On December 17, 2008, the European Parliament approved an “Energy and Climate Package” by a large majority vote. It includes guidelines for emissions trading after 2012 and the expansion of the renewable generation base. In addition, a legal framework was created for the capture, transportation and storage of carbon dioxide (Carbon Capture & Storage–CCS for short) produced by fossil fuel-fired power plants.

According to the emissions trading directive, generators will stop receiving free emissions allowances from the government from 2013. Instead, all of the certificates for these companies will be auctioned. However, existing power plants in several Eastern European countries will gradually transition to full auctioning. A maximum of 15 % of the investment costs of new highly efficient power stations may be subsidized by EU member states between 2013 and 2016. CCS demonstration plants and innovative ways of generating electricity from renewables shall also receive subsidies. Funds to the equivalent of 300 million tons of CO₂ are envisaged. Assuming a certificate price of €20 per metric ton of CO₂, this represents a total subsidy of about €6 billion. The rules governing the major parameters for the future use of Kyoto’s flexible “Clean Development Mechanism” and “Joint Implementation” (CDM/JI) are yet to be defined at the European level. The scope for earning emissions credits from international climate-protection projects is expected to be much more limited in the third trading period. The CDM/JI usage rules will be designed to ensure that these climate-protection tools primarily benefit companies which made only little use of them in the second trading period ending in 2012. Therefore, it is likely that companies such as RWE, which play a pioneering role in international climate-protection projects, will be negatively affected.

The EU’s goal is to increase the share of final electricity consumption accounted for by renewable energy to 20 % by 2020. Every member state is obliged to make a contribution to achieving this objective. Germany, for instance, will have to increase its share from 9.8 % (2007) to 18 %. The member states will retain the authority to make decisions on the respective support programmes. The scope of the national promotion schemes will therefore be protected. At the same time, the EU allows one country to integrate the support mechanisms of another country into its domestic programme in order to improve cost efficiency.

Based on our estimates, the resolution in favour of the full auctioning of emissions certificates for power utilities passed by the European Parliament, and the limited use of CDM/JI, will weaken the German energy industry. Full auctioning is predominantly to the detriment of electricity generation based on coal, our most important domestic energy source. Utilities in countries in which nuclear energy accounts for a substantial proportion of the generation mix, e.g., France (80 %) will only have to buy few certificates. The same applies to utilities with a high share of hydro power in their generation portfolio, e.g., in Scandinavia and the Alpine region. The EU is thus distorting competition in the single European market for electricity. In addition, Eastern European producers of coal-based power will receive preferential treatment through free certificate allocations. As a result, German coal power plants will suffer substantial competitive disadvantages. Subsidy for new power stations is an option that is at the discretion of the individual member states. It remains to be seen whether and by which means RWE will benefit from it.

We welcome the rules for the promotion of CCS power plants. However, the planned subsidy is unlikely to be sufficient to realize the ten to twelve demonstration plants envisaged by the EU. This will require further subsidies from the member states. The “just geographical distribution” of the projects called for by the EU and the subsidization of renewable energy using the same budget may limit the latitude for the construction of CCS power stations in Germany.