Debate heats up over Europe’s ‘carbon competitiveness’

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While delegates from over 190 nations meet in Bali to set a negotiating framework for a post-2012 global regime to reduce CO2 emissions, Europe’s energy intensive industries have expressed concerns about how they will fare in a new world order with a potentially high carbon price tag. 

Tightening the carbon belt

A November report by the think tank Bruegel argues that even if other nations level the playing field by applying a carbon trading mechanism similar to the EU ETS, Europe’s global competitiveness would likely suffer in a ‘carbon competitive’ world since the carbon-intensity of EU exports is higher than those of China, the US and other exporters.

The Commission appears to be aware of the concerns of Europe’s industry, which has stepped up warnings that a tough carbon market might force some industries to re-locate their activities outside EU borders.

“It would be neither good environmental policy nor economically viable if energy-intensive industries were to leave Europe and emit emissions, perhaps even higher ones, outside Europe,” Commission President José Manuel Barroso told EURACTIV in a recent interview.

“We are currently studying different options to address these issues, such as continued free allocation of allowances [under EU ETS], preferably on the basis of technological energy-efficiency benchmarks, international sectoral agreements and including importers of energy-intensive products – and excluding exporters – in the EU emissions trading scheme”, he added.  

Towards a two-track carbon market?

Creating international sectoral agreements, as mentioned by Barroso, would allow energy intensive industries to operate under a separate carbon regime based on emissions reduction targets agreed by the industries, effectively sheltering the sector from a severe increase in operating costs related to clean technology upgrades or the purchasing of emissions credits from projects in developing countries. 

The idea has been backed by EU Industry Commissioner Günter Verheugen and the EU’s High Level Group (HLG) on Competitiveness, Energy and Environment (see positions section).

Within the EU itself, a parallel system may be taking shape, according to the WWF. The Commission is currently considering whether to add a ’28th state’ to EU ETS, whereby a certain percentage of the overall emissions credits would be allocated to energy intensive industries, while the remaining credits would be spread among other industries.  

In its final report (8 November), the EU's High Level Group (HLG) on Competitiveness, Energy and Environment argued in favour of sectoral approaches, saying these would prevent a disruption of clean technology improvements in developing countries. The HLG favours a 'bottom up' approach, whereby the sectoral targets would be "initiated by business together with public authorities", the report says. 

In the run-up to Bali, a group of 150 major UK and EU companies, as well as the Prince of Wales, issued a statement calling for a "sufficiently ambitious, international and comprehensive legally-binding United Nations agreement to reduce greenhouse gas emissions will provide business with the certainty it needs to scale up global investment in low-carbon technologies".  

The World Business Council for Sustainable Development (WBCSD) recently put forward a paper outlining possible linkages between a global CO2 regime and sectoral agreements, arguing that a global carbon market could be built "progressively from local, national, sector or regional programs, each contributing to the long-term goal".

Lester R. Brown of the Earth Policy Institute in Washington, DC argues that "building a new economy, one that can sustain economic progress, involves phasing out old industries, restructuring existing ones, and creating new ones. This new economy will be powered by renewable sources of energy, will have a more diverse transport system - relying more on rail, buses, and bicycles, and less on cars - and will recycle everything".

But a transition to this kind of low-carbon economy as outlined by Brown raises eyebrows not only among industry and employer's groups.  

ETUC, the European Trade Union Confederation, supports urgent measures to mitigate climate change, but is concerned that the employment aspect "has been grossly underestimated so far in international climate change negotiations", the group said in a 30 November press statement. 

According to Joël Decaillon, ETUC's Confederal Secretary, a global climate change deal should include "policies aimed explicitly at developing the jobs and training that correspond to the new low-carbon goods and services and managing the restructuring operations that could be triggered by a rapid transition to a low-carbon economy", he said. 

ETUC is also calling for the establishment of a special fund, "managed and financed in large measure by the public powers", in order to address any adverse effects of climate change policies on employment levels.

The environmental group WWF is in favour of a strengthened EU ETS with full auctioning rather than separate allocations of credits for energy intensive industries. WWF also supports the idea of mandatory CO2 caps for individual power stations, an idea the group says is currently being put forward in California.

The EU is expected to play a crucial role during the Bali talks, as its CO2 trading mechanism - the EU Emissions Trading Scheme (EU ETS) - is seen as a key building block in the construction of any future international emissions trading system.

EU leaders have also put forward an ambitious wish list for the Bali talks, and in March EU leaders committed to 30% reduced CO2 emission reductions by 2020 under the condition that a global post-Kyoto deal, featuring a US commitment to binding CO2 cuts, is agreed. 

But despite the EU's stated ambitions at Bali, within the EU there are doubts as to whether the bloc is technologically and financially able, and willing, to live up to EU's international 'green' reputation.

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