Heidemarie Apel, specialist for environmental matters at the SPD environmental committee, said Wednesday that of the total amount set aside, 38 million mt/yr is to be auctioned while 2 million mt/yr will be used for "administrative matters." Industrial and heating sectors will not be affected by the auctioning decision, she added.
Apel said the two governing coalition parties SPD and CDU/CSU Wednesday applied to modify the proposed allocation law which, if approved, will govern emissions allocations and trading during 2008-12.
"We have changed paragraphs on how auctioning could be carried out, but the finer details will be regulated through a directive which will need the upper house's agreement," said Apel.
They were not confident that auctioning could be organized in time for 2008, but "because we want to generate income, we will initially start with a sale of emission rights at market prices," said Apel.
Sale prices are likely to be based on prevailing European Energy Exchange values. Whether auctioning and the necessary administration could be organized in time for 2009 was also not certain, but the framework should be in place "by 2010 at the latest," Apel said.
It is still unclear what the revenues will be used for. Initially the funds, which could amount to up to Eur1.2 billion/year ($1.6 billion), will be put aside into an account of the environment ministry, and the budget discussions in the autumn are to debate how the money will be used.
Apel said the SPD wants the funds to be used for climate protection measures. "As emissions trading is a climate instrument, we believe it is important to use the proceeds in that sector as well, she added.
Apel rejected power generators' arguments that auctioning would increase the electricity price. "One aim of the auctioning is to stop the windfall profits--and auctioning turns those fictitious add-ons into real costs," she explained.
3C, an originator of carbon credits from Clean Development Mechanism and Joint Implementation projects, said the government's proposed sale of EUAs in 2008 could "noticeably influence" the market and needed to be implemented "as professionally as possible." In a statement issued Wednesday, 3C said that an auction might not even be necessary. Auctions are particularly suitable when a commodity to be sold does not have a price yet, the company said, but this is not the case with emission allowances.
Markus Huewener, managing director at 3C, said "The sale of emission allowances is as economically efficient as an auction--with lower transaction costs for the government and installation operators." Looking ahead, 3C anticipated a shortage of emission certificates, especially in 2008 based on mainly the slow development of the supply of credits from CDM projects in developing nations.
"Considering that analysts expect the market in 2008 to be short between 100 and 400 million mt of allowances, one can gauge the impact that the sale of 40 million mt/yr [of EUAs] would have," Huewener said.
Coalition party CDU/CSU meanwhile failed to push through its aim of a separate benchmark for brown coal units, with the SPD, which poses environment minister Sigmar Gabriel, strictly against such a benchmark.
Brown coal association Debriv slammed that decision. The necessary buying of emission rights in the second trade period posed a "significant risk" for brown coal power generation and as a result, for the security of supply in Germany.
Brown coal-fired plants cover about a quarter of German power generation at present. Debriv suggested instead that the benchmarks should be based on the characteristics of the source of generation as well as power plant technologies. This would ensure that Germany would keep its broad mix of energy generation sources, it added.
