Sunday, May 07, 2006

Estonian government subsidises energy on the account of environment

Recently there has been some talk about the extraordinarily great profit of Eesti Energia (EE), Estonia's state-owned main electricity producer. EE's last year's annual profit was 137 million Euros, highest of all times. 74 million Euros of the profit came from the sale CO2 quotas.
At the same time Eesti Energia has been allocated CO2 quota of approximately 15 million tons per year, which with the recent prices between 20 to 30 EUR /ton equals to a subsidy of 375 million Euros.
Why i call it a subsidy is that the whole idea behind Kyoto protocol and the EU's Emission Trading Scheme (EMS) is to allocate a cost to the enivronmental damage from pollution. The logic is that as people pollute by, for example, consuming electricity from fossil fuels, they damage the environment, but the cost of the damage is not carried by the consumers but by all people worldwide including those who do not consume energy or use renewable sources. EMS should eliminate this unfairness by allocating the total cost to the polluters and thereby creating financial incentives to reduce CO2 emissions.
So clearly, giving Eesti Energia 15 million tons of emission rights is pretty much the same as to give them 375 million Euros in cash. If we deduct the the subsidy from the company's net profit, we get an economic loss of 238 million Euros. So instead of reducing electricity prices for consumers as some journalists have suggested, Eesti Energia should increase the prices so that the polluters carry all the cost of their damage. As EE sold 6,2 TWh of electricity to home market (which is regulated), the prices should rise at least 3,8 Euro cents per kWh for EE to break even. Add to that the necessary cost of capital and the fair price for energy should be approximately 5 Euro cent (78 Estonian sent) higher than today.
Our free market minded government should not go on subsidising energy prices.

1 comment:

Kristi said...

hmm, päris hea mõte, majanduslikus loogikas. Tarbija suhtes lihtsalt nii palju korraga elektri hinda tõsta ei saa. Aga kui mingi pikaajaline skeem kuidagi välja mõelda, siis vast küll.
Mis praegu muide tuuleenergia hind on (või mis nad Fookuse arutelul selle kohta ütlesid)? Et kas kui EE elektrienergia hinda tõsta 87 senti, kui suur siis tuuleenergia ja EE poolt pakutava energia hinnavahe oleks?