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SELECT COMMITTEE ON COMMUNICATIONS, ENERGY AND NATURAL RESOURCES debate -
Thursday, 10 Jun 2010

Electricity Regulation (Amendment) (Carbon Revenue Levy) Bill 2010: Committee Stage

This meeting has been convened for the purpose of consideration of the Electricity Regulation (Amendment) (Carbon Revenue Levy) Bill 2010, which was referred to the select committee by order of the Dáil dated 1 June. On behalf of the committee, I welcome the Minister for Communications, Energy and Natural Resources, Deputy Ryan, and his officials to the meeting. We will commence our consideration.

NEW SECTION

I move amendment No. 1:

In page 3, before section 1, to insert the following new section:

"1.—The Minister for Communications, Energy and Natural Resources shall prepare and publish a regulatory impact analysis of this act prior to the commencement of the Act.".

I acknowledge the Bills Office. I submitted an amendment that would not have been acceptable, but the Bills Office provided me with the option of tabling this amendment, which essentially says the same thing in an acceptable form. I thank the office for doing this. I am critical of it from time to time, so I express my gratitude.

I have raised this issue in light of my significant concerns regarding the Minister's failure to consider the impact of what he is doing. I do not necessarily disagree with him, but what he is doing has been ill thought out. I am also concerned that the legislation will be subject to legal action. As such, it is for all of us to ensure the Bill is sound and robust.

I am calling for the publication of a regulatory impact analysis, RIA, of the Act before the legislation's implementation. An RIA is an evidence-based approach, the importance of which all of us can understand. Apart from our instinct that RIAs are good, they are clearly a Government requirement. The Government website www.betterregulation.ie sets out the importance of and commitment to having RIAs. That website describes the RIA as an “evidence-based approach that allows for the systematic consideration of the benefits and costs of a regulatory proposal to the economy and society.” The website also reads:

RIA will give special consideration to business impacts, especially in respect of Small and Medium Enterprises (SMEs). RIA will be integrated with developments under the e-Cabinet project and will be supported through training, guidelines and promotion.

The clear policy direction is that RIAs need to be carried out on legislation like this Bill, but the Minister has failed to provide such an analysis.

The specific mention of SMEs is interesting, since a key complaint to us by the private sector relates to the Minister's stated commitment to using the moneys raised to subvent large electricity users, LEUs. Private operators strenuously argue that doing this would disadvantage SMEs. While they might be wrong, they maintain that SMEs are benefitting from the current regime.

We need to know the truth. It is not sufficient for this to be a matter of opinion. An evidence-based approach is required. In line with the Government's commitments, I hope the Minister will accept this amendment.

I do not propose to accept this amendment. Undertaking an RIA at this point would not serve any useful purpose. In general, Government policy is to conduct an RIA as early as possible in the regulatory process, allowing the RIA to inform the policy making process better. In this case, however, the policy making process is complete and the legislation published.

In July 2009, the Government decided to progress legislation to implement a carbon windfall levy. The Bill is designed to implement that decision. An RIA is intended to inform Government policy decisions and is not meant to be applied retrospectively. Although a formal RIA was not undertaken, the issue of carbon windfall gains was scrutinised intensely by my Department. This involved an examination of the likely impacts of the imposition of a levy, discussions with the Office of the Attorney General and the Commission for Energy Regulation, CER, and consultations with industry and some of those electricity generators that would be affected by the levy's imposition. Following the discussions with the regulator and the Attorney General, it was determined that the course as set out in the legislation was the only viable option expected to meet with a reasonable degree of success in recovering the majority of the carbon windfall gains.

