Key Points for Additional 22 Million CO2 Reduction by Conventional Power Plants Unconstitutional and in Violation of EU ETS?

The December 2014 “Action Programme on Climate Protection 2020″ contained the announcement that the German power plant fleet should be made to contribute to saving CO2 by reducing its emissions by an additional 22 million tonnes up to 2020. A key point paper from the Ministry for Economic Affairs and Energy (BMWi) released yesterday provides first information on how this shall be done. However, despite obvious legal concerns, without addressing why the proposal complies both with the German constitution and the European emissions trading regime.

The December 2014 “Action Programme on Climate Protection 2020″ came in the context of Germany’s goal to reduce greenhouse gas emissions by 40% by 2020. It stipulated that the German power plant fleet must contribute by saving 22 million additional tonnes of CO2 by 2020.

Yesterday’s key point paper from the Ministry for Economic Affairs and Energy (BMWi) provides initial information on how the reduction shall be structured:

  • The new programme shall help reduce the 349 million tonnes of CO2 emitted by German power plants in 2014 to 290 million tonnes by 2020; the paper assumes that another 37 million tonnes of CO2 will be saved by further renewable growth and energy efficiency (349 – 22 – 37 = 290 million tonnes of CO2);
  • The new programme is an additional national instrument to reduce emissions for power plants that are subject to the EU ETS; according to the paper these plants emitted 329 million tonnes of CO2 in 2014 (the plants already have to submit emission allowances corresponding to the emissions produced in a given calendar); the paper points out that EU emission allowance prices were too low to generate sufficient investment in clean technologies and reform efforts would not take effect quickly enough before 2020;
  • A “free amount” (Freibetrag) shall apply to each power plant unit beyond whichadditional EU ETS emission allowances (EUA) haveto be handed in (exemptions are not transferable); theyare calculated in a way that 90% of the plants are exempt
    • In the first 20 years after commissioning there is a full exemption;
    • As of the 21st year of commissioning the exemption declines in a linear fashion from 7 million tonnes of CO2 per GW to 3 million tonnes of CO2 per GW in the 41st year, from whereon it remains stable;
    • Time periods start with the commissioning of the boiler; modernisations that bring plants to the standards of new plants make them equivalent to new plants;
  • Once emissions exceed the thresholds operators have to hand in additional EUA as of 2017; their value rises, by 2020 it amounts to EUR 18 to 20 per tonne of CO2.

Electricity prices will rise by 0.2 ct/kWh the paper estimates, but says other options examined to save an additional 22 million tonnes of CO2 would have more drawbacks.

It is not yet clear how those key points shall be translated into black letter law, which means that it is not yet possible to fully analyse the legality of the proposal, in particular compliance with German constitutional law and European law.

Nonetheless, on the face of it, constitutional law concerns are obvious. Currently, conventional power plants have both a permit to emit CO2 and, in addition, have to buy EU-ETS emission allowances to cover their CO2 emissions. The proposal seems to suggest that despite the permit and despite the emission allowances, the operators shall not be allowed to operate the plant if they are above the 90% limit and are not covered by an exemption. It appears as if this would qualify as an unconstitutional expropriation or quasi-expropriation of the EU-ETS emission allowances (that under current German and European law actually cover the emissions that exceed the 90% limit).

Furthermore, it is by no means obvious that the proposal complies with the EU-ETS regime. After all, the conventional power plant operators buy EU emission allowances for 100%, but apparently shall still not have the right to emit 100%, but only 90%, and may therefore have to buy additional allowances, making some of the allowances worthless.

It remains to be seen what the draft law will look like. And what arguments BMWi will bring forward regarding constitutionality and EU law compliance.

Sources: BMU, BMWi

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