Greece, EU Strugglers Among Carbon Reform Winners

Percentage gains more significant than outright; governments, utilities to reap rewards.

Europe's poorest nations, including heavily indebted Greece, emerge the main winners from a deal to reform the world's biggest carbon market that will raise billions for EU governments, data from Thomson Reuters Point Carbon shows.

The European Union on Tuesday reached a preliminary accord to launch on Jan. 1, 2019, a Market Stability Reserve (MSR) to remove some of the hundreds of millions of carbon allowances that have depressed the EU Emissions Trading System.

The date is two years earlier than originally proposed and is expected to more than double carbon prices from their current level before the end of the decade, boosting the revenues countries will receive for selling permits.

The negotiations also secured a solidarity fund to soften the impact on weaker economies as more costly carbon allowances drive energy bills higher.

Point Carbon found the overall effect of the changes would be to generate 151 billion euros ($171 billion) for the 28 EU nations from auctioning carbon permits between 2015 and 2025, 89 percent more than they would have received with no reform.

The highest absolute earnings would be for Germany, followed by Britain, which gain 32 billion euros and 16.8 billion euros respectively versus 16.8 billion euros and 8.8 billion euros without the MSR.

Germany and Britain were two of the strongest advocates of early reform as they seek to promote low- and zero-carbon energy.

Coal-reliant Poland, which led opposition, gains 15.7 billion euros compared with 8.6 billion euros without the change.

The analysts said the absolute gains reflected a nation's economic size.

More telling are the percentage gains and in these terms, Portugal, followed by Slovenia, Malta, Cyprus and Greece, are the biggest winners, earning roughly double with this week's deal versus without it.

(Graphics: http://link.reuters.com/kux64w)

"We recognise that not all member states were enthusiastic about early implementation," Stefan Dohler, a senior vice president at utility Vattenfall, said.

"But this week's agreement ... shows that policymakers can solve these differences."

The European Commission, the EU executive, encourages nations to spend carbon cash on green energy, but there is no requirement to do so.

Poland is committed to handing out almost 40 percent of its carbon auction revenues as free allowances to help big emitters. At the same time, it will gain less than poorer economies from the solidarity fund.

Heavy industry aligned itself with Poland's view that the carbon market should not be reformed before 2021, saying the cost would make Europe uncompetitive and could drive companies away.

The aluminium sector says it is particularly severely affected.

Norsk Hydro says energy represents up to 50 percent of its costs and that even if it uses 100 percent renewable power, it faces a high carbon bill because of increased electricity charges that it cannot pass on as it trades in the context of a global aluminium market.

If carbon allowances rise to 30 euros per tonne, the carbon costs passed on could be about 20 percent of the sales price of aluminium, it says.

Point Carbon says this week's deal, which still needs final endorsements from EU governments and the European Parliament, will boost carbon allowances to 19 euros by 2020, versus 9 euros with a 2021 start to reforms and a fall to 4 euros without an MSR. Current prices are around 7.50 euros.

Utilities do not disclose how much they transfer to their customers or how much they will gain from this week's deal, although they pushed hard for early reform.

Trevor Sikorski, an analyst at Energy Aspects, estimated a utility with very efficient gas plants, with annual emissions of 100 million tonnes of carbon dioxide could gain 60 million euros per year from a one euro rise in carbon prices.

The utility would have 160 million euros in additional revenue from passed-on costs versus 100 million of added compliance costs, he said.

By Susanna Twidale and Barbara Lewis