Steinhoff: The ETS is not the problem, but the coal

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– I would not like us to be stuck in the belief that in Poland everything would be perfect if it were not for the Union with its climate and energy policy – says Janusz Steinhoff, former deputy prime minister and minister of economy. As he emphasizes, the emission charges from the ETS system, which has become the subject of fierce criticism from politicians in recent months, are sent not to Brussels, but to the member states. Only last year, the Polish budget received about PLN 25 billion on this account.

– In Poland, there are often such populist signals that it would be good if this European Union would not exist, if there was no ETS, if we did not pay for CO emissions2. I would like to remind you that the funds from the fees for carbon dioxide emissions constitute the income of the Polish government. It is the government that has these funds and should allocate them not to social transfers, but to supporting transformations in the Polish power industry – emphasizes Janusz Steinhoff in an interview with the Newseria Biznes agency.

The ETS emissions trading system is a key element of the EU’s policy to combat climate change and an essential tool for reducing greenhouse gas emissions. It has been operating since 2005 and is the first in the world and one of the largest (next to the Chinese) CO emission trading system2.

According to Forum Energii, the EU ETS covers approx. 40 percent. carbon dioxide emissions, mainly from electricity, heating, industry and aviation. Thanks to it, emissions in these sectors have been significantly reduced over the last 16 years. In other words: it is about imposing a fee for air pollution so that over time it completely ceases to be profitable.

In simple terms, the system obliges issuers – enterprises, energy companies etc. – to buy and redeem CO emission allowances2 (in the form of futures contracts). Allowances are purchased on the market from the available pool known to all market participants (part of the European Commission is distributed within the so-called free pool). This available pool is decreasing every year, because the ETS system is to lead to the reduction of CO emissions2 to the atmosphere. Limited supply raises the prices of allowances.

Importantly, funds from the sale of CO emission allowances2 they go to the budget of a given state and constitute their income. According to the EU ETS directive, at least half of this money should be spent on investments conducive to the reduction of greenhouse gas emissions and the support system for energy recipients.

– And these are very large funds, which only last year amounted to PLN 25 billion. This is not the money that we pay into the EU and it falls into some black hole – reminds an expert on the energy market.

According to the information from the Ministry of Climate and Environment of April 2020, from the beginning of the auction sale of allowances, the state budget has added approximately PLN 20.5 billion. According to the data provided by CIRE, in the entire 2020 this amount has already reached PLN 12.1 billion (approx. 3% of the Polish budget). In turn, last year – thanks to record increases in allowance prices – it turned out to be much higher than the initial assumptions of the Ministry of Finance and amounted to PLN 25 billion. In total, this amounts to approx. PLN 57.5 billion.

The Ministry of Climate and Environment admits that without these revenues it would not be possible to finance programs such as My Electricity or programs supporting renewable energy, low-emission transport or improving the energy efficiency of buildings, which in turn stimulates the Polish economy and improves the quality of the environment. Importantly, the ministry estimates that in the next decade, revenues under the EU ETS will be much higher and will exceed even PLN 100 billion.

– It is all the more worrying that in their statements the representatives of the Polish government often contest the need for the functioning of the ETS – says Janusz Steinhoff. – If we have agreed in Europe that we conduct such and not another climate policy and fight the greenhouse effect, then we must adopt effective tools that will support transformations in the power industry, heating, transport and construction, in order to significantly reduce carbon dioxide emissions, he adds.

In the opinion of the Polish government, the prices of CO emission allowances2 in the ETS system, which breaks historic records, are one of the main factors responsible for the more expensive energy (apart from, inter alia, unfavorable weather conditions, low levels of natural gas storage, Gazprom’s policy and increased demand caused by the economic recovery after the pandemic). In recent months, the EU ETS has become the subject of severe criticism from Polish politicians from the ruling party, including Prime Minister Mateusz Morawiecki or Deputy Climate Minister Jacek Ozdoba, who in an interview for TVP indicated that trading in CO emissions2 it has become a tool in the hands of speculators.