The possible introduction of a carbon windfall levy was also discussed at the Department's round table forum on energy costs for business, which was held at Farmleigh House in July 2009 and involved departmental officials, the energy sector, LEUs, the ESRI, Forfás, IBEC, the IDA and Enterprise Ireland. At the forum, LEUs were unanimous in calling for the introduction of a carbon windfall levy. Any additional consultation through an RIA would not have served a purpose. We are fully aware that LEUs would support a measure that recovered some of these gains and it is hardly surprising to find that electricity generators would prefer to keep their unearned gains for as long as possible. Therefore, my Department determined that the analysis and consultation undertaken to date was sufficient to mitigate the need to engage in a formal RIA, which would only have delayed the Bill's introduction and would not have added significantly to our understanding of the issue.

The Bill does not contain a specific commencement provision. Rather, it comes into operation on enactment, which is intended for this Oireachtas session, preferably June. Requiring an RIA to be done on this timetable is not practical. Were the legislation to be delayed to facilitate an RIA, we would run the risk of losing approximately €6 million or €7 million to the levy for each month that passes without enactment and electricity generators would continue to enjoy unearned windfall gains. Any delay could also endanger the continuation of supports to LEUs. I have already signalled my intention to use the proceeds of the carbon levy to reduce electricity costs for LEUs, which are typically large employers and concentrated in the high-value export sector. To enable this, the levy must be enacted within this session.

The Minister is not getting the point in stating that at Farmleigh the large energy users were unanimous in their support. Why would they not be unanimous? That is a pretty weak response. Large energy users are the direct beneficiaries of this. What is being sought is the holding of formal consultation. I know the civil servants have worked very hard on this and it is no criticism of them but it seems there have been informal responses when individual operators have come forward with concerns arising from a CER report of last year, where this was heralded.

It is a bit like Alice in Wonderland in that we could have jam yesterday and jam tomorrow but we certainly cannot have jam today. The regulatory impact analysis can take place before the process begins but it cannot be done when it matters. The Government must be held to account, do its business professionally and understand the impact of decisions it makes. We have seen it too often in the past when decisions were made by Government that did untold damage because nobody assessed the impact of those decisions.

The Minister, Deputy Ryan, made the point that he was not part of that Government, which was such a disaster, but he is in Government now and people expect him to act differently. He has wriggled out of this on the basis that he wants to do this now rather than do it correctly.

I flatly refute the last point. I cannot think of any other issue where there has been such analysis. There was much intense interest in the issue of electricity prices in particular in March 2009, when we were in the greatest economic difficulty and there was real concern about our competitiveness. I remember getting calls through the night in discussions with IBEC, ICTU, the social partners and with the Departments of Finance and Enterprise, Trade and Employment on electricity prices and how to improve competitiveness.

This started a process of analysis which involved me in approximately 20 to 30 meetings with each of the electricity generators, a large number of energy users, the regulator and other Departments. We engaged in a series of measures, within a properly regulated market and taking clear heed of the regulator's comments and maintenance of a competitive and properly-regulated market, that would assist us in improving competitiveness. That led to consideration by the Government in summer 2009, having done extensive analysis on what our approach should be. Included in that was the attempt to legislate for these carbon windfall profits. We entered an extensive legislative process with the Attorney General and others to get the legislation in the correct format.

I am absolutely confident the analysis has been done and nothing will benefit us from delaying further. I have a sense of urgency in that the approach being taken is right and I want to see it implemented.

I will withdraw the amendment and introduce it again on Report Stage. The Minister did not do this. He tried to tack on a few amendments to a Bill dealing with bio-fuels. He was exposed by the Opposition and was forced to come forward with a Bill. We should keep on record what actually happened rather than the fanciful picture being painted.

At all stages I indicated that what we were proposing in introducing the provisions as amendments was appropriate and feasible. When the Government Whip asked if we would consider doing it in an alternative way, I was quite willing to do it if given the time at the committee, etc. I do not see that as the key issue.

It is not but the Minister is not listening to the key issue.

The key issue is contained in the provisions of the Bill and the intent behind it. We must get the mechanisms for the Oireachtas right and I am happy to be flexible and accommodate whatever the Whips consider appropriate. The crucial point is to get the Bill through in a timely fashion so we can achieve the policy objective we all share.

