Funding CCS through proceeds from government EUA auctions

Many people think that proceeds from EUA auctions should be hypothecated (ringfenced) and spent on projects that reduce emissions, rather than going into general government funds. The CBI believes that EUA proceeds should be used to fund carbon capture and storage demonstration plants.

Given that coal power stations are within the EU ETS, any reduction in emissions achieved through CCS will allow the coal industry to sell EUAs (or buy fewer), so there would be no net reduction in emissions from CCS specifically (assuming that EUAs are scarce). Public support for CCS would allow other industries within the EU ETS to release more carbon dioxide into the atmosphere and depress the EUA price. It would amount to a subsidy to the coal industry, which, given the rosy outlook for coal over the next few decades, does not seem sensible.

Pragmatically, though, CCS is felt to be necessary for meeting overall emission targets and it is unlikely that the coal industry would do it alone. If governments go ahead and provide funding – whether from EUA proceeds or otherwise – they should build in provisions to reclaim and cancel EUAs matching the avoided emissions from the power stations.

A different option would be to offer auction proceeds as debt finance for CCS (or any long term project that reduces emissions within the EU ETS) and allow the project owners to sell any surplus EUAs. This would encourage industries within the EU ETS to take on riskier, long term reduction projects.

(Or just use the money as grants outside the EU ETS, of course.)

Just for reference – Green NGOs are sceptical about CCS – see see WWF and Greenpeace – pdf.

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2 Responses to “Funding CCS through proceeds from government EUA auctions”

  1. Another idea is to finance 3rd party R&D companies to research means of reducing emissions.

  2. Excellent site, keep up the good work

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