Merkel urges EU leaders to act on 'carbon leakage'[fr][de] 

"The European Council recognises that carbon leakage in energy-intensive sectors exposed to international competition needs to be addressed urgently," according to draft wording that Germany is pushing to be inserted into the summit conclusions.

In Germany's view, the matter must be addressed "urgently", before a potential international agreement is struck to replace the Kyoto Protocol. 

"Until an international agreement is concluded, auctioning of greenhouse gas allowances should not apply to sectors with a significant risk of carbon leakage," according to the text pushed for by German diplomats. "In such sectors, increased electricity prices due to emissions trading need to be taken into account."

Energy-intensive industries such as glass, cement and steel have stepped up warnings about the potential for 'carbon leakage', meaning the relocation of energy intensive factories and jobs beyond the EU's borders (EurActiv 27/11/07).

But until now, the Commission has only given them partial assurances, saying they may be given free emission allowances in the post-2012 phase of the EU emissions trading scheme. "It is not in the interest of the European Union that in the future production moves to countries with less strict emissions limits," the EU executive said in a communication in support of the metals sector, presented on 25 February. 

However, at the same time, it has also resisted calls for immediate measures, saying the priority should be to conclude an international climate change agreement that would potentially resolve the 'carbon leakage' issue.

"The emphasis is of course on the conclusion of an international agreement, which could sort out most of the problems that we are encountering on carbon leakage," said Jos Delbeke, Deputy Director General at the Commission's environment directorate.

Speaking to EurActiv in a recent interview, Delbeke sought to clarify the Commission's approach. "The Commission has said that it 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."

Speaking ahead of the Brussels European Council, a senior British official told journalists it is the "level of ambition" of the EU's climate policy which is at stake at the summit.

He defended the Commission's focus on concluding an international climate agreement before making any decision. "We shouldn't be legislating now for failure," he said, in reference to German pressure to act sooner on 'carbon leakage'.

Slovenia, which currently holds the rotating EU Presidency, appears to agree. "I think one should be very cautious and not invest too much hope in any form of protectionism," said Žiga Turk, the Slovene minister for growth in a recent interview with EurActiv. "In the short term, of course it may seem nice to protect something in order to survive. But, in the long run, you are hurting your economy if you are not exposing it to the harshest environment possible."

Earlier in January, European public employers association CEEP warned about the potentially painful costs of climate action. "Any European energy and climate policy must be seen in the context of a global economy. Our industries, services and products must remain globally competitive. Making cleaner industry an asset in a global economy is a challenge. But a lopsided European approach leading in the end to a shrinking economy and to less employment has to be rejected."

Philippe Lamberts, spokesperson for the European Green Party, criticised the German push in support of energy-intensive industries: "The attempt by […] Germany and Austria to obtain exemptions for large industry is another worrying example of an attempt to further weaken the EU's climate strategy and must be resisted. EU leaders must stand firm against those who want the EU to shirk its responsibility to take a leading role in the fight against climate change."

Claude Turmes, a Green member of the European Parliament, goes further in criticising the motives of the energy-intensive industries, saying they are trying to get a "free lunch" by creating excessive "hype" about the threat of delocalisation.

"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. For the steel sector, competition does not reach 20%," says Turmes in a paper  on carbon leakage circulated ahead of the summit. 

According to Turmes, "the real agenda of companies like Mittal/Arcelor and Lafarge is to get completely off the hook from EU climate change efforts". He says the way is to follow the example of Denmark and Sweden, which both faced similar problems in the nineties when they introduced CO2 taxes for their industries. 

"Denmark and Sweden established the principle of earmarking of the revenues from these energy taxes. This was the right way to go: the industry actors had to integrate fully into their investment decisions the price of pollution, but received state aid for investments under certain strict environmental criteria."

Turmes believes a similar system can be replicated in the EU by supporting Commission proposals to auction 100% of the pollution credits distributed under the emissions trading scheme.

"All or at least parts of these revenues should be earmarked to be re-invested in upgrading the energy performance of existing and new industrial installations. In order to prevent distortions in the EU's internal market, the approval of this state aid will be done by the EU's competition authorities (DG Competition)."

Meanwhile, in a joint statement, the European Environment Bureau (EEB), the European Trade Union Confederation (ETUC)  and the Social Platform have urged EU leaders to up the bloc's emissions reduction targets to 25%-40% and put in place border tax adjustments in order to "protect EU-based industry from unfair competition."