Amendment, by leave, withdrawn.
Section 1 agreed to.

Amendment No. 2 is out of order as there is a potential charge to the Exchequer. The amendment seeks to appropriate Exchequer funds to a particular purpose, namely, the reduction of costs to large electricity users, which is not provided for in the Bill.

Amendment No. 2 not moved.
SECTION 2
Question proposed: "That section 2 stand part of the Bill."

I cannot move amendment No. 2 but I will refer to the fact it has been ruled out of order. This is the truth of this legislation. The Minister has stated many times — and reiterated this morning — that the legislation will subvent large electricity users. There is not a word in the Bill to define that and pin it down. On the Opposition side we have listened to the Minister, taking him at his word, and framed an amendment so that what he says will be translated into law; however, we cannot do so. That shows the sham behind the Bill.

We are collecting a considerable amount of money for unspecified uses but for a process or mechanism essentially returning it to the Exchequer, where it may stay to fill the black holes. That will be without benefit to anything, be it large energy users or processes of carbon efficiency. We are being deliberately blocked because the Minister who lauds this legislation has failed to define the purpose of the Bill.

Anybody with even a vaguely critical eye should question what is going on as the Minister is telling us that it is imperative to take all possible actions to support the enterprise sector and it is anticipated the measure will lead to the collection of €75 million, with large energy users benefiting as significant employers. There is no protection in this Bill for the large energy user. The amendment has been ruled out of order, although I can understand the logic behind that and cannot quibble with it. It is logical because the Minister has failed to provide any commitment in the Bill to do what he has proposed.

The Bill is silent on the matter and there is nothing to stop the Minister for Finance deciding that things are so bad and we have made such a cock-up in this country that the money cannot be transferred to large employers. That I cannot even propose this amendment is an indication of the weakness of the Minister's position.

I disagree with the Deputy. The reason the Deputy cannot propose the amendment is because the Bills Office indicated it was not appropriate to do so.

That is a result of how the Bill is framed.

The general provision in legislation is that the Government does not set out how funds will be disbursed. That is done with the consent of the Minister for Finance. Returning to what I stated earlier, the extensive process of consultation with other Departments and the Government decisions included the consent and agreement of the Minister for Finance on the strategy we are adopting. I am absolutely confident we will carry out the strategy but as the Bills Office has indicated, it is not appropriate to include specific allocations of funding within legislation.

The Minister is misleading us slightly as the Bills Office gave no such indication. The Bills Office has indicated the Minister can do so but the Opposition cannot.

It comes under Standing Orders.

Exactly. The Bills Office has not indicated we cannot introduce on Committee Stage a specific wording to allocate funds to any area. The Bills Office indicated that the Opposition cannot put amendments down to that effect but has not indicated the Minister cannot do so. If the Minister wanted to deal with the issue raised by Deputy McManus, he could do so under Standing Orders.

I question the Bills Office ruling on this particular amendment, because I am not sure if it is consistent. My understanding is that Standing Order 150(3) is the standing order concerned. I spoke to someone in the Bills Office yesterday and that standing order does not allow Opposition Deputies to put amendments down that would involve the raising of extra taxation or affect a revenue stream coming into the Government. This amendment does not attempt to raise extra taxation, but merely attempts to confirm where an existing revenue stream, to which the Minister has committed and with which I agree, actually gets allocated. I am not sure whether that is under the same standing order or whether it is under another standing order. Perhaps the Chairman can help us.

There are also inconsistencies between some of the amendments that are to be allowed and those that are not allowed. If amendments Nos. 5 and 6 are not consistent with Standing Orders, then amendment No.7 probably should not be allowed either. I will speak on those amendments when we come to them.

My response to Deputy McManus was on the basis that she implied that I had some part in not accepting the amendment. It was purely the Bills Office.

