ČEZ earns on cap-and-trade plan

Czech energy giant ČEZ had the dubious distinction of making an NGO's top 10 list of "Carbon Fat Cats" - European companies who earned windfall profits by selling an overabundance of emissions credits.

At first read, it would seem companies who make this list are ones that have so excelled at reducing their emissions under the Emissions Trading Scheme (ETS) that they're able to sell off the leftovers. And, indeed, that's the angle ČEZ took when asked to comment on the list.

"These are companies that preserve the environment by producing fewer CO2 emissions," said ČEZ spokeswoman Eva Nováková, about the Sandbag UK report.

The flip side is that an overabundance of emissions indicates government protectionism, and ČEZ is one of the only energy companies in Europe to find itself in such a favorable position. Currently, the EU is in phase two of the trading scheme, the 2008-12 period, during which member states are allocated a set number of allowances, based on a submitted and approved National Allocation Plan (NAP), that are then distributed by those governments to domestic carbon emitters.

Governments are motivated to over-allocate to industries that could move abroad, should paying for additional permits become too burdensome.

"We've seen this trend where governments fear subjecting certain industries to cap and trade," said Rob Elsworth, a climate policy officer at Sandbag. "For example, if steelworks in Europe don't want to pay that extra emissions charge, they'll pack up and move to India."

But power companies, Elsworth added, are local providers and cannot move abroad. As a result, European energy companies "completely dominate demand" for allocations, and have had to cut emissions the most to balance industry. One of the few exceptions to that trend is ČEZ, a state-owned company. In 2008, ČEZ had 1.7 million surplus permits, with an asset value of 23 million Kč. By 2012, Sandbag estimates the company will have nearly 3 billion Kč in assets from the cap-and-trade scheme.

"The Czech government, in its national allocation plan, has chosen to protect ČEZ from being short of permits under the ETS and thus the need to reduce its emissions. The rationale could be to protect power consumers from higher prices, but as ČEZ is majority state-owned, the government could also stand to benefit from the surplus permits," the Sandbag report stated.

The other companies on the list include five iron and steel companies, three cement companies and Slovak energy company Slovenské elektrárne. At the opposite end of the spectrum, Sandbag also compiled a list of the 10 companies that had to buy the largest amount of allowances, a list comprised entirely of energy companies.

ČEZ has been behind several high-profile projects for renewable energy. The company is currently building the largest wind farm in Europe, in Romania, and ČEZ CEO Martin Roman said in an interview with EurActiv that the company intends to invest into biomass projects and additional solar power plants. But, at home, the company has run into severe criticism lately for its planned extension of the coal-fired Prunéřov plant, approved by the new environment minister.

"It's green washing," said Jiří Jeřábek, a climate policy officer at the Czech environmental NGO Centre for Transport and Energy. "They're spending lots of money on advertising to promote a greener image, but, if you look at the exact numbers, it's a matter of trying to sell very little as a huge green contribution."

Jeřábek said the Romanian wind farm project and a huge 60-hectare solar plant in south Bohemia are splashy examples of the company's desire to be seen as green. When it comes to more sensible investments, the company has made no plans that fit into the idea of decentralized energy production, which spreads smaller renewable projects throughout the grid, he said.

As the EU enters phase three of the ETS, Sandbag, the Centre for Transport and Energy and other critics say the decision-making process for allocating permits must be re-examined if the system is to actually reduce emissions. Currently, companies holding an excess of permits are allowed to bank them going into phase three, perpetuating what could be an unfair distribution. The "windfall" profits that Carbon Fat Cats enjoy should be put to better use, the Sandbag report cautions.

"With an estimated 3.2 billion euro asset value in the hands of just 10 companies by the end of 2012, we believe that the EU should consult upon possible incentives and measures which could ensure that at least some of this money [is] directed toward de-carbonization of the EU economy," the report concludes.

Claire Compton can be reached at
ccompton@praguepost.com