EU to spare some industries from full carbon trading obligations

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The European Commission has drawn up a list of 14 industrial sectors that will be eligible for special state aid to compensate for the increased cost of electricity due to the European Emission Trading System (ETS), according to a draft paper seen by EURACTIV.

“Our final decision will come in the coming two weeks,” EU Competition Commissioner Joaquín Almunia told a news conference in Brussels on 11 May.

“We have to finalise our decision on the sectors to be included in the list of those which will be compensated for the increase of electricity prices due to the new system of allowances,” he added.

A preliminary list shows that the industries affected include: Aluminium production; mining of chemicals and fertiliser minerals; manufacture of inorganic chemicals; lead, zinc and tin production; leather cloths; iron and steel manufacture; paper; manufacture of fertilisers; copper; organic-based chemicals; spinning of cotton-type fibres; man-made fibres; mining of iron ores; and plastics, including polycarbonate, the omnipresent polypropylene and polyvinyl chloride, among others.

This list is subject to last-minute changes. The Commission also explained that it will regularly monitor the sectors which are deemed eligible for special state aid support in order to add or delete a specific sector.

Brussels’ move is in full accord with EU rules. Indeed, the ETS directive foresees that “member states may adopt financial measures in favour of sectors or sub-sectors determined to be exposed to a significant risk of carbon leakage due to costs relating to greenhouse gas emissions passed on in electricity prices, in order to compensate for those costs.”

Companies operating within the listed sectors will be eligible to extraordinary support, calculated according to a complex formula which takes into account production levels, electricity consumption and CO2 emissions of specific installations.

Details of how state aid can be delivered are outlined in the draft guidelines that the Commission plans to publish in the coming days and which will be applicable starting January 2013, when the next phase of the ETS enters into force.

The draft guidelines specify that “the aid intensity must not exceed 85% of the eligible costs in 2013, 2014 and 2015, 80% of the eligible costs in 2016, 2017 and 2018 and 75% of the eligible costs in 2019 and 2020.”

This special state aid regime will remain in place until 2020 when the ETS is also due to expire under the existing plan.

The guidelines also sets specific expectations from normal state aid rules for investment in highly efficient power plants, for the modernisation of electricity generators and for small installations and hospitals.

 

If confirmed, the European Commission new State aid guidelines will fail to reach the objective of Directive 2009/29/EC, according to the European Aluminium Association. Due to its global pricing system and high energy intensity, aluminium production is the most exposed sector for carbon leakage and need full CO2compensation.

"Under any circumstances the European Commission must encourage member states to employ alternate means to secure competitiveness and prevent carbon leakage. Specifically it is necessary that remaining obstacles for the negotiation of long-term power contracts are removed, as anywhere else in the world," the organisation said in a statement.

"Without the support of these enabling policies carbon leakage will continue, resulting in further closures and smelting capacity reduction, and generating an increasing dependency on metals supply from outside Europe."

 

To minimise the economic costs of its commitments to combat climate change under the Kyoto Protocol, EU countries have agreed to set up an internal market enabling companies to trade carbon dioxide pollution permits. 

Under the EU Emissions Trading Systeam (ETS), some 10,000 energy-intensive plants across the EU are able to buy and sell permits to emit carbon dioxide, representing around 40% of the EU's total CO2 emissions. Industries covered by the scheme include: power generation, iron and steel, glass, cement, pottery and bricks.

An emission cap is defined, for each individual plant, via a National Allocation Plan (NAP) submitted by member states and approved by the Commission. Companies that exceed their quotas are allowed to buy unused credits from those that are better at cutting their emissions.

Originally, a fine of €40 per excess tonne of CO2 emitted was imposed on plants exceeding their individual target, which rose to €100 in 2008. For comparison, carbon prices fluctuated between €8 and €30 a tonne in 2005-06 (one tonne = one allowance).

By offering a much cheaper alternative to fines, the Commission hopes that the ETS will stimulate innovation and create incentives for companies to reduce their carbon emissions.

  • 1 Jan 2013: Entry into force of ETS Directive and specific state aid measures for sectors hit by new rules
  • 2017: Possible review of ETS state aid guidelines
  • 31 Dec. 2020: Deadline for application of state aid guidelines on ETS

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