The approach taken was on the advice of the Parliamentary Counsel, which is something we heed in respect of the best way of presenting a Bill. I am confident that the approach taken will be the one that will be implemented.

I am not saying that at all. I am saying that the Minister has refused to deliver on his own commitment.

I was following advice from the Parliamentary Counsel.

It has nothing to do with advice from the Parliamentary Counsel.

The advice was that it is better to take the approach that we have taken.

That is running away. The Minister decides on policy. He states his policy. He has made a commitment and he translates that into legislation. That is the way he needs to deliver on the commitments made. He might not be in his job tomorrow. Somebody else could take over. The same thing could happen the Minister for Finance. Things change. Every Minister who goes into power seems to think that he or she is there forever. That is not the case. This is the only thing that stays forever until it is changed. This does not make any commitment whatsoever. I do not argue with the Minister's bona fides here, as I believe this is what he intends to do. However, that is not worth a hill of beans at the end of the day, because the only thing that matters is what is in the legislation.

This has been ruled out of order because it could have the effect of imposing a charge upon the Revenue. This means that the Revenue is gathering in quite a lot of money and if we specify that it goes to large energy users, then that could mean a drain on the Revenue.

I do not think that is consistent with the standing order.

My understanding is that it is.

I do not have a problem with that, because it pinpoints what is actually going on here. This money is being gathered into the Government coffers. That is all it is doing. If we support the Minister in saying that it should go to large energy users, then we are undermining this Bill according to the Bills Office, because we are potentially putting a charge on the State because the Revenue would lose this pot of money. That is very worrying, because then we are totally dependent on the Minister's word. It do not doubt his word, but nobody is above legislation and the legislation has the overriding authority, regardless of who is Minister.

Indeed it does, and we follow good Parliamentary Counsel advice. That advice is to take the approach we are taking here. We will see in October how we will allocate the revenues when this legislation is implemented, but I have given a clear indication that, as part of an overall strategy to improve competitiveness and protect jobs, we will allocate it in the direction that I have set out. There has been a Government decision and support of that, so I look forward to implementing it.

Question put and agreed to.
SECTION 3

I move amendment No. 3:

In page 4, line 9, after "electricity" to insert the following:

", only to the extent that the electricity generator has generated units included in the Market Schedule by the Single Electricity Market Operator".

I have only raised this because it has been raised with me in the case of Endesa. It is not that I am married to this particular wording, but it is simply the fact that this company paid for allowances and is now caught in a bind and has to pay twice. I am sure there is better wording than this. I am surprised that the Minister did not come back with some kind of system that would ensure that this double requirement did not apply. Deputy Coveney may have a better amendment on this, but the amendment seeks to address an anomaly where a company paid and now is expected to pay again. That seems to be an example of where insufficient consultation has led to problems in the Bill.

I am not wedded to the wording, but I am concerned about the unfair impact that could apply to a particular company. I am not speaking up for the company, but I am speaking up for fairness.

I accept that and I accept that there is real sincerity in the amendment. As it could have serious unintended consequences, I do not propose to accept it. The system operator sometimes dispatches generators outside the market schedule for reasons such as systems stability or the maintenance of sufficient reserves. I am advised by the CER that Moneypoint generation station, which is the single largest emitter of carbon in the State, would be affected by the addition of this clause. Due to the relative prices of gas and coal at the moment, Moneypoint is generally uncompetitive with the newest efficient gas-fired generators. If dispatched by the system operator, it would be outside of the market schedule.

Electricity generators continue to receive carbon windfall gains when they are dispatched outside the market schedule, as they receive the short run marginal costs, which include the opportunity costs of their carbon. Since they are in receipt of carbon windfall gains, it makes sense to apply the levy to them. Any treatment to the contrary would raise concerns about the equality of treatment for our generators by this levy, which would be difficult to defend.

