Romanian industry under pressure amid delayed indirect EU ETS cost payments

Published by Carbon Pulse, London on August 26, 2020

Many of Romania’s heavy industries risk insolvency as the government has not yet compensated facilities for their indirect ETS costs, despite getting EU state aid approval to do so in May.

Aluminium producer ALRO declared on 23.08 that its Slatina facility faced insolvency and would run out of funding to pay staff within months unless the government paid compensation for costs associated with increased electricity prices as a result of the bloc’s carbon market. Just three weeks earlier, ALRO had declared a first-half net profit of RON 254 million (€52 mln), with calculations assuming indirect cost compensation, a measure set out in the ETS Directive to prevent carbon leakage.
The company, likely attempting to pressure the government to speed up the payments, said it could eventually be forced to declare bankruptcy and leave around 20,000 people unemployed.

The European Commission in May approved a €291 mln state aid scheme for Romania’s heavy industry. According to a Commission document, the programme is financed through the country’s share of revenues from auctioning EUAs in 2019.
Romania’s Ministry of Economy, Energy, and Business Environment had not responded to requests for comment at the time of writing.

The ALRO facility is not the only industry in Romania that has faced insolvency issues as a result of higher carbon prices – a situation that is “worsening every year” for the country’s energy- intensive industries, according to Romania-based carbon consultant Casiana Fometescu.

Many of these facilities belong to local authorities and are often granted loans or borrow from municipalities to cover ETS-related costs before the carbon market’s annual compliance deadline at the end of April.
Romania’s chemical and fertiliser industries have been among the country’s most affected, with many of them declared insolvent or filing for bankruptcy over the past decade.

“Romanian industries have made a lot of investments in modern technologies to reduce their carbon intensity, but they can’t do too much to reduce emissions as long as they are still coal dependent,” Casiana Fometescu told Carbon Pulse.

At the end of 2019, 12 EU countries – Finland, Belgium, France, Germany, Greece, Lithuania, Netherlands, Poland, Slovakia, Spain, UK, and Luxembourg – provided some form of compensation to their industries for indirect ETS costs.
Czechia aims to start doing so (https://carbon-pulse.com/100649/) next year while Finland intends to stop. coal powered.

Romania generates around a quarter of its total electricity from coal, with power costs rising significantly as a result of higher EUA prices – at €29 on Wednesday – and taking a toll on the country’s state-owned energy companies.
The European Commission approved in February a €251 mln emergency loan (https://carbon-pulse.com/92983/) to utility CE Oltenia, Romania’s second biggest utility, to help the struggling firm meet its EU ETS obligations.
The state aid was approved under the condition that CE Oltenia was able to fully repay the loan six months later, or present a restructuring plan for the company. The utility this week submitted a 2021-26 restructuring and decarbonisation plan setting an objective to cut CO2 emissions by around 38%, with total investments amounting to €1.5 billion.
The strategy, CE Oltenia said in a statement (https://www.ceoltenia.ro/comunicat-118/?parent_page=142) , would partly draw funding from the EU ETS’s €14 bln Modernisation Fund, which supports mainly Central and Eastern European countries.

Romanian energy companies joined a call on June 8 (https://carbon-pulse.com/101000/) – together with utilities from Poland, Bulgaria, Croatia, Cyprus, Czechia, Estonia, and Hungary – asking for more compensation amid the EU’s plans to tighten its 2030 climate target to 50-55% below 1990 levels, up from the current 40%.
The companies argued that the increased 2030 target could push EUA prices to as high as €75, which would deliver proportionally higher costs to the bloc’s more fossil fuel-reliant economies.

They called for more financial support and a higher share of the bloc’s allowances to be auctioned during Phase 4 (2021-30) to be earmarked to help the EU’s poorer member states decarbonise.