EU tables free carbon permit proposal for heavy industries

Oil refinery at night. [claffra/Shutterstock]

Most of Europe’s heavy industries should keep receiving free carbon permits to help them compete in global markets, the European Commission said in new proposals tabled on Monday (5 May).

The Commission, the EU’s executive, proposed that 175 industry sectors out of the 245 in total that it assessed should be entitled to get most of their allowances for free over 2015-2019 to help meet obligations under the EU’s Emissions Trading System (ETS).

The ETS is the bloc’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.

The so-called carbon leakage list proposal included major emitters such as steel plants and cement producers as well as dozens of smaller lighter industries including makers of toilets and frozen potato chips.

The proposal must be agreed by a majority of EU member states to become law and is expected to be voted on by July.

Expected leeway

The long list had been widely expected because in January the Commission said it would not change the criteria from the one used to work out the 2008-2013 sectors.

Companies on the list are meant to get enough permits for the cleanest plants in each sector to meet the annual obligation without buying more.

Those not on the list will get an ever decreasing free allocation, down from 80% of what the cleanest plants would need each year to 30% in 2020.

A Commission spokesman said manufacturers of veneer wood panels and sawmill operators had fallen off the list while certain manufacturers of cars, dietary foods, stone products, and non-electric domestic appliances had been added to it.

The rules were created to guard against the relocation of EU industries to those regions with less stringent emission limits amid fierce lobbying from industries fearful of meeting the cost.

Carbon traders had been awaiting the decision as uncertainty over the rules had left industrial companies cautious about selling any surplus permits built up in previous years.

Campaigners ignored

A drastic fall in carbon prices to €5 a tonne from above €30 in 2008 had led environmental campaigners to call for a substantial cut in the free allocations to encourage firms to invest in carbon-cutting technology.

The Commission admits the current low price is ineffective but said its proposals to extend the bloc’s overall emission reduction target to 2030 and set aside surplus permits would have an effect.

“It is expected that the carbon price will in the future be more strongly driven by mid- and long-term emission reductions. It is therefore considered justified to continue using an assumed carbon price of €30 for the assessments underlying this decision,” the Commission proposal said.

EU nations are among a handful that have agreed to legally-binding emission targets under the U.N.’s Kyoto Protocol though all nations have pledged to curb emissions from 2020 under a new pact.

With a turnover that reached around €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.

The EU allows energy intensive industries such as BASF and Arcelor Mittal to receive the vast majority of their carbon permits under the ETS for free.

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

  • 16 June 2014: First Stakeholder meeting on carbon leakage rules
  • July 2014: Second stakeholder meeting on carbon leakage rules
  • Sept. 2014: Third stakeholder meeting on carbon leakage rules
  • 23 Sept. 2014: UN Climate Summit in New York
  • 1-12 Dec. 2014: UNFCCC conference in Lima, Peru
  • Oct. 22 2014: EU Council to decide on 2030 climate and energy goals
  • Dec. 2015: Key UNFCCC conference in Paris
  • 2020: Deadline for EU to meet its 2020 package of climate and energy goals


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