public finance and the eu ets: a brief history and ...€¦ · finance national climate action...

Public Finance and the EU ETS: A Brief History and Implications of Potential Reform

Christian Flachsland

Workshop Closing the Carbon Price Gap: Public Finance and Climate Policy, 22-23 May, Berlin

2

Basics: Deriving Country-Level EU ETS Auction Revenue

Country

EU ETS

Revenue = x Auction

Price

EUA Quantity

3

Country

EU ETS

Revenue

Total EU

GHG

Emissions

EU ETS

Sector

Coverage

Auction

Share =

Country

Share x

Auction

Price x x x

EUA Quantity


4

Country

EU ETS

Revenue

Total EU

GHG

Emissions

EU ETS

Sector

Coverage

Auction

Share =

Country

Share x

Auction

Price x x x

EUA Quantity

Example Germany in 2013 (illustrative back-of-envelope): :

791 Mio € = 4,5 Gt CO2eq x 0,45 x 0,4 x 0.22 x 4.44€

Revenues Germany with a potential EU ETS Reform (Knopf et al. 2014): • 90% sector coverage

• 80% auctioning

• Price collar with minimum price starting at 20€

14.257 Mio.€ = 4,5 Gt CO2eq x 0,9 x 0,8 x 0.22 x 20€


5

Country

EU ETS

Revenue

Total EU

GHG

Emissions

EU ETS

Sector

Coverage

Auction

Share =

Country

Share x

Auction

Price x x x

EUA Quantity

Example Germany in 2013 (illustrative back-of-envelope):

791 Mio € = 4,5 Gt CO2eq x 0,45 x 0,4 x 0.22 x 4.44€

Revenues Germany with a potential EU ETS Reform (Knopf et al. 2014): • 90% sector coverage

• 80% auctioning

• Price collar with minimum price starting at 20€

14.257 Mio.€ = 4,5 Gt CO2eq x 0,9 x 0,8 x 0.22 x 20€


6

EU GHG Emissions and EU ETS Coverage Over Time

Cap in 2013 = 2.084 Mt CO2eq

~45% of Total EU GHG Emissions

Increading Sector Coverage to 90% to Ensure Cost Effectiveness of EU Climate Policy? Data: EEA EU ETS Viewer

0

1.000.000

2.000.000

3.000.000

4.000.000

5.000.000

6.000.000

2005 2006 2007 2008 2009 2010 2011

International Maritime Transport

International Aviation

Agriculture

Buildings

Transport

Industry (non-ETS)

Industry (ETS)

Power & Heat (ETS)

Mt G

HG

7

From Free Allocation to Auctioning

In 2013, about 40% of EU ETS Cap Auctioned

0

500

1.000

1.500

2.000

2.500

2005 2006 2007 2008 2009 2010 2011 2012 2013

EU ETS Cap

Auctioned/SoldEUAsM

illio

n E

UA

s

Raising Share of Auctioned Allowances to 80% to Eliminate Windfall Profits and Support Public Budgets?

Data: EEA EU ETS Viewer

8

Country Ownership in Auctioning Revenues

2013 Country Share in EUAs Eligible for Auctioning

Germany 20%

Poland 12%

United Kingdom

10% Italy 9%

Spain 8%

France 5%

Romania 5%

Czech Republic 5%

Greece 3%

Netherlands 3%

Belgium 3%

Bulgaria 2%

Portgual 2%

Own Calculation, Based on data from EEA EU ETS Viewer

-3

-2

-1

0

1

2

3

Po

lan

d

Ro

man

ia

Cze

ch R

epu

blic

Bu

lgar

ia

Slo

vaki

a

Esto

nia

Hu

nga

ry

Lith

uan

ia

Bel

giu

m

Latv

ia

Gre

ece

Po

rtgu

al

Slo

ven

ia

Cyp

rus

Mal

ta

Luxe

mb

ou

rg

Swed

en

Spai

n

Irel

and

Den

mar

k

Au

stri

a

Fin

lan

d

Net

her

lan

ds

Fran

ce

Ital

y

Un

ited

Kin

gdo

m

Ger

man

y

9

Country Ownership in Auctioning Revenues – Side Payments

Net-Recipients and Net-Payers of 12% Redistribution

Revisit Distributional Adjustment to Enable EU Climate &

Energy Package Reform?

Pe

rce

nt of To

tal A

uctio

ne

d E

UA

s

• Distribution of Auction Shares: Grandfathering based on 2005-2007

• Adjusted by Redistributing 12% of Auctioned Allowances

Own Calculation, Based on data from EEA EU ETS Viewer

10

EUA Price

Historic Development of

EUA 1-Year Forward Price

2005-2013

EMF-28 Modeling of

Future EUA Prices Compatible

with EU 2050 Goals,

2015-2050

0

5

10

15

20

25

30

35

Set a Rising EUA Price Collar with Minimum Price 20€ to Stabilize Expectations (Dynamic Cost Effectiveness) and Fiscal Revenues?