– I have the impression that all the activity of our state representatives is directed at populist statements directed at the society. I would not like us to be stuck in the belief that everything would be perfect in Poland if it were not for the European Commission, if it were not for this Union with its climate and energy policy, says the former Deputy Prime Minister and Minister of Economy.

– The climate and energy policy can be improved, but the member states must be convinced of this, and the place for this type of discussion is the Council of the European Union. I share the view that the ETS needs to be monitored and may need to be modified. However, I am far from saying that it is unnecessary – he adds.

December 9 last year The Polish Sejm passed a resolution calling on EU countries to suspend emissions trading or exclude Poland from the system until its reform. In turn, at the beginning of January this year. Minister of Climate and Environment Anna Moskwa informed that Poland has submitted an application to the European Commission for a comprehensive reform of the CO emissions trading system2 in the ETS.

– The European Commission and the Member States at the last Council of the EU decided that an analysis of emissions trading will be carried out in the near future and perhaps something should be corrected, as the rate of increase in the prices of CO2 emission allowances2 is very high at the moment. I think that the prices of these allowances are growing at a rate that was not foreseen even when creating the ETS – says Janusz Steinhoff.

In 2014, the price of CO emission allowances2 was around 6 euros per ton. At the beginning of last year, it exceeded EUR 50, while in December it jumped to an unprecedented level of nearly EUR 90 per ton. This increase translates into rising energy prices, especially in Poland, where – as reported by Bank Pekao analysts – CO2 emission allowances2 they constitute nearly 3/4 of the total variable cost of energy production (compared to about 1/4 already in 2016).

However, the former deputy prime minister points out that the reason for the more expensive energy is not strictly the EU ETS system itself, but Poland’s dependence on the production of energy from coal. This raw material is used to produce 70 percent. energy in our country.

– Hard and brown coal is a very emissive energy carrier. In Poland, we emit almost a ton of carbon dioxide per 1 MWh, which currently costs about 80 EUR. In other words, in Poland as much as 60 percent. the costs of generating electricity from coal constitute CO emission rights2 – says Janusz Steinhoff.

– Poland already had wholesale energy prices, which were among the highest in Europe, which resulted from the coal monoculture. This affects the competitiveness of the Polish economy – he adds.

According to the data cited by the Ministry of Development (in the regulatory impact assessment for the planned amendment to the Distance Act), in order to produce 1 kWh of electricity in Poland, it is necessary to emit approx. 724 g of CO2. This is three times more than the European average (226 g).

This is one of the reasons why the level of electricity prices in Poland is the highest in the EU. Market experts indicate that this will not change, as long as Poland does not accelerate the energy transformation and investments in green energy sources.

– We must concentrate on rebuilding our energy mix. We cannot make laws like this government, which has practically completely blocked the construction of onshore wind farms. The right direction is, for example, the My Electricity program, which resulted in the creation of over 3 GW of photovoltaic power in prosumer installations. We have to move away from coal-based energy, there are big challenges ahead, especially in Bełchatów or Turów, but it will be a very difficult operation from the social point of view – says the expert.

In his opinion, the costs of the transformation of the energy sector will be to some extent paid by the society, but the acceleration of investments in renewable energy sources will allow them to be minimized.

– Transformations in the power industry will be costly. We have to invest an enormous amount of money in the distribution network, energy storage, etc. Thanks to this, however, many new jobs will be created, we will avoid paying the costs for carbon dioxide emissions, and in the transition period we will have money from emission rights to support energy transformation programs – says Janusz Steinhoff.

About Eric Wilson

The variety offered by video games never ceases to amaze him. He loves OutRun's drifting as well as the contemplative walks of Dear Esther. Immersing himself in other worlds is an incomparable feeling for him: he understood it by playing for the first time in Shenmue.

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