This article is part of our special report Europe’s Industry : Halting the Decline.
SPECIAL REPORT / Heavy industries claim to be unfairly hit by rising energy prices caused by the EU's climate policies. But manufacturers are simultaneously being accused of profiteering from the bloc's Emissions Trading System (ETS) amidst controversy over the real impact of climate policies on industrial activity.
A particular concern of energy-intensive industries like steel and chemicals is that EU policies on climate and energy have seen electricity suppliers passing on price increases to them. Energy prices rose 28% between 2003 and 2011.
“The high price of energy is becoming a significant disadvantage for industry vis-à-vis its global competitors,” said Markus Beyrer, director-general of BusinessEurope, the European employer's association.
The European Steel Association, Eurofer, estimates the total cost to the steel industry of the ETS at between €11 billion to €15 billion. “This affects directly our competitiveness compared to the rest of the world, who don’t have these costs,” Gordon Moffat, Eurofer's director-general, told EURACTIV in an interview.
Moffat does not advocate dismantling the ETS, but said: “We need an abandonment of the one-size-fits-all policy. We have to recognise that, post-2020, we must take account of the situation of individual industries and taking account of their ability.”
Abandoning fixed targets common for all industries, basing carbon targets on the relative technologies available in each industrial sector or considering exemptions from the ETS system are all options Moffat thinks should be considered.
UK compensation scheme has been controversial
However, where such options have already been considered – such as the UK – the results have been controversial.
In Britain, a £250-million (€297.3-million) compensation scheme aims to reduce the impact of climate policies on the cost of electricity for energy intensive industries in order to help them compete internationally. This is aimed at avoiding carbon leakage, or the movement of heavy manufacturing abroad, to countries where emissions are not controlled to such an extent.
>> Read our LinksDossier: EU industry and the 'carbon leakage' threat
The British Parliament’s Environmental Audit Committee MPs said this month, however, that the compensation scheme was a bad idea, claiming “these companies are making windfall profits from the very same scheme by selling surplus emissions allowances.”
Steve Radley, director of policy at the UK manufacturers’ organisation EEF, criticised the MPs’ report saying they had “mixed up electro-intensive industries with carbon-intensive industry”, although he added that both industries have a strong case for support even if they face different issues.
The case underlines the problem facing big industry seeking to plead its case in the face of existing policy: the picture is mixed, with recriminations flying in many directions.
“It seems to me that the people who are benefiting most from the ETS are financial services, they are the ones who are pushing for this,” said Eurofer’s Moffat.
Meanwhile, the Transport & Environment environmental group today said that another big industry – air carriers – are profiting from the ETS. A study it commissioned concluded that the airlines made €870 million in windfall profits from the ETS.
Similar accusations that industry has benefited from the allowances system are being leveled against the steel industry, said Eurofer’s Moffat, who believes that attempts by the Commission to ‘backload’ carbon emerged from the belief that industry is profiteering.
Commission treating industry like ‘robber barons’
Under the backload proposal, the Commission will delay the sale of carbon credits in an effort to prop up the flagging market price of the commodity.
“It's almost as if they say 'you have free allowances, you've banked them', which is allowed by the way, the Commission itself proposed it in the system,” Moffat said.
“And now they're acting as if we were some sort of type of robber barons because we have gone through a situation where 40% to 50% of our production has been reduced, which is a cost to us, but we have these free allowances which are hidden away somewhere. This is complete nonsense!”
European business is united against the backload position. “Manufacturing businesses earn their money from manufacturing and not from carbon trading,” said Peter Botschek, a director with European Chemical Industry Council (Cefic).
“That is why they are supporting the EU Alliance of Energy-Intensive Industries’ and Business Europe’s position against policy intervention in the carbon market and against increasing the EU cost base,” he added.
That campaign will need to marshal its argument, however, to withstand the growing voices of those complaining that the scheme is working in favour of industry.
The British Parliament’s environment committee has called for a review in the UK on how the ETS policies are affecting business, and who is really benefiting.
Such a review might be necessary at EU level too, to disentangle the recriminations and create a solid basis for future policy.
With a turnover of some €90 billion in 2010, the EU's Emissions Trading System is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.
The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.
- 19 Feb. 2013: European Parliament environment committee scheduled to vote on crucial one line amendment authorising carbon market action by the European Commission
- March 2013: Potential plenary vote in European Parliament on EU carbon trading overhaul
- April 2013: The UK Department for Business, Innovation and Skills consultation on the UK energy compensation scheme expected to issue its results.
- DG Climate: EU ETS
- DG Climate Action: ETS Legislation
- DG Enterprise: Mission Growth: Europe at the Lead of the New Industrial Revolution
- Alliance of energy intensive industries
- World Steel Association: The White Book of Steel
- EEF: UK manufacturers’ association
- Eurofer: the European Steel Association
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