EU Directive 2003/87/EC set up a greenhouse gas emission quota trading system for the European Union.
This system, which applies in all EU countries, sets an annual cap on emissions. Businesses (including EDF) receive or buy emission quotas, then the following year surrender to the European Commission a number of greenhouse gas emission rights corresponding to their Scope 1 emissions for the year elapsed, such as direct greenhouse gas emissions from production of the goods sold (e.g. electricity, heat, steel, paper, etc.). Fines are payable if there is a shortfall (€110 per tonne of CO2 not covered by quotas, and an obligation to cover these amounts by quota the following year).
The cap is being progressively reduced in order to bring down the total emissions in Europe.
The legislative framework of the EU-ETS for the fourth trading period (2021-2030) has been tightened up to achieve the emission reduction targets set in the 2030 Climate and Energy framework, and the EU’s contribution to the Paris Climate Agreement adopted in 2015 (which set a general target of a 40% cut in emissions
compared to 1990 levels for the whole EU) (1). One key step was accelerating annual quota reductions to 43 million tonnes per year (2.2% below the allocations for 2010).
The European Commission also presented a package of proposals on 14 July 2021 entitled “Fit for 55”, intended to bring the European Union closer to the augmented target of cutting CO2 emissions by at least 55% (compared to 1990 levels) by 2030. The quota system is likely to change after a process of negotiation in the European institutions that is expected to last between 12 and 18 months.
EDF applies the accounting methods for greenhouse gas emission rights stipulated in ANC regulation 2012-03 of 4 October 2012, incorporated into Articles 615-1 to
615-22 of ANC regulation 2014-03.
The accounting treatment of emission rights depends on the holding intention.
Emission rights held to comply with regulatory requirements on greenhouse gas emissions (the “Generation” model) are included in inventories at acquisition cost, and the FIFO (first in first out) method is applied. A write-down is recorded when the generation cost of the electricity that includes the cost of the rights is higher than the present value of that electricity. At year-end, a “net presentation” principle is applied as follows:
The net reporting principle assumes that the emission rights held in the portfolio will be the rights used to offset emissions produced. However, there is a limit to the fungibility of rights at EDF, as there are no transfers of rights between the island and mainland activities. This can lead to concurrent recognition of an asset and a liability.
In France, the Law of 13 July 2005 introduced a system of Energy Savings Certificates. Suppliers of energy (electricity, gas, heat, cold, domestic fuel oil and fuel for vehicles) with sales above a certain level became subject to energy savings obligations, initially for a three-year period.
To meet this obligation, three sources are available to EDF: supporting consumers in their energy efficiency operations, funding ministry-approved energy savings certificate schemes, and purchasing certificates from eligible actors.
EDF accounts for Energy Savings Certificates in compliance with Articles 616-1 to 616-25 of ANC regulation 2014-03 on the national chart of accounts.
EDF holds Energy Savings Certificates in order to meet the requirements of the regulations on energy savings. Consequently, EDF applies the “Energy Savings” model defined by ANC regulation 2014-03.
Certificates obtained or receivable are recorded in inventories at production or acquisition cost, and are valued under the FIFO (first in first out) method.
At the year-end, only the net position is presented in the financial statements:
EDF considers that all the technical, economic and governance conditions for bringing the depreciation period of 1,300MW-series PWR plants in France into line with its industrial strategy are now fulfilled.
The studies and work already completed, particularly concerning replacement of components and controlled equipment ageing, have given EDF sufficient assurance of the 1,300MW plants’ technical capacity to operate for at least 50 years. This is also supported by the international benchmark.
EDF has also made progress with the ASN on the question of the content of the fourth 10 year inspections of the 1,300MW series (a project included in the Grand Carénage programme). These inspections use a work methodology with ambitions focusing particularly on safety, similar to the fourth 10 year inspections of the 900MW series and incorporating the lessons learned from that series. In December 2019, the ASN’s response to the Re-examination Orientation file for the fourth 10 year inspections of the 1,300MW reactors gave general approval for the themes selected and commitments made by EDF for these inspections.
Most importantly, the ASN approval published in February 2021 for the generic aspects of the continued operation of 900MW reactors for ten years following their fourth 10-year inspection, and the industrial success of the initial fourth 10-year inspections for such reactors (after the pilot reactor Tricastin 1 in December 2019, Bugey 2 and Bugey 4 reached 40 years of operation and were restarted after a successful fourth 10-year inspection during the first half of 2021 followed by Tricastin 2 in the second half of 2021), reinforce EDF’s confidence that its inspection content for the 1,300MW series is appropriate and well controlled.
(1) The current EU ETS allocations trajectory does not yet include changes to be made in application of the Fit for 55 package.
