The idea behind the proposal, originally tabled by former French President Jacques Chirac and recently brought back into discussion by French President Nicolas Sarkozy, is to protect European industries that face heavy compliance costs under the EU Emissions Trading Scheme (EU ETS).
In light of tighter CO2 caps for the 2008-2012 trading period of the EU ETS, companies in the refining sector in particular have complained that the scheme places them under too much strain, and have floated the option of 'delocalisation' – involving moving their operations outside EU territory – in order to reduce costs in the face of competition from companies that are not required to offset CO2 emissions.
US companies, for example, may be at a competitive advantage to European companies since the US did not ratify the Kyoto Protocol and has no binding emissions trading system.
One idea that has been discussed within the Commission would be to require importers to purchase emission allowances under EU ETS before their products can enter the EU market, according to a French diplomat.
But a Commission official said last week that the scheme is "unlikely" to be successful because of concerns over legal challenges at World Trade Organisation (WTO) level, as well as the complexities involved in calculating the price an importer would need to pay, according to the Financial Times.
Experts close to the discussions also suggest the idea, discussed informally by EU ministers during a 22-23 November Competitiveness Council, may not get the approval of a majority of EU member states, even if WTO compliance can be assured. EU businesses fear that other countries might introduce retaliatory measures on their exports, while importing companies with environmentally-friendly production methods could be eligible to receive EU ETS credits, making their imports cheaper, the WWF's Stephan Singer told the FT.
Comments made by EU Enterprise Commissioner Günter Verheugen in a 19 November speech to the Parliament's Temporary Committee on Climate Change point to the EU's preference for voluntary sectoral agreements to cut emissions.
Verheugen is expected to further endorse the idea in a speech on 27 November that will also set out the EU's official negotiating mandate during the 3-14 December UN Climate Change Conference (COP 13) in Bali.