by the European Commission. We have been accused of granting impermissible public aid.
Our negotiation results are sometimes compared to the results achieved by the Czech Republic. Did Czechs really do better?
In some way yes. This stems primarily from the fact that we took the risk of introducing the premium as an addition to the base emission pool. However, if we deduct these exterior premiums, the reduction in Poland in relation to the base allowance pool will be lower than in the Czech Republic.
What are the main criteria for allowance allocation?
We have tried various methods. We want to find an appropriate algorithm rather than make arbitrary decisions. We would like our solution to take into account market share in the previous years (i.e. 2002, 2003, 2004) and the forecasted production growth with regard to long-term contractual commitments. Several methodologies have been created, the last of which was rather complicated. It assumes allocation of allowances based on forecasted production volumes with regard to emission ratio for individual installations. However, also this method is called into question as it does not satisfy all needs declared.
When will the National Allocation Plan be launched? Is it true that its costs may be very high?
The costs of the National Allocation Plan may indeed be very high. While preparing it we want to use reliable systems which would allow us to electronically balance allocation flows and collect information on emitted volumes almost in real time. Hence, we want to outsource software rather than design it, especially taking into account the difficulties of Social Insurance Institution (ZUS - Zakład Ubezpieczeń Społecznych) or Ministry of Internal Affairs and Administration (MSWiA - Ministerstwo Spraw Wewnętrznych i Administracji). We are now carrying out a bidding procedure and there are three serious bidders. I think that we should finalize the transaction within the next 2 months.
How will verifiers of emission reports be appointed?
Pursuant to the EU directive a verifier is not appointed by the minister or any administrative body but has to be accredited. We have introduced an additional provision according to which the Voivodeship Inspectorate for Environmental Protection can become a verifier, provided that it holds a laboratory accreditation.
Does the Ministry of the Environment cooperate with the Ministry of Finance in the area of tax issues connected with emissions trading?
Yes, we cooperate with each other. We ask difficult questions which are hard to answer because even the EU system is not completely developed yet. We have already formulated uniform principles of VAT. Right now we are considering at which point to levy the income tax. From our point of view, it should be levied at the moment of allowance sale and not its allocation.
The demand for energy will nevertheless grow. Does production growth have to entail greater emissions of carbon dioxide and other environmentally hazardous substances?
The demand for energy will grow. This means, however, the need not only for investments and modernizations but also for innovations. I mean here especially innovations which would rely on new energy sources so that the growing demand could be covered by greater effectiveness of primary fuels. At the same time, it is necessary to reduce losses in transportation. Only after that should we seek to increase supply from the existing and new sources.
We need therefore to develop renewable energy. We don't have many options. Renewable energy is not cheap and investment risk is very high. We can chose between biomass, hydroenergy and wind energy. From the point of view of the minister of the environment I have to say that biomass is not the best choice because it distorts the circulation of important elements in the ecosystem. There is no place to build big hydroelectric power plants and micro power generators operate only on a local basis. My biggest hopes lie in wind energy. We must remember, however, that this energy will constitute at most 10-15% of the total volume. Conventional energy will thus remain the main source of supply. That is why he have to think about new, more effective energy sources with lower emissions profiles. Searching for savings and effectiveness should be one of the main directions for the development of the energy sector in the next 20 years.
Piotr Janczarek
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