Experts from the 27-member bloc agreed on a list of industries ranging from plastics manufacturing to iron and food processing that will be largely exempted from CO2 trading after 2013 for fears that their inclusion would move production abroad.
National experts agreed on a list of 164 sectors deemed to be at risk of relocating their activities to foreign countries that have not adopted greenhouse gas emission restrictions similar to the EU’s. The threat is dubbed “carbon leakage” because industries and their related polluting emissions would simply move abroad without any benefit for the environment.
The list, covering the most carbon-intensive industries such as steel, cement and chemicals, represents 77% of the total manufacturing emissions under the EU’s emissions trading scheme (EU ETS). These will continue to get a higher share of their emission allowances (EUAs) for free after the EU ETS has been revamped in 2013, after which date the power sector in the EU-15 will be obliged to pay for all its permits.
The Commission’s calculations are based on two criteria: the intensity of trade with third countries and the increase in production costs as a result of complying with the directive. This approach qualified a range of industries for permit exemptions, ranging from plastics and iron to food processing and weapons manufacturing.
Observers say member states have been pushing heavily to protect industries vital to their national economies, with environmentalists in particular attacking the Commission for tailoring the criteria to suit the interests of national capitals (EURACTIV 26/05/09).
A decision to postpone a final decision over brick and roof tile manufacturing until member states have submitted more data was seen as further evidence that the Commission’s assessment of vulnerable industries has little to do with genuine threats to competitiveness. These are local industries and are thus unlikely to face competition from outside of Europe, experts said.
The list will apply for five years until 2014, but the EU executive says new sectors could be added in the meantime. It hopes to see it adopted in December, provided that the European Parliament and the 27 governments agree to it over a three-month scrutiny period.
Global deal to even out trade disadvantage
The EU is eyeing an international climate agreement as a way of ensuring that other industrialised countries put in place similar emissions reduction targets, relieving the pressure on its industry.
“The risk of carbon leakage could be lessened by the international climate change agreement due to be concluded at the Copenhagen UN climate conference in December,” the Commission said in a statement. It announced that it would review the list after Copenhagen to see if it was necessary to propose revisions.
But some member states have already taken the stance that the precautionary measures to tackle carbon leakage are too weak. France and Germany have therefore taken the initiative to push for carbon border tariffs that would allow the EU to levy a tax on imports that come from areas without a price on CO2 (EURACTIV 18/09/09).
Moreover, the carbon leakage discussion is far from over, as the actual number of free allowances that each installation gets will not be decided until 2011. These will be determined on the basis of “performance benchmarks”, meaning that only the 10% most efficient installations will receive all their allowances for free.
The Commission hopes that the benchmarks will give manufacturers additional incentives to cut emissions. On the other hand, environmentalists have voiced concerns that the process of setting these will give industries another chance to dilute the environmental impact of the ETS by bargaining for as flat a benchmark as possible, allowing them to collect the maximum free allocation.