Pat Rabbitte (Dublin South West, Labour)

I move: "That the Bill be now read a Second Time."

I am pleased to have this opportunity to present the Electricity Regulation (Carbon Revenue Levy) (Amendment) Bill 2012 for consideration by the House, and I thank the Whips and Deputies for facilitating the Bill being taken today. The legislation seeks to cease the inclusion of the carbon revenue levy in wholesale electricity prices bid into the Single Electricity Market. On its enactment it will end the charging of the levy so that it can no longer be included in prices bid into this market. This in turn will end the associated wholesale electricity price increase thereafter.

The inclusion of the carbon levy in wholesale electricity prices is a result of the Supreme Court decision in the case of Viridian Power Limited and Huntstown Power Company Limited v Commission for Energy Regulation, CER. The decision issued on 23 February quashed the prohibition of the carbon levy being included in wholesale electricity price bids in the Single Electricity Market. The consequence of the Supreme Court decision to quash the prohibition means that the levy is now mandatorily included in all generators' price bids. As it stands, after the judgement and without any action being taken, electricity generators are not only allowed to include the opportunity cost of the free carbon allowances they have received in their price bids but also the cost of the levy they pay to the regulator, thus increasing the wholesale price of electricity by the amount of the levy. The expected impact of the decision is to increase wholesale electricity prices by a figure estimated at between 3% and 6%. This potentially could increase electricity prices to end consumers. Certain large businesses have already seen increases in their prices because of the inclusion of the levy in the wholesale bids. As time goes on, again assuming no action is taken, increases would also be expected to take effect in due course in the prices paid by medium and small business and those paid by domestic consumers.

As Members are aware, prices in the retail electricity market for all business and domestic customers have been deregulated. There is no ministerial or regulatory role in setting retail electricity prices. It is therefore an entirely commercial matter for electricity suppliers to decide whether, when and by how much to increase or decrease prices depending, for example, on market circumstances, contract terms and hedging practices. I note some electricity generators are also suppliers in the retail market, whether domestic or business or both. The Government is also concerned about the potential impact on Northern Irish electricity consumers and this reinforces the need for urgent resolution of the issue. The levy's inclusion in wholesale prices, again assuming no further action, would also have the effect of increasing wholesale prices in Northern Ireland, as well as in the Republic, because of the existence of the all-island wholesale market for electricity.

The Government recognises that the cost of energy in Ireland is a serious competitiveness issue facing energy consumers during this difficult period for the economy. As I have noted, prices in the retail electricity market for both domestic and business customers are now fully deregulated. Prices charged to electricity customers are wholly a commercial and operational matter for the suppliers. Ireland's electricity markets, both wholesale and retail, are characterised by vigorous competition regulated by the regulator. Ireland's concerns about high oil and gas prices are shared at EU level and fellow member countries of the International Energy Agency, IEA. The EU and IEA agree that high fossil fuel prices underline the need to reduce dependence on fossil fuels by radically enhanced energy efficiency measures and the development of renewable energy. At a national level, competitive markets in electricity help put downward pressure on prices. I am committed to working with enterprise and with the energy sector to ensure the costs of energy are as competitive as possible, including sustained focus on energy efficiency measures.

In view of the importance the Government attaches to electricity costs, for business competitiveness and because of their role in domestic bills, it therefore has agreed to end the charging of the carbon revenue levy. This is to mitigate the increase in wholesale electricity prices resulting from its inclusion in generators' price bids into the single electricity market, SEM. The purpose of the Bill is to end the charging of the levy on enactment, thereby ceasing its inclusion in these bids and thus ending the associated wholesale electricity price increase thereafter. Amending the Act in order to cease the imposition of the levy from the earliest possible date will ensure the wholesale electricity price increase has effect for the shortest period possible. In this way, the inclusion of the levy in wholesale prices will have the least possible impact on retail prices. This is vital for business competitiveness and for domestic consumers' electricity bills. Members accordingly will appreciate, from what I have just said, the protection of the electricity cost competitiveness of Irish enterprise, as well as the impact on domestic consumers' electricity bills, are the key motivators for this legislation. The impact on Northern Irish electricity prices is also a significant concern. I am confident the Deputies opposite will agree, for the reasons I have just outlined, as to the urgency of taking action to ensure such price rises do not happen and to minimise their duration if they do happen. The collective concern of Members is reflected in the urgent priority the Oireachtas is affording to this Bill.

As I have previously outlined, the need for this legislation is to end the inclusion of the levy in price bids into the single electricity market and the associated wholesale price increase. In turn, the levy's inclusion in these price bids is because of the Supreme Court decision quashing the prohibition on the inclusion of the levy. Given this context of the levy and the judgement, as well as the undoubted complexity of these matters, I believe a setting of the wider background would therefore be useful for all concerned. To be helpful, I will now explain how the levy itself came about. This requires me to briefly explain carbon allowances under the emissions trading scheme. I will also briefly describe the wholesale single electricity market. The manner in which carbon was allowed to be bid into electricity prices in this market is also relevant and I will then turn to the nature of the legal challenge itself.

