DB – EU’s 700m free CO2 credits for ageing power plant upgrade

The EU will give away nearly 700m free emissions allowances (EUAs) to 10 member states that need to upgrade their ageing energy infrastructure, according to a forecast by Deutsche Bank.

In 2013, the third phase of the EU Emissions Trading Scheme kicks off, tightening restrictions on CO2 emissions by power plants. In the agreement, old, inefficient power plants in Eastern Europe are encouraged to modernise. As a result, 10 member states are eligible to apply for free EUAs with a September deadline for submissions. Based on the plans of Poland and the Czech Republic, the Deutsche Bank has forecast that the EU will hand out 690m EAUs during the third phase (2013-20).

“We estimate that, under the methodologies used for calculating the amount of allowances to be awarded free of charge to generators over Phase 3 …, generators in [Poland and the Czech Republic] will on average receive 28 per cent of their Phase-3 EUAs free of charge,” said the bank’s Fixed Income Research analysts Mark C Lewis and Isabelle Curien in a note on Friday.

“Extrapolating from observed data, we estimate that a total of 690 million Phase-3 EUAs could be allocated for free to generators in the 10 member states concerned, of which 564 million will be allocated to existing installations … or 70 million on average per year.”