Any generation stations dispatched in such a fashion would be exempted from that portion of their output by this amendment. Exempted generators that are dispatched outside the market schedule would thus have the practical impact of exempting a portion of the output from Moneypoint, and from any other generators that dispatched in this way.

I will withdraw my amendment in favour Deputy Coveney's when we come to it.

Perhaps it is appropriate to speak about my amendment now. It is amendment No. 7 and is one of the few that has been accepted.

Is that agreed? Agreed.

This is where I have a concern with the Bills Office ruling. We are saying that we want to make an exception in the case of Endesa, because the company has already paid a lump sum of money for its carbon allowances between now and 2012. If the definition of what we can and cannot raise is that it may have an affect on the levy or the taxation that is coming in, then if we were to make an exception for Endesa and not charge the company for the carbon levy as a result of generating power, that will have an impact on the revenue stream as well. There is an inconsistency involved. I do not want to have a go at the Bills Office about this, but I do see an inconsistency there. This has the same net affect as some of the other amendments I am proposing as to whether it would increase or reduce the overall take from the levy for the Department of Finance.

Amendment No. 7 is pretty self-explanatory. I have spoken to the Minister on and off the record about the issue. There is something fundamentally unfair about a new entrant coming into the market on the basis of the existing market structures between now and 2012. A new entrant will pay a separate lump sum for the carbon allowances it will require despite the fact that everybody else got 85% or 90% of those carbon allowances for free. This is on top of what it pays for the power stations it has purchased. After such a transaction has occurred, the rules will change in an effort to recoup money to the State on the back of assets given to people for free in the form of carbon allowances or credits. They rightly feel aggrieved that they have already paid for this and are now being asked to pay again as if they got the carbon allowances for free. There is unfairness which the Minister has a responsibility to try to address.

The language in amendment No. 7 may be a little crude, but it is clear and simply states:

In page 5, between lines 47 and 48, to insert the following:

"(6) No carbon revenue levy is payable by an electricity generator that has purchased the full value of their carbon allowances available to them until the end of 2012 in a commercial arrangement.".

Perhaps the Minister can come up with better language.

We have already set a precedent for making exceptions to the rules. We decided that any generator to which the PSO applies, such as peat stations or Aughinish Alumina, will be removed from the carbon levy bracket. The Minister should not give the excuse that we cannot make exceptions for people; we are already making exceptions and we are making an inappropriate exception in section 3(5). The precedent is there. This will not be applied to everybody on the basis that if a carbon generator is partly sponsored by a PSO we will not add the extra charge because it will have to be paid for by the public through a PSO.

A generator has put itself in an entirely different category to all other generators because it does not have any free allowance; it had to pay for carbon at the highest carbon values we had over the past three years at €24 a tonne. The value is now €14 a tonne. We are now asking it to make a contribution on the basis that it got those credits for free. There is an issue of natural justice which I hope the Minister will try to address either through an amendment of his own or through accepting my amendment or the amendment tabled by Deputy McManus. I hope the Minister accepts the spirit of the amendment and will try to do something about it between now and Report Stage.

I accept the spirit of the amendment and I understand the argument. It is good to have discussion to get clarity on the issue. However, we cannot implement the intent behind it. I will give some background to our thinking. While it is true that a certain electricity generator will be affected by this levy, having purchased its generating stations and associated allowances for a significant sum, fundamentally that purchase and the underlying assumptions made by Endesa were commercial judgments and risk assessments made in a private sector firm in a competitive market. While I have much sympathy with Endesa's arguments, it must be stated that there could be no certainty at the time of its purchase to the likely future price of carbon and no commitments were given by any party that generators would continue to be able to benefit from the single electricity market, SEM, committee decision. The SEM committee decision paper specifically noted it was up to Government to recover windfall gains from generators arising from their decisions. As such, any preferential treatment to exempt one firm would raise concerns about equality of treatment for generators in this levy. Such concerns would be justified and it would be difficult to defend.

