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PGE expects an increase in the pool of funds for energy transition

02.09.2021

In today;s debate organised by the Brussels portal Euractiv, "The new EU ETS: what should be changed?",  PGE called for mitigating the additional costs of the energy transition by introducing appropriate amendments  in the Commission proposal to reform the EU Emissions Trading Scheme (EU ETS). The webinar attended by representatives of the European Commission, MEPs, market analysts and leading think tanks, brought together over 400 participants.

In July this year, the European Commission presented the 'Fit for 55' package and proposals to amend a number of regulations and directives to enable a higher emissions reduction target by 2030 and reaching climate neutrality by 2050. The most important part of it, which at the same time creates the most heated discussion, is the reform of the EU ETS.

During his speech, PGE’s Vice-President for Corporate Affairs Paweł Cioch emphasised that due to the long-term investments carried out and planned by PGE, the proposal to use all domestic revenues from the sale of CO2 emission allowances to finance climate friendly investments is a change in the right direction. “This means that more public funds will be dedicated to finance the energy transition. However, we must keep in mind that – for certain countries – the investment needs stemming from 55% climate target largely exceed the national revenues from the EU ETS. Because of that, countries like Poland have structural deficit of allowances, which has been estimated by the think-tank Forum Energii at 660 million of allowances less than Poland’s expected emissions until 2030.” - Paweł Cioch stated. This means more than EUR 40 billion that Polish companies will have to pay through the ETS auction platform into the budgets of other EU countries by 2030 instead of the Polish budget.

To achieve the higher EU target of reducing greenhouse gas emissions by at least 55%, Poland needs investments of EUR 136 billion, and when all available funds are taken into account, the investment gap in Poland still remains and is estimated at as much as EUR 93 billion. In addition, calculations by the National Centre for Balancing and Emissions Management (KOBiZE) show that meeting the carbon neutrality target in Poland would have a knock-on effect on the Polish economy, which would translate into a reduction in household consumption worth EUR 100 billion. Therefore, PGE's Vice-President for Corporate Affairs pointed out that the funds proposed by the European Commission for mitigating the social costs of transition are definitely insufficient. “We must mitigate extra energy transition costs through an appropriate increase of the Modernisation Fund. We must keep the possibility to finance gas investments from the Modernisation Fund if the EU wants to show that it has good recognition of different starting points between Member States.” - Paweł Cioch pointed out. In addition, Paweł Cioch argued that a significant tightening of the Market Stability Reserve parameters is not necessary when the value of the Linear Reduction Factor of emissions is increased to 4.2% per year. The cumulative effect of the proposed changes will lead to a further increase in CO2 allowance prices, which are already above EUR 60 per tonne.

According to PGE, apart from increasing the pool of allowances dedicated to the Modernisation Fund, it is worth considering a solution to proportionally reduce the volume of allowances which Poland would have to normally transfer to the Market Stability Reserve (MSR) and use a part of these MSR allowances to finance the energy transition. In the long term, this could be one way of reducing the structural deficit of allowances that Poland struggles with.

The final shape of the EU ETS reform will be decided over the next couple of years.  At the end of July, after the European Commission had published the proposed changes to the EU ETS, PGE together with Euractiv published a special report available in English and Polish devoted to the details of the EU ETS reform and its potential social and economic impact. Today's debate has summarised the main themes presented in this report.