€

Kopf et al. 2013

• Total EU ETS Auctioning Revenue in 2013 was € 3,55 Billion

• With indicated EU ETS Reform, Revenue would rise to € 64 Billion

11

EU ETS Auction Revenues in 2013

Year 2013 Country EU ETS Auctioning Revenues in Million €

0

100

200

300

400

500

600

700

800

900

Ger

man

y

Un

ited

Kin

gdo

m

Ital

y

Spai

n

Po

lan

d

Fran

ce

Gre

ece

Net

her

lan

ds

Ro

man

ia

Be

lgiu

m

Cze

ch R

epu

b

Po

rtgu

al

Fin

lan

d

Slo

vaki

a

Den

mar

k

Au

stri

a

Bu

lgar

ia

Irel

and

Swed

en

Hu

nga

ry

Lith

uan

ia

Esto

nia

Slo

ven

ia

Latv

ia

Luxe

mb

ou

rg

Mal

ta

Cyp

rus

Mio

. €

Data: EU Commission

• EU ETS Directive Recommends Spending more than 50% on Mitigation and Adaptation

• Data Should Improve in 2014 with Implementation of Reporting

12

Country-Level Spending

Year 2013 Country EU ETS Spending in Million €

0

100

200

300

400

500

600

700

800

900

Ger

man

y

Un

ited

Kin

gdo

m

Ital

y

Spai

n

Po

lan

d

Fran

ce

Gre

ece

Net

her

lan

ds

Ro

man

ia

Be

lgiu

m

Cze

ch R

epu

blic

Po

rtgu

al

Fin

lan

d

Slo

vaki

a

Den

mar

k

Au

stri

a

Bu

lgar

ia

Irel

and

Swed

en

Hu

nga

ry

Lith

uan

ia

Esto

nia

Slo

ven

ia

Latv

ia

Luxe

mb

ou

rg

Mal

ta

Cyp

rus

Unknown

General Budget

Domestic Mitigation & Adaptation

International Mitigation & Adaptation

Mio

. €

Data: Emails, Various Public Documents

Esch 2013, Haita 2013

13

EU Aggregate Spending

• EU Aggregate Spending of €3,55bn Auction Revenues in 2013

General Budget

25%

Domestic Mitigation & Adaptation

29%

Unknown 41%

International Mitigation &

Adaptation 5% Data: Personal Communications, Various

Public Documents, Esch 2013, Haita 2013

14

United Kingdom

• All Revenues Allocated to Central Government Budget

0

50

100

150

200

250

300

350

400

450

EU ETSRevenue &Spending

GeneralBudgetM

io. €

2013 EU ETS

Reform

€ Revenue 0,4 bn 7.4 bn

Share of

Central

Govt.

Budget

0,1% 0,9%

Data: EU Commission, OECD Database,

Personal Communications

15

Poland

• Revenue: Poland Cashed in only ~55% of its Auctioning Share in Favor of Transitional Free Allocation to Utilities

0

50

100

150

200

250

300

350

400

450

500

EU ETSRevenue

TransitionalFree

Allocation

Spending

GeneralBudget

Mio

. €

2013 EU ETS

Reform

€ Revenue 0,2 bn 8 bn

Share of

Central

Govt.

Budget

0,3% 8,9%


Personal Communications

(likely)

0

200

400

600

800

1000

1200

1400

1600

ETSRevenue

AdditionalFunds

ScheduledSpending

International ClimateFinance

National ClimateAction Programmes

Energy Efficiency

Renewable Energy

ProgrammeElectromobility

CO2 BuildingRestoration

16

Germany

• All Revenues Spent on Climate-Related Projects

• Unexpectedly Low EUA Price necessitated Additional Public Funds to Finance scheduled Spending Programs

2013 EU ETS

Reform

€ Revenue 0,8 bn 14,3 bn

Share of

Central

Govt.

Budget

0,2% 3,9%

Mio

. €


Esch 2013 [Preliminary Data]

17

Greece

• EU ETS reform would add ~3 % to Greek Central Government Budget

Mio

. €

2013 EU ETS

Reform

€ Revenue 0,15 bn 2,7 bn

Share of

Central

Govt.

Budget

0,2% 3,4% 0

20

40

60

80

100

120

140

160

EU ETSRevenue &Spending

Unknown

Data: EU Commission, OECD Database

18

Complementarity of Climate and Fiscal Objectives in EU ETS Reform?

• Linking Climate and Fiscal Reform Rationales in the EU ETS Reform Discussion (Knopf et al. 2014) • Expanding EU ETS Sector Coverage to 90%

• Increasing Auctioning Shares to 80%

• Introducing a Rising Price Collar with Minimum Price 20€

• Yields Total EU Revenues of ~64bn€ (Factor 18 of Year 2013 Revenue)

• Opposition can be Expected from Industries and Countries Reluctant to Implement More Ambitious Climate Policies

• Using EU ETS Reform for Financing Fiscal Consolidation as well as Green and non-Green Public Stimulus in Countries with Fiscal Challenges (Creutzig et al. 2014)

Contact

Dr. Christian Flachsland

Mercator Research Institute on

Global Commons and Climate Change gGmbH

Torgauer Str. 12–15 | 10829 Berlin | Germany

tel +49 (0) 30 338 55 37 - 246

mail [email protected]

web www.mcc-berlin.net

MCC was founded jointly by Stiftung Mercator and

the Potsdam Institute for Climate Impact Research

20

EU ETS Country Revenues with EU ETS Reform

14,2

7,4 6,9

6,2

4,4 3,9

2,7 2,4 2,2 2,1 1,5 1,3 1,2 1,1 1,0 1,0 0,9 0,8 0,6 0,6 0,4 0,3 0,3 0,2 0,1 0,1 0,0

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

Bill

ion

EU

R

*Funds from Phasing Out Transitional Free Allowance Allocation not considered

(relevant e.g. for Poland)