The government decree does not correct the excess load due to the effect of emission rights on the price of energy sources that do not pollute.

The government decree does not correct the excess load due to the effect of emission rights on the price of energy sources that do not pollute.

The government decree does not correct the excess load due to the effect of emission rights on the price of energy sources that do not pollute.

CO2 emission rights as a shadow tax

RD 17/2021 of September 14, on urgent measures to mitigate the escalation in natural gas prices, increases the amount of State income foreseen in the 2021 Budgets from 1,222 to 2,222 million euros, due to the higher income obtained as a result of the increase in the price of CO2 emission rights. This income from the State, without consideration for the taxpayer, reveals a economic capacity derived from the consumption of electrical energy.

It is a tax passed on to the electricity supply bill (with an excess charge that partly explains its increase) which, however, is not perceived as such by the consumer/taxpayer.

Consumer ignorance on this point is pardonable. Knowing the elements of the electricity bill means deciphering an enigma wrapped in a mystery. This not only happens with the elements that are not directly related to the supply of energy, the so-called tolls (nuclear moratoriums, historical tariff deficits, etc.) but also with the remuneration of the energy consumed, which is substantially affected by the cost of CO2 emission rights.

The origin of these rights, like many historical fiascoes, comes from the best of political intentions aimed at improving the environment, by limiting the emission of one of the greenhouse gases.

Discarded for reasons of internal policy the production of nuclear energy (which does not emit CO2 and one of the cheapest to produce), the Spanish energy policy is aimed at favoring the production of energy by other non-emitting systems (wind, solar) that , being considerably more expensive, it is necessary to discriminate, by way of balancing the costs between cheap, polluting energy, and clean energy, which is more expensive to produce.

The origin of these rights, like many historical fiascoes, comes from the best of political intentions

Given the consumers cannot choose the source of energy that we consume, the State would have the option of subsidizing the production of clean energy so that it would be just as cheap for the consumer as polluting energy.

However, the system is the opposite, overload the costs of polluting electricity production so that it is just as expensive as clean energy and, as a rebound, establish a system that as a whole means that the consumer pays for energy at the most expensive price among all possible ones.

At this point, let’s pause to briefly explain the concept of emission rights.

The system established in Law 5/2005 on Greenhouse Gas Emission Rights Trading, It consists of subjecting all greenhouse gas emissions to mandatory administrative authorization through the creation of a financial instrument: the “emission right”.

The emission right is configured as the subjective right to release an equivalent ton of carbon dioxide into the atmosphere. The original ownership of all the emission rights that are granted free of charge to facilities located in Spanish territory and to air operators whose management corresponds to Spain, and the ownership of the emission rights auctioned, correspond to the General Administration of the State , which will assign, alienate or eliminate them in accordance with the provisions of the law.

The emission right is configured as the subjective right to release into the atmosphere an equivalent ton of carbon dioxide

To get them up and running, the State assigns to the facilities registered, in principle, free of charge, a certain number of rights broadcast. In addition, a rights auction system is established by the Secretary of State for the Environment to meet the complementary needs of the operators. The auction puts on the market the remaining rights of the installations that have improved their emission levels, as well as a certain number of rights that the Administration itself owns.

For more than a decade, the prices of emission rights in the European emission rights market moved around 5 euros per ton. In 2021 the price is around €60 per ton, (an increase of 1,005%). The tightening of the climate objectives of the EU, which now aspires to reduce its emissions by 55% by 2030 compared to 1990 levels, compared to the 40% it has proposed until now, has caused an increase in the cost of emission rights in line with .

Returning now to the impact on the consumer/taxpayer of the emission rights, it could be assumed that the described system promoted polluting energy generating facilities to experience an extra cost for the acquisition of the emission rights, an extra cost that, in an optimal functioning of the system , would mean an income from facilities that produce clean energy. This is because they would sell the emission rights they do not use first, so that the production costs of both would balance. This system would ultimately affect the consumer the average cost of energy production.

However, this is not the case because the wholesale market is (against the interests of the consumer) ‘fringe’. This implies that all participants in the supply of energy receive a remuneration equivalent to the highest price offered and obtained by any of the suppliers. This means, in practice, that the production of polluting energy (marginal emitters), surcharged with the cost of emission rights, sets the price of the rest of the energy supplied.

The production of polluting energy, overloaded with the cost of emission rights, marks the price of the rest of the energy supplied

This being so, the price of all the energy we consume, both that produced by a polluting environment and that produced by a clean environment, is surcharged with the amount of CO2 emission rights (which should only surcharge the price of energy pollutant). Thus, the consumer is charged the highest possible price of energy.

This, moreover, supposes a excess tax burden for the taxpayer/consumer, since he pays the emission right several times; one in the part of the receipt that corresponds to the price of the energy consumed produced by polluting installations and another for the part of the receipt that corresponds to the price of the energy produced by clean installations, in whose price (given that it is the same for all suppliers, as has been seen), the additional cost for the emission rights acquired by the marginal emitter is also included.

RD 17/2021 establishes a reduction in the remuneration of the energy production activity in an amount proportional to the higher income obtained by these facilities derived from the increase in the price of natural gas. Therefore, it corrects a correlative effect to the one produced with emission rights but does not correct excess load which entails the repercussion of the amount of the emission rights passed on by the generating entities that do not support it.

The return on this (hidden) tax is not minor. According to the modification that RD 17/2021 makes of Law 11/2020 of General State Budgets, the expected income for 2021 from the auction of emission rights is 2,222 million eurosof which 2,000 (90%), (900 million more than initially planned), will be allocated to the promotion of renewable energies. The rest, presumably, will be used to defray the general expenses of the State.

*** Javier Rodríguez Santos is a partner of B. Cremades y Asociados.

Adminartua

Leave a Reply

Your email address will not be published.