Business circles have focused their criticism on the EU "going it alone" on climate change and imposing costly unilateral measures which do not apply to the EU's major competitors. They expressed their disappointment that the ETS review fails to name sectors that could benefit from free allowances or set up measures, such as free allocation, aimed at protecting European companies from competition from third countries with less demanding climate legislation.
"This neither ensures predictability nor certainty for business," lamented Folker Franz, senior advisor on industrial affairs and the environment for the European employers organisation BusinessEurope.
They also expressed concern that trade-restrictive action on imports was still under consideration by the EU, as this could provoke retaliatory measures. "If you impose import measures on others, the others might do the same," said Franz. As an alternative, he said the EU should continue to promote the clean development mechanism. A key fear is that such projects could be discontinued if no global climate deal is reached. Most environmental NGOs disapprove the use of CDM/JIs, saying they undermine the EU's pledge to cut emissions at home.
Commission President José Manuel Barroso justified the absence of a list of sectors that could receive compensation for EU climate measures, saying: "At this stage, we cannot draft a precise list of industries that will really be affected by the carbon leakage phenomenon […] So what we have done now is establish the criteria to determine, at a later stage, precisely which sectors are affected."
He nevertheless insisted that the EU would take action if it proves necessary to maintain the competitiveness of European businesses: "We all know that there are sectors where the cost of cutting emissions could have a real impact on their competitiveness against companies in countries which do nothing. There is no point in Europe being tough if it just means production shifting to countries allowing a free-for-all on emissions. An international agreement is the best way to tackle this - but […] if our expectations about an international agreement are not met, we will look at other options such as requiring importers to obtain allowances alongside European competitors, as long as such a system is compatible with WTO requirements."
Energy Commissioner Andris Piebalgs added: "We are doing everything to avoid the need for such legislation. But, if common sense does not prevail […] then in 2011, we will assess the situation and determine whether energy-intensive industries in the EU will be compensated for the lack of climate measures in other countries."
Trade Unions within the EU are upset that the Commission is delaying such measures and believe that a border adjustment mechanism is essential. ETUC General Secretary John Monks stressed: "There is a way of keeping employment and the planet from being the losers: a compensation mechanism such as a carbon tax on imports, which would equalise carbon costs for all companies, whether they are based in Europe or outside its borders. Under such a system, a considerable effort could be demanded of European industry while keeping heavy industry and jobs in Europe." He added: "The Commission's postponement of that decision is a mistake, since it has acknowledged the dangers of relocation and 'carbon leakage'."
Environmental associations strongly criticised the fact that the plans for the new scheme are solely based on a 20% reduction target, rather than on a 30% goal. "The European Union should be planning for the success, not failure, of international negotiations to cut climate pollution. The 20% target is not even in line with the latest Bali agreement - that developed countries should cut emissions by 25-40% by 2020," complained the WWF. "Overall, it is a very small effort to cope with a threat that might lead to Arctic melting and displacement of millions of people in developing countries because of increased floods," said Dr Stephan Singer, head of the European Climate and Energy Unit at WWF.
Nevertheless, green groups did welcome the planned increase in auctioning, saying it would help put an end to windfall profits made by businesses, who received allowances for free and then were able to sell on their extra credits.