EU considers industries exposed to 'carbon leakage'[fr][de] 

The analysis comes in response to pressing concerns by heavy industry that imposing overly-stringent climate legislation in Europe would merely drive away business, jobs and emissions to other countries.

The Commission's methodology, outlined in a non-paper  obtained by ENDS Europe, indicates "that primary aluminium, hot rolled steel and slabs [...] and clinker would be likely to be strongly affected would therefore be amongst the substances likely to benefit from partial to totally free allocations".

But the EU executive also maintains that these sectors were chosen only for "indicative purposes on the basis of the data available at this point, and should not be taken to prejudge the final results," according to the non-paper.

Brussels now plans to extend its assessment to ceramics, chemicals, pulp and paper, copper and a number of other industries listed in the annex of the non-paper.

Risk assessment

The non-paper lists three main factors for determining a possible list of exempt sectors and/or sub-sectors.

First, sectors and sub-sectors "where problems may occur" should be identified, whereby the likely cost impact of the EU ETS (notably in terms of electricity price increases), coupled with the level of that sector's exposure to non-EU trade, are measured. 

Next, transportation, geographical location, market concentration and other factors could then be fed into the equation in "a qualitative manner which will help refine the assessment". Lastly, the outcome of international climate talks, including any sectoral deals agreed between industries, would "allow for a further refinement".

Four categories

The non-paper divides potentially affected sectors and sub-sectors into four categories, from those exposed to zero or low risk of carbon leakage (category I) to those exposed to high risk (category IV). 

While the Commission insists that all sectors would need to submit to full auctioning by 2020, category IV sectors would receive 100% free allowances in 2013, followed by a phase-in of full auctioning during the subsequent seven-year period. 

Those exposed to moderate to high risk of carbon leakage (cateogories II and III) would receive less than 100% free allowances in 2013 and would be subject to phase-in towards full auctioning, but at a "slower pace".

Germany, the European country with the largest industrial base, has long been pushing for the EU to act on the risks of 'carbon leakage', pushing for specific recognition of the issue at a European summit in March this year (EurActiv 13/03/08).

At European level, the alliance for power-intensive industries warned about an "enormous risk of de-industrialisation" in Europe as a result of higher power prices which are further pushed up by the EU's carbon market. The alliance groups large consumers of electricity such as alloys, cement, ceramics, chlor-alkali, glass, iron and steel, lime, non-ferrous metals and paper industries.

But the Commission resisted such calls, saying the priority was to conclude an international agreement to replace the Kyoto Protocol. Speaking to EurActiv in a recent interview, Jos Delbeke, deputy director General at the Commission's environment directorate, said Brussels would define the sectors in which carbon leakage would continue to exist after the conclusion of an international agreement, and that, in a second step, it would make proposals - at the latest by 2011.

Environmentalists on the other hand have called on the EU to stand firm, saying heavy industry is less exposed to global competition than it claims. "According to the energy-intensive industry lobby, EU industry is heavily exposed to global competition. But exposure to non-EU competition is not even 2% for the EU's lime and cement industry, and around 5% for EU refineries," said Claude Turmes, a Green MEP, ahead of the European Summit in March. "For the steel sector, competition does not reach 20%," said Turmes in a paper  circulated ahead of the summit.