BMWi: Guideline on Compensation of Indirect CO2 Expenses

Federal Cabinet (Bundesregierung) approved a guideline on the compensation of indirect CO2  expenses (electricity tariff compensation). It shall compensate energy-intensive companies for the costs of green house gas emissions passed on (most likely) to consumers with the electricity tariffs as of 2013. The guideline had been presented by the Federal Ministry of Economics and Technology (BMWi).

The guideline is applicable for the 2013-2020 trading period of the EU Emissions Trading System (EU-ETS – Phase III). Compensation payments are made the year after the indirect CO2 costs were incurred. Hence, the first payments under the directive will be made as of 2014.

Phase III of the EU-ETS will lead to massive changes of the EU-ETS system by continuously raising the share of auctioned certificates reducing certificates allocated for free. By 2013, energy producing companies will have to pay for all necessary certificates which will most likely result in rising electricity tariffs.

The guideline intends to enhance the competitiveness of energy-intensive industries and prevent relocation to other non-regulated countries (carbon leakage). According to Art. 10a para. 6 of Directive 2009/29/EC amending the EU greenhouse gas emission trading scheme, Member States may adopt financial measures in favour of sectors or subsectors determined to be exposed to a significant risk of carbon leakage due to costs relating to greenhouse gas emissions passed on in electricity prices, in order to compensate for those costs.

The new guideline approved by the government is based on the “Guidelines on certain State aid measures in the context of Greenhouse Gas Emission Allowance Trading Scheme” enacted in May 2012 by the European Commission. According to the new German guideline, companies are entitled to apply for compensation payments if they form part of the sectors or sub-sectors listed in Annex II of the Commission guidelines. This includes highly energy-intensive industries like the aluminum and copper production and the manufacture of basic iron and steel and of ferro-alloys.

The compensation paid under the new German guideline is the result of a complex calculation laid down in Section 5.2, which contains factors reducing refunds. Firstly, the calculation provides for a deductible (cf. Section 5.2 para. 1 sent. 1 in connection with Section 5.1.l. Secondly, it contains a factor that provides for a staggered reduction of the payments (cf. Sections 5.2.1 and 5.2.2. in connection with Section 5.1.h) by stipulating that 85% of the costs can be refunded for the period 2013 to 2015, 80% for the years 2016 to 2018 and 75% in 2019 and 2020. The calculation of refunds also includes a product-specific energy efficiency benchmark factor respectively a fall-back energy efficiency benchmark factor determined by the Commission (cf. Sections 5.2.1 and 5.2.2. in connection with Sections 5.1.m and 5.1.n

According to media reports, BMWi expects costs of EUR 350 million annually. Minister Rösler pointed out these costs will not be passed on to the other electricity consumers. How the costs will be refinanced is yet unclear. Media sources pointed out that the revenue from the emission trading scheme was not enough since emission allowance prices traded lower than expected by the government.

Source: Bundesregierung;BMWi

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