Central and Eastern European CO2 Market—Challenges of Emissions Trading for Energy Companies

Abstract

The aim of this article was to identify challenges of emissions trading that the Polish and CEE Central and Eastern Europe energy industry will face, as well as to indicate key implications for the competitiveness of the companies from the energy sector resulting from that trading. The EU Emissions Trading Scheme (ETS) is the emissions trading system, which results from the EU policy concerning climate change. It is a tool for reducing greenhouse gas emissions (GHG). The system regulates an annual allocation of the allowances. The price of CO2 emission allowances is subject to constant fluctuations because it depends on various macroeconomic factors as well as is an effect of proprietary trading by global investment banks. Polish energy companies have an increasing share in the emission of CO2 in the European market. This is due to the fact that other European countries are rapidly moving away from fossil fuel-fired sources. The cost per MWh related to CO2 price has been growing in the last 10 years from ca. 5 up to 30 EUR/MWh at the beginning of 2021. From an electric power utilities perspective, the ability to set up a proper strategy in trading CO2 will be crucial to be competitive in the wholesale power market. The higher price of CO2 (and electric power) at the domestic market in relation to more green (more renewable energy sources RES in energy mix) surrounding countries translates into a worse competitive position.