Poland May Halt Free CO2 Permits for Utilities to Boost Budget

(Bloomberg) -- Poland is poised to give up handing out free carbon permits to utilities, opting instead to sell those allowances and boost state funds.

As of 2021, the country will probably forgo an exemption to European Union emissions market rules that lets electricity producers get free allowances, according to two people with knowledge of the issue. The government is yet to decide how to sell the minimum 270 million permits currently worth about 6.5 billion euros ($7.3 billion) that would be available in the 2021-2030 period.

Poland last year sought to allocate 31.9 million permits for free to utilities including PGE SA and Tauron SA under the EU Emissions Trading System. The ETS, Europe’s flagship policy for reining in climate change, imposes ever-tightening caps on pollution for more than 12,000 facilities owned by power producers, airlines and industries from steel to cement makers.

For every metric ton of carbon dioxide they discharge, emitters have to submit one permit. Those can be bought at government auctions or in the market. Some companies are also eligible for a limited number of free permits.

On the side of governments, at least half of revenue from carbon auctions should be used for climate and energy-related purposes. EU carbon prices rose more than five-fold to about 24 euros a ton over the past two years as policy makers agreed on a way to reduce a surplus in the market.

Poland is the second EU country to announce this year it will not use an exemption from auctioning for its utilities in the 2021-2030 trading phase. In May, the Czech government decided it will put such securities into an EU modernization fund that will then sell the permits to boost energy efficiency and renewables and pay for the shift toward cleaner forms of energy.

Under EU ETS rules for the next decade, the Modernization Fund is to support 10 poorer EU nations: Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. The fund will get at least 310 million allowances, which can be conditionally increased by about 75 million permits. No aid will be given to projects involving solid fossil fuels, such as coal, which Poland wanted to be eligible for funding. An exception was made for investments in district heating in Romania and Bulgaria.

The Polish government hasn’t agreed yet how it will sell the permits that would otherwise be eligible for free allocation to utilities. Options include adding the allowances to regular auctions or creating a special national fund.

In February, the ruling party unveiled almost $11 billion of welfare spending and tax cuts, which amounts to about 1.5% of Poland’s gross domestic product. In April, the government announced one-time and extraordinary revenue measures to keep the deficit in check while financing election-year stimuli in coming years.

--With assistance from Marek Strzelecki and Maciej Martewicz.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson, Rob Verdonck

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