The European Union's much maligned cap and trade scheme has finally achieved something palpable after eight years, raising €1.5 billion ($1.8 billion) in the teeth of the financial crisis to test technologies which will cut carbon emissions.
It doesn't sound much, but this EU emissions trading scheme has endured fraud and tax evasion and handed tens of billions of euros of windfall profits to the continent's biggest polluters.
The fundraising success is timely as the market also wallows in a structural glut, which without political help will last a decade and sap its purpose.
The European Commission has struggled to mobilise support, against Polish opposition in particular, to cull a glut of emissions permits and so peel carbon prices off the floor.
Demonstration of the scheme's ability to levy funds may throw it a lifeline.
The latest auctions are a forerunner of regular sales over the next eight years.
The European Investment Bank auctioned emissions permits to raise funds for low-carbon energy technologies, especially carbon capture and storage, which traps and buries underground the CO2 emissions of fossil fuel power plants.
One of the main beneficiaries may be Europe's single biggest source of CO2 emissions, a coal plant in Poland.
The carbon billions may garner wider political support: the bulk of auction revenues over the next decade will go to cash-strapped national treasuries to spend on whatever they want – and the higher the carbon price, the more they'll get.
The EU emissions trading scheme caps the emissions of about 12,000 factories and power plants by handing out and auctioning an EU-wide quota of emissions permits called EU permits (EUAs).
The European Commission on Thursday said it expected to raise between €1.3 billion and €1.5 billion by October to support two to three CCS plants, plus some renewable energy projects from auctioning 200 million EUAs, the first tranche of sales of a total of 300 million.
It's a long way from the EU's original pre-crisis objective in 2007 to build 10-12 CCS projects, but EU finance is now in a different place.
And there's a long way still to go – the EU funding is unlikely to exceed €340 million ($414 million) per CCS project, the Commission said on Thursday.
But CCS is expensive, adding about $1.5 billion to the cost of a commercial power plant, and so Britain, Poland and the Netherlands (the three countries heading the CCS shortlist) may struggle to provide matching funds, which the Commission wants guaranteed by October.
The EU's emissions trading scheme caps the emissions of factories and power plants. However, since 2005 they have got most EUAs for free in a gradual limbering up which has been ridiculously generous to big polluters from coal plants to steel mills that captured billions in windfall profits.
That gradually changes from 2013, when most power plants will have to buy all their EUAs under state or EU-run auctions.
The sales this year, run by the European Investment Bank, were a forerunner of that and agreed several years ago to raise funds for innovative low-carbon technologies and especially CCS.
The plan would have raised much more money and backed more projects if carbon prices had been higher - and there's the rub, as the European Commission tries to get political support to jolt the market back into life.
It proposes to withhold permits and boost prices by "backloading" auctioning, delaying sales due next year until later in the 2013-2020 trading phase.
The idea is that present carbon prices – at around €8 – are insufficient to drive emissions cuts.
The Commission has run into political opposition because steel and cement lobbies oppose higher carbon prices, which raise electricity prices.
However, auctioning carbon at higher prices would also raise more funds for member states, and now the Commission has a real carrot to dangle in front of ministers' noses.
This article was originally published by Reuters. Republished with permission.