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02/12/2016

EU agrees to €5bn carbon permit giveaway

Energy

EU agrees to €5bn carbon permit giveaway

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The European Parliament’s environment committee on Wednesday (24 September) narrowly upheld plans to give billions of euros worth of carbon allowances to heavy industries for free, in order to help them compete in global markets.

The 67-strong cross-party parliamentary committee voted by 34 to 30, with three abstentions, to uphold the proposal.

It was supported by centre-right groups, and opposed by Greens and Liberal members, who said it would waste billions of euros of public funds on needless handouts to big business.

“[A rejection] would be sending a wrong signal to companies,” said Peter Liese, a German member of the centre-right European Peoples Party (EPP), told the committee, sitting in Brussels.

A rejection could have scaled down the level of support by about €5 billion. The cement industry including companies such as Holcim and Lafarge could have been denied giveaways worth around €2 billion at current prices.

In May, the European Commission proposed that the vast majority of industrial sectors should get most of their allowances for free in 2015-2019 to help meet their obligations under the EU Emissions Trading System (ETS).

>> Read: EU tables free carbon permit proposal for heavy industries

The ETS regulates around half of Europe’s output of heat-trapping gases by forcing over 12,000 power plants, factories and airlines to surrender an allowance for every tonne they emit.

The so-called carbon leakage list of companies entitled to free permits was formed to guard against the relocation of EU industries to regions such as the Middle East with less stringent emission limits.

It was approved by member state officials in July, but Dutch Green MEP Bas Eickhout objected after it emerged the executive had ignored recommendations in its own analysis.

“The Commission’s own research has indicated that there is no real risk of these sectors relocating, which is the ostensible reason for allocating them emissions permits for free,” Eickhout said in a statement after the vote.

Deal-making

The pre-2015 carbon leakage list assumed industry would face competitive risks when allowance prices rose above €30 a tonne, but current levels are near €6.

The Commission’s unpublished impact assessment, seen by Reuters, recommended lowering this assumption to €16.50, enough to take cement and five other sectors off the list.

Gerben-Jan Gerbrandy, leader of the committee’s Liberals, voted against the proposal, saying it was based on “political deal-making” rather than scientific evidence.

But Commission official Hans Bergmann told the committee the executive was justified in proposing to keep the €30 assumption because it was separately proposing reforms that would boost carbon prices.

Market analysts expect prices to climb to around €10 for the rest of this decade, even with the reforms.

This discrepancy angered environmental campaigners, who want to force more companies to pay for their emissions and encourage them to invest in carbon-cutting technology.

The vote represents a victory for industry association BusinessEurope, which had urged MEPs to uphold the proposal or risk “immediate and serious consequences for industrial investments in Europe”.

Positions

In the European Parliament, the Socialists and Democrats group (S&D), blasted the carbon leakage list as "unrealistic".

"Almost all industrial sectors are currently an exception to the general system, and this undermines the ETS," said German MEP Matthias Groote, the S&D spokesperson on climate. "The list must be realistic. The Commission’s impact assessment clearly states that the carbon price until 2020 will not be higher than €16.5 per ton of CO2, and yet the proposal voted on today is based on €30 per ton of CO2. The Commission contradicts itself!"

"Unfortunately the list adopted today with a right-wing majority is not fair to the industries which are investing in innovation and sustainable solutions. At the end of the day it is citizens who are paying the costs for over allocation of allowances.

"Furthermore, the whole process in making the list was not transparent and too slow. The impact assessment should be made public. The EU is liable towards the industry – but first and foremost it is liable towards the European citizens."

Background

The emissions trading scheme (ETS), is the EU's main policy aimed at cutting emissions of heat-trapping gases and forces over 13,000 power plants, factories and airlines to surrender a permit for every tonne of gas emitted.

Under the ETS, heavy industries such as steel-making, cement and power plants have their greenhouse gas emissions capped, putting a price on carbon to encourage companies to cut emissions by trading allowances.

However, these energy-intensive sectors were allowed to receive the vast majority of their carbon permits for free.

Without such measures, these companies argue that competition from countries without such regulations could otherwise force them to relocate abroad, an empirically unproved phenomenon known as ‘carbon leakage’.

The European Commission in May proposed that the vast majority of industry sectors should keep getting most of their allowances for free over 2015-2019 to help meet their obligations under the ETS.

>> Read: EU tables free carbon permit proposal for heavy industries

The energy-intensive sector, meanwhile, has lobbied to maintain the favourable regime and called to revamp it to protect sectors really affected by leakage risk.

>> Read: Heavy industries renew calls for ‘carbon leakage’ protection

Timeline

  • Oct. 2014: European Council expected to agree 2030 climate and energy targets
  • 31 Dec. 2014: Current carbon leakage list expires
  • 2015-2020: New carbon leakage list applies
  • Dec. 2015: UNFCCC Climate Summit in Paris expected to agree outline of global legally-binding climate treaty
  • 2017: Next review of the measures on energy efficiency planned by the Commission
  • 2020: Deadline for EU to meet target of 20% greenhouse gas reduction as measured against 1990 levels, a 20% share for renewable energy in the bloc's energy mix, and a non-binding goal of a 20% energy efficiency improvement, measured against 2005 levels

Further Reading

European Parliament

European Commission

Business & industry

  • European Alliance of Energy-intensive industries’ letter to heads of states and EU institutions