Speak Up Energy

With global negotiations for an international agreement to replace the Kyoto Protocol “hardly progressing”, the EU is keen to assuage industry concerns about rising emissions costs and prevent plant delocalisation, the Commission said on 15 May.There is “little if any chance” for the EU to reduce CO2 emissions by 30% by 2020 unless a solution to the “problematique” of energy intensive industries is found, according to Mogens Peter Carl, director-general of the Commission’s environment service.

While international negotiations received a “boost of vitamins” during a major conference in Bali in December 2007, the talks are “hardly progressing at an impressive speed,” Peter Carl said on Thursday (15 May) during an official hearing on the EU Emissions Trading Scheme.

Moving out

EU energy intensive industries are warning that they would be forced to move operations outside the EU if global talks fail, as industries operating in countries with fewer restrictions on CO2 emissions would have an unfair advantage particularly over EU chemicals, aluminium and steel manufacturers. Plant delocalisation would lead to a situation of ‘carbon leakage’, whereby EU CO2 emission would not be reduced through cleaner production methods but rather ‘leaked’ outside the EU’s borders.A proposal to revise and strengthen the EU ETS for the period after 2012, a main part of the 23 January package, is at the heart of the concerns over carbon leakage.

The Commission is pushing for a full auctioning of emissions rights following a gradual phasing-out of free allowances. Exceptions to the phase-out, or a border tax on outside competitors, could be agreed as a means to protect select EU sectors.But the Commission has yet to define precisely what kind of mechanism it would implement, and there are disagreements over the precise definition of ‘energy intensive’. EU industry groups like BusinessEurope say the situation creates uncertainty and discourages investors.

The leakage debate

Meanwhile, environmental groups and a number of green MEPs in the Parliament say industry concerns are being overstated, and are pushing for a full auctioning of CO2 allowances in order to encourage investments in clean technologies. And not all experts agree in principle that a tighter EU carbon market would necessarily push industries to relocate.”Environmental policies are only one determinant of plant and production location decisions. Costs imposed by tighter pollution regulation are not a major determinant of trade and location patterns, even for those sectors most likely to be affected by such regulation,” according to the 2006 Stern Report on climate change.The Commission, however, is convinced the problem is real, and says it is “patently absurd” to suggest that Brussels wants to force a relocation of EU industries and jobs, Peter Carl said.But industries remain sceptical and critical, despite the Commission’s stated support. “Carbon leakage is already happening,” says Daniel Cloquet, director of Industrial Affairs at BusinessEurope. As EU energy prices rise, the bloc is becoming increasingly less competitive for manufacturers of products like chemicals and aluminium, many of whom are facing stiff competition from firms operating in countries like
Saudi Arabia, where access to cheap energy is abundant.In this context, a tightened EU ETS with mandatory auctioning will make staying competitive much more difficult, he said.

From EurActiv

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