I must advise that Endesa is likely to be the electricity generator impacted the least by the levy since its generation stations are rarely dispatched by the market operator. The scale of Endesa's payments under the levy are likely to be less than €1 million per annum. I very much understand the difficulty, in that it made a very significant investment and some of its commercial decisions based on the price of carbon were not fortuitous. However, one of the commitments I made to the investors in that instance, and I remember meeting them, was that come what may we would maintain a regulated market that did not treat one generator more favourably than another.

Were I to accept these amendments or go in the direction suggested by the Deputies it would breach the clear line we must follow in trying to be market and generator neutral and treating all equally. While it is not an easy decision for Endesa, it is done in the spirit of trying to ensure we maintain a properly competitive fair market. I would argue that other PSO exemptions are different because stitched into the PSO legislation is a provision that does not allow us take the levy from those generators. I would like to be able to do so, and share the intent of being absolutely uniform throughout the market but it is not possible in those PSO areas. However, in the rest of the market I would prefer to maintain a standardised approach because treating each generator in the same way is in the long run better for all generators.

With all due respect to the Minister, it is very difficult to understand how he can say that when we are discussing an all-Ireland market and operators on the other side of the Border will not be affected by this. He is introducing a difference. Even the ESB has a generator North of the Border which will not be affected by this change. The Minister stated he must not distort the market but he is already doing so. I would have thought that a company that has already paid had certain grounds for complaint. One can state there was no guarantee that the rules would not change but the rules are being changed now without any recognition being given. Whether Endesa is excluded or the ESB has to pay back the money — whatever the arrangement is — if it is not resolved the Minister is treating a company unfairly. To state it was simply a commercial decision is not adequate because it is an all-Ireland market where there will be distortion because Northern Ireland will not introduce this measure while the Republic will.

The Deputy is right to state that we do not have jurisdiction in the North. While we have a single electricity market in a wide range of ways, there are various support arrangements. It is up to each Government to manage each jurisdiction as it sees fit. The SEM decision allows that and gives a strong indication that it is a matter for Government to decide.

I understand two of the three main generators in the North do not receive carbon windfall gains as they are tied into long-term contracts rather than receiving their returns via the SEM pool. This is similar to the PSO arrangement and brings them outside the market arrangements that other players have on the carbon windfall. It is not distorting in every instance. In the absence of us having jurisdiction in the North those variations will continue from time to time.

I am conscious that some of us probably need to be in the Dáil in a few minutes. This is relevant to amendment No. 5, which will not be allowed, and speaks about the windfall gain that generators made on the back of selling or trading carbon allowances which they are not using or have not used. To put it bluntly, the ESB has sold carbon credits it received for free to Endesa for a considerable amount of money. It is not being charged any windfall levy on that gain, despite the fact that it has sold an asset which it got for free from the State. We are going to charge the company which paid for that asset between now and 2012 an extra levy, if we apply the rationale that it is making a windfall gain on the back of that. There is something fundamentally wrong with that. I am not saying it is easy to deal with it because I understand the point the Minister made that he did not want to distort the market or give any one company a competitive advantage on pricing and that he needed to treat everybody the same.

Ultimately, this Bill is about recouping to the State the value of an asset which we have given to electricity generators for free. On the back of getting an allocation of carbon allowances they are making unearned profits through charging consumers for the release of carbon emissions for which they have an allowance or through selling and trading those emissions. This amendment is about recouping that value back to the State in order that we can spend it responsibly in whatever way we want. We are missing something serious in this Bill if we are not recouping the windfall gain which is made on the back of selling or trading the allowances which were allocated for free.

The double negative applies to Endesa which has paid the ESB for something the Government gave it for free and is then charged the levy as if Endesa got the free allocation on top of that. There are two issues, not just Endesa which I understand is complex to deal with. At the same time we need to ensure that we have a market which is applying the same rules to everybody. There is also the issue of windfall gains on the back of traded or sold allowances. We also need to try to deal with that in the Bill which is what I have tried to deal with in amendment No. 5 which has been ruled out of order. I do not want to labour the point but I want to ask the Minister and the Department to examine the issue on Report Stage because we will revert to it then.