Free carbon allowances originate from the EU emissions trading scheme, ETS, under which electricity generators have received these allowances. The EU emissions trading directive, Directive 2003/87/EC, was implemented to assist member states in achieving reductions in emissions of greenhouse gases by establishing a carbon trading regime whereby large emitters of greenhouse gases were required to possess allowances for their emissions. These measures were implemented following signature of the Kyoto Protocol. The directive was transposed into Irish law by the European Communities (Greenhouse Gas Emissions Trading) Regulations 2004, SI 437 of 2004. These regulations led to the creation of national allocation plans, which determined how the allowances were to be allocated sector by sector. Under the Irish national allocation plan covering phase 2 of the emissions trading scheme, which runs from 2008 to 2012, electricity generators receive the vast bulk of their required carbon allowances for free, with only a small amount of the allowances auctioned.

The single electricity market created a single market for electricity on the island of Ireland. On 1 November 2007, the market went live, commencing the trading of wholesale electricity in Ireland and Northern Ireland on an all-island basis. In its review of Irish energy policy last year, the ESRI stated that one of the key successes of Irish energy policy in recent years was the implementation of the single electricity market on the island of Ireland. It concluded that the SEM had ensured a secure supply of electricity at a competitive price since 2007. The single electricity market committee, comprising the energy regulators North and South and two independent members, is statutorily responsible for the regulation and oversight of the single electricity market. This committee governs the operation of the all-island wholesale electricity market. Although generators receive the majority of their allowances for free under the ETS, they are able to receive revenue for them from the SEM through a decision taken by the SEM committee. In March 2008, the SEM committee decided that regardless of how they receive the carbon allowances, all electricity generators must include the full opportunity cost of carbon allowances in the bids they submit to the single electricity market. Therefore, generators participating in the SEM were allowed to bid in the opportunity cost of the free carbon allowances to the price they charge for electricity generation by this decision. As a result of this decision, electricity generators receive additional revenues from the market due to the inclusion of the opportunity cost of carbon allowances in their allowable costs for the purposes of price determination in the SEM. This is despite the fact that all or some of the allowances have been granted for free. The Electricity Regulation (Carbon Revenue Levy) (Amendment) Act 2010 enacted on 30 June 2010 amended the Electricity Regulation Act 1999. Its provisions allowed for the charging and collection by the Commission for Energy Regulation of a levy from the electricity generators. This ensures that a portion of these additional revenues, namely, the "opportunity cost" of the free carbon allowances, are recovered for the use by the Exchequer. The legislation provided that the carbon revenue levy would end on 31 December 2012 in line with the ending of free allowances and the requirement to purchase them after 1 January 2013.

The Electricity Regulation (Carbon Revenue Levy) (Amendment) Act 2010 provided for the introduction of a carbon revenue levy payable by fossil fuel generators of electricity. It provided that proceeds from the levy be disbursed into or for the benefit of the Exchequer and that the Minister for Communications, Energy and Natural Resources, with the consent of the Minister for Finance, would direct the regulator as to how the levy proceeds should be disbursed in line with Government policy. The proceeds of the levy have in this manner been utilised for rebates to large energy users, LEUs, to mitigate the effect their electricity costs in accordance with the provisions of the Act. The LEU's who have benefited are significant employers with an indigenous and multinational base. This rebate scheme is temporary and there are funds in place for payment of it in accordance with the existing annual direction to the regulator. There are no implications for the Exchequer.

After charging and collection of the levy had commenced, two companies subsequently sought to bid-in the carbon revenue levy as an allowable cost for price purposes in the single electricity market, SEM. The single electricity market committee in response issued a determination effectively confirming that the levy could not be included in electricity generators' costs in determining the wholesale price of electricity. Two private electricity generators, Viridian and Endesa brought a High Court case against the regulator on the decision that prohibited the inclusion of the levy in price bids. This was decided in the regulator's favour in late 2010. Viridian then brought an appeal to the Supreme Court stating that the High Court judge erred in his judgment. The Supreme Court issued its judgment in February 2012, stating that the prohibition on the inclusion of the levy in electricity generators' price bids was incorrect. The legislation was not challenged in the case and the Supreme Court judgment was not directed at it. This judgment had the result that the levy then had to be included in wholesale electricity price bids in the single electricity market, with the knock-on impacts on the wholesale price which I referred to earlier. This required action to be taken to minimise the duration of this price increase.

I now propose to outline the main provisions of this short Bill. For the convenience of the House an explanatory memorandum has been published and this provides a synopsis of the provisions of the Bill. Part 1 is the substance of the Bill. The single substantive provision of the Bill is to bring forward the end date of the final carbon revenue levy period as provided for in the original provisions of the 2010 legislation. I highlighted earlier that the end date was 31 December 2012, in line with carbon allowances having to be purchased after that point. The legislation being discussed here today advances the end date from 31 December 2012 to the date of enactment of the Electricity Regulation (Carbon Revenue Levy)(Amendment) Act 2012.

Part 2 is a standard provision providing for the Short Title of the Bill.

I commend the Electricity Regulation (Carbon Revenue Levy) (Amendment) Bill 2012 to the House.

See this speech in context