Emissions Trading System (ETS) Innovation Fund, Modernisation Fund, and Indirect Costs

1. The Emissions Trading System – ETS Innovation Fund, Modernisation Fund and Indirect costs Marcin Bodio, Ph.D. Chief Executive Officer, CEEP the 4th of May, 2016

2. About CEEP Major Tasks To increase the energy securityofCentral Europe, as well astheEuropean Union as a whole. To strengthen the idea of energy solidarity within the Energy Union.We do believe that only the common activities of all EU Member Statescould be successful in enhancingthe energy security of Europe. To build relations and facilitatecontacts between Member organisations and EU bodies and agencies,individual representatives and associations of energy and energy-intensive sector companies, as well as international energy sector think-tanks and lobbies. Central Europe Energy Partners representsthe interests of the energyand energy-intensive companies from Central Europe. Actually, CEEPrepresents24 companies and organisations from six Central European countries, employingover 300,000 workers, with a total annual revenue of more than EUR 50 billion. It is the first major body to represent the energy sector companies from the region at the EU level. The aim of CEEP is to strengthen the region’s energy security within the framework of a common EU energy and energy security policy. CEEP is an international non-profit association with its headquarters in Brussels,and a branch in Berlin.

3. GDP per capita – UE 28(000’EUR) SaturatedEU Economies Average GDPper capita: EUR 31,600 (2014 data) Non-SaturatedEU Economies Average GDPper capita: EUR 10,500 (2014 data) Source: CEEP based on Eurostat data

4. GDP per capita – UE 28(000’EUR) SaturatedEU Economies Non-SaturatedEU Economies Source: CEEP based on Eurostat data

5. A Member State’s freedom to shape its energy-mix Thanks to the Lisbon Treaty (art.192,194), each Member State has the right to shape its own energy- mix. This article has been violated many times, as coal, for example, is a fuel excluded from consideration for the building of new, high-energy, efficient power plants, when Member States need to be financially helped, directly or indirectly. Electricity production , 2013 (bilion kWh) The EU’s approachneedsto be changed in this respect. Source: Making it happen – Paving the way for the Central European North-South Infrastructure Corridor; CEEP, Roland Berger Strategy Consultants Data does not include Malta and Cyprus.

6. CO2 emissions per capita(per capita CO2 emissions of fossil fuel use and industrial processes ) The EU’s goal of a 20% CO2 emissions decrease by 2020 was already achieved in 2013 (tonnes/cap, 2013) Source: JRC, CEEP

7. ETS discussionsCO2 prices versus emissions Tonnes per capita EUR The average annual prices of CO2 Source: CEEP The EU GHG emissions per capita Source: JRC

8. ETS discussionsimplementation of new technologies and innovations Implementation Success Idea The driving force is in the implementation of new technologies and innovations. It clearly indicates that such mechanisms as backloading and MSRhavelosttheirsense of purpose in relation to thedecrease of CO2 emissions, especially in the EU-11 countries, also referred to as “lower-income Member States”.

9. Modernisation Fund: 2021-2030 – EU proposal A fund to support investments in modernising energy systems, and improving energy efficiency, including ETS and non-ETS sectors, in Member States with a GDP per capita below 60% of the Union’s average in 2013. • To support the modernisation of energy systems in lower income Member States and fully exploit the power sectors’ potential to contribute to cost-effective emission reductions, the proposal foresees two measures: 1) the continuation of the free allocation to the power sector, and 2) the creation of a Modernisation Fund. • The Modernisation Fund is created from2% of the overall quantity of allowances. • The funds will be distributed between eligible Member States.

10. Modernisation Fund: 2021-2030 – EU proposal Distribution of funds from the Modernisation Fund up to the 31st of December, 2030. Share of Modernisation Fund:

11. Modernisation Fund: 2021-2030 – CEEP’s Position

12. CEEP’s Modernisation Fund Proposals, including the joint paper of the 10 eligible CE Countries • The Fund should be managed by beneficiary Member States. • The governance and rules of the Fund should be transparent. • The EIB may be involved as an advisory body. • Full respect for the specificity of the beneficiary countries energy-mix and technology neutrality should be preserved. • Other EU Member States should not participate in the decision-making process in the selection of the project implemented in one Member State.

13. Modernisation Fund • Conclusions for consideration: • Modernisation fund willcover 30% of totalcostsconnected with the necessity of buying EUA, when the MSR isintroduced. • Energy-intensiveindustriesshouldget 100% freeallowances. • Derogation for coalpowerplantsshould be extendedup to 2030 for new 46 % efficientpowerplants, and up to 2025 for oldpowerplants.

14. Thank you for your attention Central Europe Energy Partners, AISBL Rue Froissart 123–133, 1040 Brussels www.ceep.be Phone: +32 2 880 72 97, Fax: +32 2 880 70 77, E-mail: brussels@ceep.be Transparency RegisterNo. 8773856374594