The Bills Office did not consider amendment No. 5 to be in order. It is useful to debate what are quite technical and important issues. I will give some background on that issue. We are constantly referring back to the European Union emissions trading Directive 2003/87/EC which was created to implement a cap and trade scheme across the European Union which was designed to deliver reductions in carbon dioxide emissions at least cost to those involved. Article 10 of that directive states that for the three-year period beginning 1 January 2005 member states shall allocate at least 95% of the allowances free of charge. For the five-year period beginning 1 January 2008 member states shall allocate at least 90% of the allowances free of charge.

The directive was transposed into Irish law by the European Community's greenhouse gas emissions trading regulations 2004 by S.I. 437 of 2004 which assigned responsibility for its implementation to the Environmental Protection Agency, EPA. This responsibility involves the design and implementation, in accordance with the direction of the Minister for the Environment, Heritage and Local Government, of national allocation plans for each of the phases of the ETS. The national allocation plans determine how we allocate free carbon allowances to firms in the ETS, subject to the limits specified in the directives.

Under the Irish national allocation plan covering phase 2 of the ETS which runs from 2008-12 electricity generators receive the vast bulk of their required carbon allowances for free with only a small amount of the allowances auctioned. This individual allocation to each generator is based on an average of their emissions in 2003-4. This Bill does not seek to claw back the value of free European Union ETS allowances, rather it is intended to recover a portion of windfall gains being earned by electricity generators arising from the SEM committee decision paper SEM-08-032.

This is an important distinction. We are addressing the windfall gains arising from the SEM committee decision, not the basis of the ETS, that is, the free allowances. To address gains from selling or trading allowances would seem to me to broaden the scope of the Bill far beyond what was originally envisaged and would weaken this rationale. It would also significantly raise the risk of interference with Directive 2003/87/EC which requires a certain portion of allowances to be granted to participants free of charge. It is an important distinction and one I am glad we are able to clarify today or return to at any later stage.

Can I make a brief point on that? I agree with the principle of what the Minister outlined. We cannot interfere with the directive. The issue is that the idea was that generators would get 95% of their allowances for free and if they used those allowances we will apply the legislation as envisaged in the Bill because there is a windfall gain. The windfall gain also accrues if they sell them. It is not about taking away something we have given to them for free, rather, it is about ensuring that if they make a windfall gain on the back of those free allowances that we recoup it or a portion of it — the Minister plans a figure of 65% — to the State. There is a difference. We are not charging them for something which we have given for free.

We are saying if they make a windfall gain on the back of that, that is, charge consumers for carbon for which they are getting free allowances or if they sell or trade those allowances because they do not use them, we are simply recouping the windfall gain and not the actual value of the asset in the first place. It is an important distinction and it is a distinction in law that the Minister is not recognising which we address in amendment No. 5.

The Attorney General's advice was that we should direct any windfall from the SEM decision rather than from the allowances, apropos of the European directive. When the SEM committee made its decision on carbon it was up to Governments to make their decisions on the market arrangements around that as to how such a windfall would accrue. It is a distinction on which the Attorney General has advised and he argues it is the more proper way of pursuing this legislation.

Can I confirm that amendment No. 3 in the name of Deputy McManus is withdrawn?

Yes, I may resubmit it on Report Stage.

Amendment, by leave, withdrawn.

I move amendment No. 4:

In page 4, line 44, to delete "Each" and substitute the following:

"Save to the extent that the imposition of the levy would breach EU law, each".

