Last exit to get European Energy markets right

contribution to IFIEC annual meeting, Feb 06

Claude Turmes, MEP

The actual mechanisms in the EU energy and gas market is not less than the biggest ever

transfer of economic value from the broader public and business to the benefit of a

happy few

Problems in the EU electricity market

. Market dominance instead of competitive behaviour

. Free CO2 allocations fully priced

. Market imperfection (marginal cost price signal from power exchanges do not reflect real cost structure)

. Base-load power stations not rightly priced

. National CO2 Allocation Plans manipulated

. Gas market not functioning

Competition?

CO2 allowances and electricity prices

Source: WVM 2005

wind fall profits

EnBW; EON, RWE, Vattenfall Europe

EDF Sum

2005

Nuclear 2,2 5,0 7,2

Lignite 1,0 - 1,0

2006

Nuclear 3,0 8,0 11,0

Lignite 2,0 - 2,0

Sum 8,2 13,0 21,2

EU emissions trading scheme

Streamlining of NAPs is crucial

-242

-49-37

501

0

-40

-413

-2

240 0

37

133

-12

-141

0 0

64

-992

-787

164

-367

-250

-1,000

-800

-600

-400

-200

0

200

400

600

Germany Spain Italy Netherlands Poland UK Auction

EU

A/G

Wh

Lignite power plant

Hard coal power plant

Natural gas power plant

Natural gas CHP

No

info

rmat

ion

avai

labl

e

Allocation to new entrants in NAP-1 (w/o transfer rule)

• Solutions:

1) windfall profit tax on electricity companies

redistributed to- favour new entrance (indu cogen)- finance „electricity savings in a hurry“- selective tax cuts to customers most hurt- …

• Solutions:

2) brake up dominance of electricity oligopolies

by stringent mesures:

. electricity and gas release programs

. strict merger control (abolish 2/3 rule)

. third directive (ownership unbundling, access gas storage, harmonisation of powers regulators, divestment obligations)

• Solutions

3) for big indu consumers:

- EU trading platform for big energy consumers (ex. baseload Gas and Elec for 5 years duration with upfront payment to enter, dominating players excluded, )

- put an end to „national indu protection agreements“ (Spain, Italy, France,…)

• strengthen the ETS:

1) ETS 2008 -2012- auctioning maximum- no technology and fuel specific benchmarks

– ETS post 2012- target 2020 for CO2- European not national scheme

Recent Emission TrendsGlobal

0

10

20

30

40

50

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050

Gt

CO

2

Africa

Central Planned Asia (beyond 2002: China)

Far East (beyond 2002: East & South Asia)

Middle East

Central & South America (/w Mexico)

Ocenania (beyond 2002: OECD Pacific)

(Former) Central Planned Europe

Western Europe (incl. Germany)

North America (USA and Canada)

???

Business as usual projection

The 2°CChallenge

competition of big European industry is not THE only problem

the real BIG problems are:

- halt climate change

- get out of oil

- get out of nuclear

LET‘s join forces