The Emissions Trading System – ETS Innovation Fund, Modernisation Fund and Indirect costs 1 Marcin Bodio, Ph.D. Chief Executive Officer, CEEP the 4th of May, 2016

About CEEP Central Europe Energy Partners represents the interests of the energy and energy- intensive companies from Central Europe. Actually, CEEP represents 24 companies and organisations from six Central European countries, employing over 300,000 workers, with a total annual revenue of more than EUR 50 billion. It is the first major body to represent the energy sector companies from the region at the EU level. The aim of CEEP is to strengthen the region’s energy security within the framework of a common EU energy and energy security policy. CEEP is an international non-profit association with its headquarters in Brussels, and a branch in Berlin. Major Tasks  To increase the energy security of Central Europe, as well as the European Union as a whole.  To strengthen the idea of energy solidarity within the Energy Union. We do believe that only the common activities of all EU Member States could be successful in enhancing the energy security of Europe.  To build relations and facilitate contacts between Member organisations and EU bodies and agencies, individual representatives and associations of energy and energy- intensive sector companies, as well as international energy sector think-tanks and lobbies. 2

Saturated EU Economies Average GDP per capita: EUR 31,600 (2014 data) Source: CEEP based on Eurostat data Non-Saturated EU Economies Average GDP per capita: EUR 10,500 (2014 data) 3 GDP per capita – UE 28 (000’EUR)

Source: CEEP based on Eurostat data Saturated EU Economies Non-Saturated EU Economies 4

Thanks to the Lisbon Treaty (art.192,194), each Member State has the right to shape its own energy- mix. This article has been violated many times, as coal, for example, is a fuel excluded from consideration for the building of new, high-energy, efficient power plants, when Member States need to be financially helped, directly or indirectly. 5 A Member State’s freedom to shape its energy-mix Source: Making it happen – Paving the way for the Central European North-South Infrastructure Corridor; CEEP, Roland Berger Strategy Consultants Data does not include Malta and Cyprus. Electricity production, 2013 (bilion kWh) The EU’s approach needs to be changed in this respect.

CO2 emissions per capita ( per capita CO2 emissions of fossil fuel use and industrial processes ) The EU’s goal of a 20% CO2 emissions decrease by 2020 was already achieved in Belgium10,6110,2210,29Malta3,733,653,69Latvia3,943,873,83 Denmark7,836,977,39Netherlands9,999,759,66Lithuania6,056,145,92 Germany9,689,9710,21Austria9,158,919,00Hungary5,135,014,72 Ireland8,468,638,56Portugal4,664,724,60Poland8,608,388,47 Greece8,127,757,10Finland11,259,9310,57Romania4,174,003,68 Spain6,075,935,27Sweden5,385,055,04Slovenia8,197,978,07 France5,725,675,73U.K. 7,517,777,53Slovakia7,346,967,13 Italy6,786,776,39Bulgaria7,616,986,50Croatia5,245,295,37 Cyprus6,616,496,59Czech Rep. 11,5210,9810,66 Luxembourg21,4720,6620,42Estonia16,3415,5315,75 EU7,957,537, USA17,0716,2816,55Russia12,5512,7012,62Brazil2,322,432,56 Canada16,1015,7215,67South Korea12,62 12,72Turkey4,384,514,41 Australia19,1017,6316,92China6,977,177,42Indonesia1,93 1,95 Japan10,0910,7510,70India1,491,601,65South Africa6,336,296,25 6 (tonnes/cap, 2013) Source: JRC, CEEP

ETS discussions CO2 prices versus emissions 7 EURTonnes per capita The EU GHG emissions per capita Source: JRC The average annual prices of CO2 Source: CEEP

ETS discussions implementation of new technologies and innovations 8 The driving force is in the implementation of new technologies and innovations. It clearly indicates that such mechanisms as backloading and MSR have lost their sense of purpose in relation to the decrease of CO2 emissions, especially in the EU-11 countries, also referred to as “lower- income Member States”. Idea Implementation Success

9  To support the modernisation of energy systems in lower income Member States and fully exploit the power sectors’ potential to contribute to cost-effective emission reductions, the proposal foresees two measures: 1) the continuation of the free allocation to the power sector, and 2) the creation of a Modernisation Fund.  The Modernisation Fund is created from 2% of the overall quantity of allowances.  The funds will be distributed between eligible Member States. Modernisation Fund: – EU proposal A fund to support investments in modernising energy systems, and improving energy efficiency, including ETS and non-ETS sectors, in Member States with a GDP per capita below 60% of the Union’s average in 2013.

10 Distribution of funds from the Modernisation Fund up to the 31st of December, Share of Modernisation Fund: Modernisation Fund: – EU proposal

11 Source of funds Beneficiares and allocation of funds to the countries Direction of spending Sovereignty in the choice of Energy sources A legitimate interest in Fund management Yes 2% of the overall quantity of CO2 allowanc es Yes Poland Czech Republic Romania Hungary Slovakia Bulgaria Estonia Croatia Lithuania Latvia Yes Support the modernisation of energy systems in lower income Member States and fully exploit the power sectors’ potential to contribute to cost- effective emission reductions including coal power plants Yes Lisbon Treaty (art.192,194), each Member State has a right to shape its own energy- mix Yes Beneficiary Member States No EIB other EU countries Modernisation Fund: – CEEP’s Position

12 CEEP’s Modernisation Fund Proposals, including the joint paper of the 10 eligible CE Countries  The Fund should be managed by beneficiary Member States.  The governance and rules of the Fund should be transparent.  The EIB may be involved as an advisory body.  Full respect for the specificity of the beneficiary countries energy-mix and technology neutrality should be preserved.  Other EU Member States should not participate in the decision-making process in the selection of the project implemented in one Member State.

13 Modernisation Fund Conclusions for consideration: Modernisation fund will cover 30% of total costs connected with the necessity of buying EUA, when the MSR is introduced. Energy-intensive industries should get 100% free allowances. Derogation for coal power plants should be extended up to 2030 for new 46 % efficient power plants, and up to 2025 for old power plants.

Thank you for your attention Central Europe Energy Partners, AISBL Rue Froissart 123–133, 1040 Brussels Phone: , Fax: , Transparency Register No