New emission trading period could cost nearly as much as 1990s bank crisis

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By Heikki Arola
     
      Suomen Elfi Oy, a company which represents large consumers of electricity in industry and commerce, feels that the upcoming period of carbon dioxide emission trading will bring unreasonable costs to bear on consumers of electricity.
      Elfi managing director Antti Koskelainen calculates that Finnish buyers of electricity - companies and households - will have to shoulder costs of about EUR nine billion during the next five-year period (2008-2012) in the form of higher electricity prices.
      That would be the extra cost compared with the present price.
     
The sum is, in practice, a pure income transfer from buyers of electricity to the electric utilities.
      The production costs of the utilities will not rise much as a result of emissions trading, because most Nordic electricity production does not cause carbon dioxide emissions. As for the rest, which do pollute, they will get a significant part of their emissions rights for free.
      Koskelainen points out that the second period of emissions trading, which begins next year, will impose costs on the consumer that are at about the same level as bank subsidies were in the 1990s, when about 50 billion markka (EUR 8 billion) in public funds was spent to prop up the ailing banks.
      The calculation assumes that from the beginning of next year, the price for emitting a tonne of carbon dioxide will be between EUR 20 and EUR 22, based on today's advance prices.
      Koskelainen feels that the bills that consumers will have to pay will be quite unreasonable, especially as the electricity industry, which is to get extra revenue, is in no way obligated to invest money into renewable energy, which reduces emissions.
     
The emissions of Finland's emissions trading sector in 2008-2012 are estimated at 48 million tonnes a year. The European Union gave Finland free emission rights worth 38 million tonnes a year.
      This means that the national deficit will be about 10 or 11 million tonnes, for which the equivalent emission rights will have to be bought on the market. At EUR 20-22 per tonne, the price will be between EUR 220-240 million.
      That is the real cost that will have to be paid for the emissions in the whole energy and industrial sector. But for the consumers, the annual cost to be paid in the price of electricity is EUR 1.8 billion, because electric utilities pass on the price of emissions rights that they got for free into the price of electricity.
     
When this annual bill of EUR 1.8 billion is multiplied by five, we get the EUR nine billion as the price for the whole five-year period.
      Koskelainen feels that this massive income transfer to electric utilities is unjustified and unreasonable, because generating and trading in electricity are very profitable activities even without the emissions trade mechanism.
      The good profitability is based on the fact that in the pricing of electricity, the method that is used is to set the price according to the most expensive means of producing power. This is usually coal, although in Finland and the other Nordic Countries, most electricity is generated by hydropower or nuclear power, whose costs are much lower than in coal production.
      Koskelainen feels that this, combined with the emissions trading mechanism, places a completely intolerable burden on the consumer.
     
One reason for the situation, says Koskelainen, is the lack of competition in production. For that reason, the price of emissions rights can be completely shifted into the market price of electricity.
      Koskelainen would like to see more producers on the market. He would also like to reform the system in such a way that companies would be granted emission rights retroactively, according to emissions that have occurred.
      Elfi has more than 20 large companies. Industries that are involved include Altia, Atria, Componenta, HK Ruokatalo, Kone, Metso, M-Real, Nordkalk, Outokumpu, Ovako Bar, Rautaruukki, Saarioinen, and Valio. Of the large retail companies, SOK and Kesko are shareholders.
      The combined use of electricity by the shareholders is now about 13.5 TW hours a year, which is 15 per cent of Finnish consumption.
     
Helsingin Sanomat / First published in print 7.8.2007


Previously in HS International Edition:
  EU cuts Finnish emission quota (5.6.2007)
  Over 500 emission quotas allocated in Finland (15.2.2005)
  New mission for Jorma Ollila: fighting climate change (30.1.2007)
  WWF report: Finns´ ecological footprint third-heaviest in world (25.10.2006)

HEIKKI AROLA / Helsingin Sanomat
heikki.arola@hs.fi