New EU emissions trading period raises consumer price of electricity

Fortum and Helsinki Energy announce new price hikes

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The new period for emissions trade in the European Union began on Wednesday, when prices of quotas for greenhouse gas emissions were quoted in the emissions trade bourses in Europe.
      There were no surprises in the price level in Wednesday's trading. The price of the right to emit a tonne of carbon dioxide fluctuated between EUR 22 and EUR 23, which was the level anticipated in emissions futures trading already last year.
      However, compared with last year's emission entitlements, the price rise was significant. In 2007 the prices of emission rights came down almost to zero. The reason for this was that the European Commission had granted emission rights to industrial companies and electricity producers so freely that there was hardly any need for anyone to pay for any further entitlements.
     
When emissions trading began in the EU in 2005, the price of the right to emit a tonne of carbon dioxide shot up to more than EUR 30. The prices collapsed in March 2006, when figures on supply and demand came out.
      The first emission trade period was three years long, from 2005 through 2007. The new period is five years, lasting from 2008 to 2012.
      The first period was seen as largely an experimental phase, as indicated by the sharp fluctuation of prices in the three years.
      In the new period, emission rights in the whole EU are being cut by about ten per cent. Finland is getting off somewhat easier than most other countries: Finnish emission rights are being cut by approximately five per cent.
     
Ordinary citizens will see the results of emissions trading primarily in the form of higher electricity bills.
      Electric utilities are passing on the costs of emission rights directly to the price of electricity, even though they get most of the emission rights for free, and even if the electricity is generated in ways that do not produce greenhouse gas emissions, such as nuclear energy and hydroelectric power.
      The extra dividend has boosted both the price of electricity and the profits enjoyed by electric utilities.
     
The electric utility Fortum announced on Wednesday that it was raising its offpeak rates and its seasonal rates by about ten per cent. The same company raised rates of its other retail customers by the same amount, anticipating the rise in wholesale rates.
      Helsinki Energy has announced a seven per cent rise from early February. The reason that it gave was the impact of the climate change guidance mechanisms on the wholesale price.
      Suomen Elfi Oy, which represents major users of electricity in Finnish industry and commerce, calculated recently that the new emission period is costing consumers - that is, households and companies - EUR 1.8 billion a year, and EUR 9 billion in the whole five-year period.
      The estimate is based on an assumption that the market price for emission rights will be between EUR 20 and EUR 22 a tonne.
     
     
Many thanks to the sharp-eyed soul who spotted the million/billion error. You know who you are.


Previously in HS International Edition:
  New emission trading period could cost nearly as much as 1990s bank crisis (7.8.2007)
  EU cuts Finnish emission quota (5.6.2007)

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