I presume, having heard what the Minister said, that he would not have a problem with this amendment since he said there is no question of contravening European Union law on the free of charge requirement. He might consider accepting the amendment. We have to be conscious that there are issues which arise out of this which may be further pursued. One is the emissions trading directive, with which the Minister has dealt. Another is the restrictions on differentiated rates of taxation on electricity under the energy products tax directive. I do not know if another issue has any bearing but has been raised and is the issue of an unjust attack on property rights under the Constitution. These are the kinds of concerns which have been raised and they may not be pursued but it is very important that we do not disregard them in any way. A belt and braces approach is needed. If we included this amendment, it would simply ensure that there is no question of breaching European Union law. It would be recognised that we are not doing that.

I am afraid I cannot accept the amendment which I do not believe would serve a useful purpose. Adding the clause "Save to the extent that the imposition of the levy would breach EU law" does not make the levy immune to any legal challenges which may arise vis-à-vis its interaction with European Union law. However, the Government and the Attorney General are fully aware of the need for the levy to operate within the constraints imposed by the various European directives that may interact with the levy. This requirement has shaped the development of the levy from its conception. My Department, as I said earlier, sought legal advice from the Office of the Attorney General and we are confident that the levy, in its current form, is compatible with European law on emissions trading.

It has been mentioned, for example, that the levy could be an interference with the requirements in Directive 2003/87/EC to allocate allowances free of charge. This measure does not violate the requirement to allocate carbon allowances to electricity generators free of charge, as generators will continue to receive their specific allocation of carbon allowances from the EPA free of charge on an annual basis. No formal explanation is given either in the recitals of Directive 2003/87/EC or the communication of the Commission on guidelines to assist member states in regard to why industries should receive free carbon allowances and, therefore, it cannot even be said to be contrary to the spirit of the directive. In response to a question from an MEP regarding a Finnish windfall tax on electricity generators, the Commission stated that in the absence of tax harmonisation member states are free to make national provisions of this sort. We are confident that we are acting within EU law and the directives and I do not see how the amendment would serve a useful purpose.

I will withdraw the amendment and reintroduce it on Report Stage.

Amendment, by leave, withdrawn.

Amendment No. 5 is disallowed as it is in the nature of a tax. The amendment seeks to extend the carbon revenue levy to traded or unused carbon allowances, which are not covered by the levy under the Bill as it stands.

The point made by the Minister regarding the Finnish MEP's question suggests that Ireland could apply a windfall levy on traded carbon allowances if it wanted to. I will have to revert to the issue on Report Stage, however, because I cannot speak to my amendment now.

Amendment No. 5 not moved.

Amendment No. 6 is disallowed as it is in the nature of a tax. The amendment seeks to apply the carbon revenue levy to generating stations which are subject to public service obligation orders. Such stations are currently excluded from the levy by the Bill.

Amendment No. 6 not moved.

I move amendment No. 7:

In page 5, between lines 47 and 48, to insert the following:

"(6) No carbon revenue levy is payable by an electricity generator that has purchased the full value of their carbon allowances available to them until the end of 2012 in a commercial arrangement.".

I am happy to withdraw this amendment if the Minister and Parliamentary Counsel are open dealing with the issues raised for Report Stage.

Amendment, by leave, withdrawn.

Amendments Nos. 8 and 9 are disallowed as they are in the nature of a tax. The amendments seek to increase the percentage multiple applied to the carbon revenue levy.

Amendments Nos. 8 and 9 not moved.
Section 3 agreed to.
Section 4 agreed to.
Title agreed to.

I thank the Chair and members of the committee for a very useful discussion on these complex provisions. I have listened to the points raised by Deputies on Second and Committee Stages and have asked my officials to conduct a detailed review of all ongoing public service obligation contracts to confirm that no generator is benefiting from the Commission decision on carbon costs. I will bring forward Report Stage amendments to address the issue if I find that generators are receiving windfall gains. On the advice of Parliamentary Counsel, I may also bring forward technical amendments to the Electricity Regulation Act 1999 which follow from the Petroleum (Exploration and Extraction) Safety Act 2010.

Bill reported without amendment.
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