The Dutch Energy research Centre (ECN) has released a report suggesting that European utilities could be factoring over 70% of the costs of carbon dioxide emissions trading into their power prices.
The report looks at the impact of emissions trading on electricity prices in Belgium, France, Germany and the Netherlands and at the policy of allocating a fixed amount of emissions allowances. The study shows that electricity producers in the countries pass through these allowances to their costs, resulting in higher energy bills for large and small consumers. Between 40% and 70% of the costs of free allowances are being passed on to consumers says the report.
As a result of passing through the costs of free emission allowances to the electricity price, the study adds, the producers increase their profits, whereas consumers are facing higher electricity prices. For some large industrial consumers it is difficult to pass through their higher electricity costs to their sales prices.
ECN concludes by recommending replacing the current system of free allocation with an auction of emission allowances in the near future. There will be new rounds in 2006 for the allocation of emission allowances for the period 2008-2012.