GERMANY: CARBON AUCTION

This is a really interesting idea, putting the price for emissions where it must be. Knowing they will be asked to face the "true" cost of emissions, Germans have developed more efficiency and more renewables.

German Lawmakers Approve Carbon Emission Auctions
Brian Parkin and Patrick Donahue, June 22, 2007 (Bloomberg News)

WHO
Chancellor Angela Merkel, Environment Minister Sigmar Gabriel, German utility RWE AG (Ulrich Jobs, power-generation unit head), Verband der Elektrizitätswirtschaft Baden- Württemberg e.V. (Eberhard Meller, general executive manager), VIK, representing ThyssenKrupp AG, Volkswagen AG, HeidelbergCement AG and 350 other industrial power customers (Alfred Richmann, Managing Director).
German renewables (click to enlarge)

WHAT
The German lower house of Parliament approved the auction of greenhouse gas (GHG) emission credits, despite opposition from German industry and utilities because of the costs.

WHEN
- The measure was approved June 22.
- The upper house of Parliament must approve the plan July 6.
- German utilities will buy EU permits for 140 million tons of GHGs through 2012.

WHERE
- German government is in Berlin.
- VIK is based in Essen.

WHY
- Under cap-and-trade, the Germans are assigned a limit of GHG emissions by the EU and given permits for those emissions. The government then dispenses those permits across its industries, utilities and businesses which need permits (i.e., need to create emissions) to do business. If a business needs to create emissions beyond what its permits, it must offset them with investments in clean energy or buy more permits on the EU ETS, an emissions permit trading market where businesses which generate fewer emissions than their permit levels allow can sell their credits and derive extra income.
- By auctioning a portion of the allowed permits, the German government is creating revenue and making emissions more expensive. But for businesses that need the permits to operate, the auction drives the price up.
10% (EU max) of Germany’s allowed 453 million metric tons of GHG permits will be auctioned.
promoting efficiency (click to enlarge)

- RWE AG, Germany’s 2nd largest utility, has estimated its increased costs for emissions permits under this plan to be 410 million euros($554 million)/year. This suggests inevitably higher power prices (one utility estimated a 14% factor!), though liberal politicians dispute it. But it perhaps gets closer to what some would call the “true” cost of doing business while generating GHG emissions.

QUOTES
- Gabriel, on auctioning emissions permits: ``[It] is of great significance for Germany to achieve its Kyoto Protocol obligations through 2012…[without climate change talks are] meaningless…That's the real success of this law.''
- Jobs: ``We regret that this has to lead to a massive disadvantage to ignite…Discrimination against domestic lignite isn't justified.''
- Meller: ``Banks will buy and hoard certificates, selling when it's opportune…Consumers and industry will pick up the extra costs.''