Hungary joins rest of Central Europe in suing EU over carbon caps

By bne IntelliNews June 11, 2007

Nicholas Watson in Prague -

On Thursday, Hungary joined Poland, Czech Republic and Slovakia in taking the European Commission to court over the cuts to its carbon emissions plan for the period 2008-2012.

The Commission in April set Hungary's cap at 26.9m tonnes of the greenhouse gas annually, which was 12.4% less than the limit that the country had itself proposed. This follows a pattern of the EU executive, which is cutting these caps in order to put some steel into the bloc's key tool for fighting climate change and meeting commitments agreed under the Kyoto Protocol.

One of the main problems with the carbon trading scheme has been the overly generous allocations from national governments to their industries. However, at the G8 meeting in Germany last week EU environment ministers said a consensus was growing that the Commission should set emissions limits rather than having countries submit suggested caps through these so-called national allocation plans (NAPs).

"An EU allocation system is preferable above a national allocation system," Dutch Environment Minister Jacqueline Cramer told Reuters. "I hear more and more colleagues that talk about a European system."

The Commission is conducting a review of the scheme to be presented by the end of this year, which may also include a recommendation to add more sectors and gases.

However, Hungary et al argue the Commission has exceeded its authority and is using the wrong calculation methods when it told them to slash their planned emissions. "The procedure was not transparent and there was not sufficient consultation," Hungary's Environment Ministry moaned.

Poland was allocated by 208.5m tonnes per year (t/y) of emissions for the period 2008-2012 period, down by nearly 27% from the 285m t/yr it had sought. And the Czech Republic originally sought a quota of 101.9m t/y in its plan submitted to Brussels for 2008-12, but the Commission cut that by 15m t/y to 86.8m t/yr.

The worry for these countries is that the stricter carbon caps will crimp the sterling economic growth they are enjoying, which is helping their economies converge toward those of their fellow EU members in the West. Slovakia's GDP grew 9% in the first quarter from the year before, Poland's rose 7.4% and the Czech Republic's grew 6.1%. Even Hungary, which is struggling under an austerity programme designed to iron out the country's fiscal problems, managed to put in growth of 2.8%. This compares with GDP growth of 3.0% in the Eurozone.

Such economic growth needs fuel and this will come primarily from coal, which dominates the region's power sectors. Poland has spent nearly $4bn on modernizing its industry over the past 18 years and leads Europe in reducing emissions, having slashed greenhouse gases by 32% since 1988. However, it still is the EU's third-largest polluter, as it relies on its vast coal reserves to produce 95% of its electricity.

Polish Environment Minister Jan Szyszko argues the Commission not only ignored Poland's progress, but has "punished" it instead of rewarding it with higher allowances. The cap is slightly above Poland's actual emissions in 2005, but the minister argues it's unfair to use 2005, a warmer-than-average year, to calculate the new limit. "We need a higher limit of emissions," says Szyszko. "It is a vital issue for our economy."

Winners as well as losers

While the EU's carbon trading scheme may be under attack from many sides, it has breathed life into an industry that specialises in dealing with the greenhouse gas of methane that plagues coal mines and landfill sites.

On May 24, New World Resources, an energy holding company that owns the Czech Republic’s largest hard coal mining company OKD, merged its coal-bed methane subsidiary with London-based Green Gas International to create a company it believes will be well placed to take advantage of the changes stemming from the Kyoto Protocol on climate change.

The newly merged Green Gas International will work with owners of coal mines and landfill sites to cut the harmful emissions of methane, a greenhouse gas. Where possible, this methane, which is responsible for explosions at mines and a terrible odour at landfill sites, is drained and converted into electricity, which is then used to power the mine or sold onto the grid.

Crucially, the conversion of the methane also produces carbon credits that can then be traded, which industry players say has made what were previously uneconomical projects that much more profitable. Because of the noxious nature of methane, for every tonne of methane converted, 21 tonnes worth of carbon credit is earned.

"It's a bad gas for the atmosphere and so taking this gas and generating power from it is very much a win-win situation," says Chris Norval, executive chairman and co-founder of Green Gas.

The new company currently operates approximately 133 MW of methane-based electricity generating capacity worldwide, in countries such as Germany, Belgium, France and Czech Republic with an additional 15 MW of capacity expected to be completed by next year. The international nature of the business means that firms like Green Gas can do projects in countries outside Europe like Ukraine, Kazakhstan, the US, China and Mexico, but still "import" the carbon credits gained into the European trading system.

"The US has not ratified the Kyoto Protocol, but it’s a very big market with a lot of potential," says Norval.

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