Avoid double paying a carbon price
Electrons are not easily traced back to their generators. Physically, generation from different types of technologies is pooled together and delivered to consumers through transmission and distribution networks. Financially, electricity is traded multiple times on anonymised Power Exchanges by a variety of market participants (which are not necessarily generators).
This means:
- It’s impossible to identify the originator of the exported electricity.
- Most market participants and importers do not have documentation about electricity origin – such as guarantees of origin or renewable energy certificates – as well as other taxes or levies applied to the traded unit.
Under the current CBAM, when trading power with countries with a similar ETS, such as the UK, EU importers should be able to discount the carbon price already charged in the source country (the UK) from the CBAM price.
However, since power is sold in anonymised markets, importers do not possess the paperwork necessary to certify the paid carbon price and are unable to benefit from the promised rebate. As a result, EU importers risk double paying the carbon price – under the source country’s ETS and under the CBAM price. This leads to higher costs for end-users at a time when European industry faces competitiveness issues.
To prevent double paying, the EU ETS should be linked to the UK ETS, while developing as many ETSs around Europe to link to our own system. Meanwhile, CBAM should allow to recognise the source country’s carbon price without requiring importers to provide certificates almost impossible to retrieve.
Set more realistic default values
With CBAM electricity importers will need to declare the carbon content of their import. To facilitate reporting, companies can use default values calculated on the average emissions from fossil fuel generation during the past five years. Yet, this methodology fails to consider the evolving electricity mix, marked by higher renewables deployment and decarbonisation efforts.
This risks blocking power flows that would otherwise be economically viable and necessary to meet European electricity demand. Ultimately, it would also increase CO2 emissions in the EU by reducing third countries’ imports of net-zero electricity, which would be offset by increased generation in the EU, partly from fossil fuel power plants.
An AFRY study shows that the carbon intensity applied to flows from the UK to the EU, under the current calculation methodology, will start at 463gCO2/kWh in 2026. In reality, UK emissions intensity at times when it exports to Belgium is expected to be around 80gCO2/kWh 50% of the time in 2026, and less than 300gCO2/kWh, in all scenarios.
We therefore call on the Commission and competent authorities to agree on more accurate sources of data – ideally provided by the hour – to better reflect the actual carbon content, provide certainty, and reduce bureaucracy, errors and disputes.
An alternative to using default value is reporting actual emissions. This option, however, is practically unavailable to power importers as it is linked to direct PPAs by the current CBAM. Such provision excludes the possibility of third parties’ involvement and fails to consider other long-term contracts, such as CFDs, or forward markets.
The regulation also requires importers to prove there won’t be any congestion in the grid during the contract duration, which is impossible to prove for importers who have nothing to do with grid managers. We therefore suggest expanding the use of actual emission reporting to other long-term contracts and removing grid obligations for importers.
Making the Omnibus Package power-inclusive
We welcome the inclusion of a default carbon price in the package without the need for complementary certificates. Yet, we regret to see electricity importers do not benefit from a reduction of administrative burden in case of small, or occasional imports, as introduced for four other CBAM sectors.
While most imports are for big amounts of power, there are cases where small imports could occur, especially at times of crises or sudden shortages. We believe the European Commission should provide equal treatment for all CBAM sectors and that setting a specific de minimis threshold for electricity importers would be beneficial.
Access Eurelectric’s full position paper here.
Source – Eurelectric