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Report on the Federal Government’s revenue from emissions trading

The aim of introducing emission rights was to reduce the emission of gases harming the climate. The Federal Government intended to use the revenues from emissions trading to finance additional expenditure on energy transition and climate protection. To make up for the declining revenue resulting from falling prices in emissions trading, the Federal Government needs to cut planned expenditure or raise funds from other sources. In its report, the German SAI outlines the opportunities and risks of emissions trading at the European level so that these may be adequately considered in the context of the federal budget and the Energy and Climate Fund.
Mar 31, 2014

0 Executive summary
The aim of introducing emission rights was to reduce the emission of gases harming the climate. The Federal Government intended to use the revenues from emissions trading to finance additional expenditure on energy transition and climate protection. To make up for the declining revenue resulting from falling prices in emissions trading, the Federal Government needs to cut planned expenditure or raise funds from other sources.

In its report, the German SAI outlines the opportunities and risks of emissions trading at the European level so that these may be adequately considered in the context of the federal budget and the Energy and Climate Fund.

0.1
The Federal Government’s budget estimates of the revenues from emissions trading for the years 2008-2012 totalled €3.9 billion. In this period, however, actual receipts totalled €3.2 billion. The annual average price paid for an emission allowance was €23.16 (in 2008) and €7.32 (in 2012) respectively. In its first 2014 draft budget, the Federal Government assumed the average price to be €4.50.

0.2
In general, the German SAI is of the opinion that emissions trading is an appropriate means of reducing greenhouse gas emissions. The market currently has a surplus of about 2 billion emission allowances which led to a massive price drop. This surplus alone could cover one year's emissions in Europe. This surplus is caused not only by unpredictable external factors – such as the euro area crisis – but also by particularities of the European emissions trading system:

  • The number of emission allowances on offer in the market is not only determined by market participants. The overall number of allowances is limited by an emission cap that is set annually. This cap is determined in advance for a defined trading period. The cap set for the years 2008-2012 proved to be excessive because the demand for emission allowances was lower than expected, particularly due to the economic and financial crisis.
  • The option granted to operators of installations to use international credits also contributed to a surplus of emission allowances. This proved true especially for Germany. In Germany the total number of credits was significantly higher than the total volume of the annual surplus.


The German SAI has identified some areas in which action is needed and drawn attention to them, thus enabling the Federal Government to respond quickly and effectively to new developments in emissions trading.

0.3
At present, the Federal Government’s climate change goals are significantly more ambitious than those at European level. The European Union plans to align emissions trading particularly with European climate change goals. Emissions trading will then no longer be an instrument to implement additional and higher national climate change goals. According to the German SAI’s estimate, the Federal Government will need to use other measures when pursuing more ambitious climate change goals than those set at European level.

0.4
The European Union decided to postpone the auctioning of up to 900 million allowances within the period 2013-2020. The German SAI is of the opinion that this is not a long-term solution for the existing market imbalance. The answer to the question as to whether the emissions trading system can be sufficiently protected from external influences by establishing the market stability reserve proposed by the Commission for the period beginning in 2020 is especially contingent upon the rules set up for this new mechanism.

0.5
A reform of the European emissions trading system could promote a higher reduction in greenhouse gas emissions. On the basis of its audit work, the German SAI identified the following options:

  • tightening the criteria for determining the Europe-wide caps; • expanding the scope of emissions trading; and
  • further reducing the volume of free allocations.

The German SAI believes that it would be worth considering the question as to whether such reform of the European emissions trading system would reduce dependence on cyclical fluctuations and eliminate adverse effects caused by an interaction with other climate protection instruments in place. In order to be able to make decisions on climate policy in the future, the Federal Government will have to consider the impact of the alternative options in environmental, economic and energy policy.

Since decisions on emissions trading are made at EU-level, the achievement of German climate policy objectives largely depends on the extent to which the Federal Government can assert its position within the European Union.

0.6
Emissions trading may be considered a climate protection instrument but not a reliable financing instrument. The revenues from emissions trading received by the Energy and Climate Fund are not adequate for sustainably financing the politically desirable additional expenditures on energy transition and climate protection. It is even more difficult to predict the revenues to be earned in the current phase of emissions trading (2013-2020). The number of allowances to be auctioned is now exclusively determined at EU-level.

The German SAI recommends that the revenue from emissions trading should in future be disclosed again in the federal budget. And all expenditure on energy transition and climate protection should also be fully disclosed in the federal budget. As a consequence, the Energy and Climate Fund should be wound up.

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