The long-awaited government plan for the annual distribution of carbon dioxide allocations to Bulgarian companies has been rejected by the European Commission, who asked Sofia to redraft it, according to sources familiar with the matter at the Economy Ministry.

The EC’s decision is yet to be made public, but authorities have been notified by Bulgaria’s permanent representation at the EU.

The plan set limits on the carbon dioxide that industrial producers were allowed to pour out. If they exceeded those amounts, they could buy excess emission credits on the open market from companies with a surplus.

Carbon emissions trading is key to the European Union’s strategy to reduce emissions and fight climate change by stimulating companies to invest in cleaner technologies.
In 2007, the EC set Bulgaria’s annual emissions ceiling at 42.3 million tons of CO2 emissions for 2008/12 and asked the Government for its quotas distribution to more than 100 companies.

Bulgaria drafted its plan only earlier this year and hoped to get quick approval from the EC, allowing companies to begin trading carbon credits already in April.

Instead, the EC has criticised the criteria on which it was based. Without the EC’s approval, companies can only sign future contracts, but given the uncertainty surrounding quotas, most companies have been reluctant to commit themselves.

The EC argued that Bulgaria’s Environment Ministry allocated quotas even to companies that are currently not producing any emissions, including the unfinished Maritza Iztok 1 thermal power plant being built by US energy firm AES, the Deven thermal power station owned by the Bulgarian subsidiary of chemicals maker Solvay and the Nova Plama oil refinery, out of commission for the past decade and in need of a complete makeover if it were to resume production.

All their emissions have been calculated using either forecast or historic data, creating a tangible risk that the quotas are too high, which was unfair to the other companies on the list.

According to EC rules, the exact quotas can only be allocated after industrial production facilities had their emission reports verified by independent auditors. Installations that are yet to launch production can be allocated in total no more than 10 per cent of the national ceiling.

The expert group that drafted the emissions plan warned the EC could reject their draft and will now have to rework it, with the most likely outcome that four big companies could see their quotas reduced. The corrections have to be made as soon as possible and will still need the EC’s approval before carbon credit trading can begin.

Just when authorities in Brussels will approve the final list is unclear, but it appears like Bulgarian companies will once again miss out on the best time to sell their excess credits. European companies can buy credits for the previous year until end-April, or face fines for every ton of CO2 over their quota. Bulgarian companies mostly have surplus carbon credits, according to verified 2008 data, but will not be able to sell them.

Nor can Bulgaria set up the registry recording the quota of each company and their carbon credit deals. Right now, industrial producers can buy emission credits, but not sell them.

"We cannot trade something that we do not really have," said Anton Petrov, who is on the board of directors of steelmaker Stomana Industry. It was too risky to sell anyway, because of the uncertainty about the future and no company wanted to be forced to buy  emission credits.

The economy’s downturn has already pushed prices down to about 11 to 12 euro a ton, half the price in 2008. But even at lower prices it is an opportunity to earn extra cash for Bulgarian companies, cash that they could use as the economy slows down and access to loans shrinks.

Kapital weekly, issue 13