Skip Ribbon Commands
Skip to main content
Navigate Up
Sign In
:

Quick Launch
Home > ARC Europe
Home > ARC Europe > Posts > Funding of Electro Mobility in Germany: A Gloomy Outlook
February 21

Funding of Electro Mobility in Germany:  A Gloomy Outlook

by  Florian Gueldner  on 2/21/2012 3:08 PM

There were some interesting articles in press last weekend in Germany.  They addressed the issue that the German government is missing €400 million for its plan to subsidize electro mobility.  Well, looking at the reasons behind this, I can only say that this was absolutely predictable – it is also likely that this will change slightly to the better from 2013 onwards.  Why it was predictable?

  1. The German subsidies are tied to the earnings of the so called „Energie- und Klimafonds“.  However, it is crucial to de-couple earnings and spending in a government budget in order to make policy free from direct economic pressure.  Think of unemployment insurance linked to the business cycle, it would never work!
  2.  The earnings by the fund that contributes to the spending is mainly financed by the earnings of the CO2 certificates.  From the very beginning it was clear that the caps in the cap and trade system were too high, resulting in too many certificates on the market, and therefore prices dropped dramatically. To be more specific:  the German government calculated that the right to produce one ton of CO2 will be trade at €17, currently the price is at around €10 (see graph or look here: http://www.eex.com/en/Market%20Data/Trading%20Data/Emission%20Rights).

 

The result is that only 60 percent of the cash needed for 2012 is available.  The government initially announced to support e-mobility with up to one billion Euro until 2013.

 

The question is now:  How do we got here?
After all it could be that the industry just saved so much CO2 that they didn’t need to pay more for the certificates.  In this case, the policies of the government would have worked well, just not for electro-mobility.

First, emssion rights can be traded at Bayerische Börse, ICE, NASDAQ, EEX, EUREX, BlueNext, and EXAA.  The prices shown below are from EEX.

EEX.jpg

Second, when emission trading in Europe was set up, the outcome was systemically biased towards the industry.  Free emission rights were free for the companies, which could afterwards trade them.  Additionally to the free emission rights, emission rights are auctioned.  Currently, in the case of Germany, companies need to purchase 10 percent of the European Unit Amounts (EUA). One EUA permits the emission of one ton of CO2 .  The EUAs are trade according to a “cap and trade” system, where the number of EUA is cut each year to meet Kyoto agreements. EUA are distributed to the companies, and after each year, their number of EUA is cut by the actual volume of CO2 produced.  There have been numerous articles in press, where it was calculated that companies from the steel, cement, and chemical industry are holding back CO2 certificates and are not trading them.  In 2011, the value of these certificates of the 60 biggest companies was estimated at €800 million, an estimated €250 million are hold by Thyssen Krupp.  The companies were simply over-supplies with certificates.

 

Phase 1: 2005 – 2007:  In the first phase, 95 percent of certificates were distributed for free by individual states.  There was a systematical over supply of around 5 percent and after it became public that French companies emitted 12 percent less CO2 then they were allowed to in 2005, the price collapsed from € 30 Euro to below €10.  Also, prices decreased at the end of each year, as the certificates are not allowed to be used in the next year. According to the European commission, the emission reductions of the EU15 countries in 2006 were 2.7 percent compared to the value in 1990, in the same period GDP increased by 40 percent. 
 
Phase II (2008–2012):  Finally created a small undersupply, but only by 1.9 percent.  New plants were parts of the allocation and CO2 cuts, especially crackers in chemical plants.  Currently the European system includes 12,000 plants.  Energy generation plants above 20MW and the following energy intensive industries:  Steel, coke ovens, refineries, crackers, cement, glass, ceramics, bricks, and pulp & paper.  The system still bases on the national plans of 2005.  While the current system is still characterized by enough EAUs available, this will change.
 
Where will we go?
Legislation will impact the future development as well.
 
Phase III (2013–2020):  This phase will replaced national systems by a central allocation from the European commission.  The number of EAU will be 1,97 billion in 2013 and will be cut by 1,74 percent each year. 
There are many additional changes, for example the grandfather will be stopped for energy intensive industries.  Instead of reducing the usage by 2 percent a year based on the existing plants, benchmarks will be used.  For example, cement (maximum of 766g CO2 per kilo cement) and steel (1328g CO2 per kilo steel).   The benchmarking is using a best available technology, BAT, approach.

 

For a deep dive see:

 

Also, if capacity is increased now, a company is only receiving more EAUs, if the increase is 15 percent or more.  This is a threat to smaller adjustments of process plants that only add slightly more capacity.  It also works the other way around, when capacity is shortened. 

It is also important how process heat is rated in the third phase.  This is very complicated.  If there is no Benchmark for the product, the heat benchmark of 224,28 g CO2/kWhth is used.  If there is a benchmark, which includes heat, the end user will receive no additional the EUAs.  In case there is a contractor for heat, the contractor needs to bargain the additional costs for CO2 with the end user.  If a combined cycle plants delivers to an industrial user, which does not need to buy EAUs, the plant itself can apply for EAUs.

Where will we go?
In the third phase prices will go up.  But market participants and observers see the price between €10 to €16 a ton, this is less than half of what the European Commission expected. The price of €16 per ton will probably not be reached until 2018.  Therefore the funding of electro mobility in Germany will remain weak.  If government is seriously into pushing this technology it needs to fund it independently from market mechanisms. 

The reasons for the lower prices in future?  Well this is another 10 blogs to explain…

 

 

 

 

 

Email Post Link | Number of Comments 0 Comment(s)

Comments

There are no comments for this post.

Home | About ARC | Contact Us | Research | Services | Events
 © ARC Advisory Group.   All Rights Reserved.

 Corporate Headquarters at +1 781-471-1000; Info Request 		 Facebook  Twitter  LinkedIn  YouTube  Logistics Viewpoints  RSS Feed 

Translate this page: Japanese | German | Chinese | Spanish | Portuguese