Last week's EU climate change accord was "a step in the right direction," according to the chemical industry, whose reaction starkly contrasts the huge disappointment expressed by environmental groups.
Warnings that stringent EU climate rules would force factories to relocate abroad – a process dubbed 'carbon leakage' - had been running high among manufacturing industries.
The chemical industry has teamed up with other energy-intensive sectors, including cement, steel, glass and paper, to ask for derogations under the revised EU Emissions Trading Scheme for carbon dioxide (see EurActiv Links Dossier).
Germany, the European country with the largest manufacturing base, has long been asking the EU to act on the risks of 'carbon leakage', pushing for specific recognition of the issue as early as March this year (EurActiv 13/03/08).
But the worst has been avoided, they now claim, hailing an agreement reached by EU leaders on the climate change and energy "package" of legislation last week, which reforms the EU's flagship cap-and-trade scheme for the period after 2013.
"Carbon leakage has been recognised as a true risk by the European Council," said Alain Perroy, director-general of Cefic, the European chemical industry council.
However, that commitment would now need to be confirmed both "legally and politically", he stressed. "We now need some precise conditions for exposed sectors to encourage efficient manufacturers," said Perroy.
Under the agreement, the amount of emissions allowed by industry will be cut on a yearly basis from 2013. "Industry which fails to respond will have to pay more," said José Manuel Barroso, president of the European Commission, after the EU summit on 12 December.
Cefic particularly welcomed references made to "performance benchmarking", a process whereby those industries that use the cleanest technologies available are granted 100% free CO2 emissions rights when it can be proven that they are exposed to international competition.
But it said the "trade intensity" of individual sectors needed to be defined more precisely, describing it as "essential" to consider downstream users of chemicals like the textile, car, housing and computer sectors. "It is crucial to include the value chain in the legal text to carry out the trade analysis including all users," Cefic stressed.
"A low-carbon economy can be a great opportunity if the transition is properly managed. Cefic advocates for that purpose extensive usage of performance benchmarking," it stated.
The European Greens were furious over the outcome of the summit, accusing each government of having acted "as a lobbyist for its own polluting industries" and "seriously damaging this crucial legislation".
"Considerable exemptions for industries (and even the power sector) from the auctioning of emissions permits under the emissions trading scheme risk turning the scheme into a windfall profit-generating machine for those industries - rather than acting as a real incentive to modernise the economy," said the Greens / EFA Group in the European Parliament.
WWF, the global conservation group, deplored the fact that the European manufacturing sector was "largely granted full exemption from requirements to buy carbon permits" in discussions over the future of the EU Emissions Trading Scheme (EU ETS). It further regretted that "this was done in the absence of any strong evidence that such a requirement would impact on the international competitiveness of these industries".
In a joint statement, environmental groups and development organisations, including Greenpeace, Oxfam, the WWF, Friends of the Earth and Climate Action Network, said EU leaders should be "ashamed". "EU leaders will probably trumpet the deal on climate change as a great success, but in reality this is a big failure in EU ambition."
They regretted that, as a result of concessions made to the manufacturing sector, consumers would now have to "pay for emissions permits that polluting companies get for free". They said auctioning of carbon permits "must become the norm for all industries covered by the EU ETS when the system comes up for review".
Karsten Neuhoff, an economist and researcher at the University of Cambridge, said industry claims about carbon leakage were "exaggerated". "We looked at the UK and there was about 1% of production outside of the power sector that have either higher direct emissions or indirect emissions from power," he told EurActiv in a recent interview. "If you look at Germany, it's about 2%. [In Europe], the average is lower than that again. So it's only a very small part of our GDP which is very carbon intensive."
In a recent interview with EurActiv, Eurogypsum President Jean-Pierre Clavel said his industry was different because factories need to locate near a gypsum source. "When we establish a plant, most of the time, the plant stays in that location for thirty, forty or fifty years."
Giving an example, Clavel said it could become more profitable to invest in Ukraine rather than in Poland once the new EU rules have entered into force. "Maybe it would be much more profitable to build a second plant in Lof [in Ukraine] instead of having a second line in Poland, because the two plants will be 200 kilometres away from each other."
"So it will not be a sudden quick movement. It will be a change in the strategy. We will have to change our strategy."
- Dec. 2009: UN climate conference in Copenhagen (COP 15) expected to complete international climate negotiations on post-2012 framework.
- June 2010: Commission to table proposals on how to grant CO2 allowances free of charge to indsustrial sectors considered "at significant risk of carbon leakage".