EU plans ditching carbon cost refund for seven industrial sectors

There are 14 sectors currently covered by the state aid guidelines. Mining of iron ores is no longer included in the proposed update. [Shutterstock]

The European Commission has proposed removing mining activities and fertiliser manufacturing from a list of heavy industries eligible for state aid, arguing EU climate policies no longer put them at risk of relocating production outside Europe.

While attention on Tuesday (14 January) focused on the EU’s proposed €1 trillion financial plan to mobilise green investments over the coming decade, many industry lobbyists were looking elsewhere.

In a proposed tweak to EU state aid rules, the Commission suggested reducing the number of industries eligible to receive compensation for the costs incurred from their inclusion in the EU’s carbon market, the Emissions Trading Scheme (EU ETS).

This includes compensation for the direct costs of buying allowances on the EU carbon market and the indirect costs of buying electricity “since electricity producers pass on the carbon price” to industrial consumers, the Commission explained.

The draft revised ETS state aid guidelines aim to “shorten the number of sectors eligible for compensation from 14 to 8” in order to focus on those which are most at risk of relocating, the Commission said in a statement.

Brussels also seeks to lower the compensation rate from 85% to 75%, “exclude compensation for non-efficient technologies” and make reparations “conditional upon decarbonisation efforts by the companies concerned”.

The draft is still subject to change and interested parties have until 10 March to provide comments.

Heavy industries renew calls for ‘carbon leakage’ protection

Raising the EU’s emission targets for 2030 would threaten industrial competitiveness if they are not accompanied by supporting measures, according to the chemical industry and other energy-intensive sectors, which stepped up their campaign for protective measures in Brussels on Tuesday (9 September).

Seven industries no longer covered, including mining

There are 14 sectors currently covered by the state aid guidelines, including aluminium, iron, and steel manufacturing, which have all complained about low-cost Chinese products dumped on European markets. Those sectors are considered strategic and were therefore kept in the revised EU list.

But others, such as mining of iron ores and mining of chemical and fertiliser minerals, no longer appear in the updated list. According to information compiled by EURACTIV, and confirmed by EU sources, the sectors that will no longer be eligible are:

  • Mining of iron ores
  • Manufacture of man-made fibres
  • Copper production
  • Preparation and spinning of textile fibres
  • Manufacture of other organic basic chemicals
  • Manufacture of fertilisers and nitrogen compounds
  • Mining of chemical and fertilizer minerals

The European mining industry reacted with dismay to the announcement.

“This will increase the risk of relocation, of course,” said Corina Hebestreit, secretary-general of Euromines, a trade association.

“The EU’s climate policy is counter-productive in this case,” she told EURACTIV, saying a level playing field across the globe doesn’t exist at the moment in the mining industry.

“We have and continue to invest heavily in electrification to reduce our carbon footprint. So this increases the discrepancy between the European mining industry and the rest of the world,” Hebestreit warned.

“At the very least, new investments will flow out of Europe if the cost structure of our industries is higher than in the rest of the world.”

Euromines have asked to add graphite to the sectors eligible for state aid, arguing it has been identified as a strategic “critical raw material” for Europe’s batteries and e-mobility industry which is currently dominated by China. “We will also discuss this with the Commission,” Hebestreit said.

Europe looks home for new mining opportunities

As EU policymakers worry about global tensions threatening raw material imports, one option could be getting more from their own backyard.

Environmentalists applaud

In a statement, the European Commission defended the new state aid guidelines, saying they are “an important element of the European Green Deal,” which aims to cut global warming emissions.

The draft guidelines “fully reflect the objectives of the Green Deal and focus state support to sectors most at risk of carbon leakage,” said Margrethe Vestager, Commission vice-president in charge of competition policy.

Environmental activists, for their part, were thrilled. “This is definitely a positive development,” said Johanna Lehne, a policy analyst at E3G, a climate think tank.

Lehne especially hailed the Commission’s intention to make compensation conditional upon decarbonisation efforts. “These sectors have benefited from a huge amount of untargeted protection over the years, without sufficient evidence that they were really at risk” of relocating factories, Lehne told EURACTIV.

“The focus has been on protecting heavy industry from international competition rather than on creating incentives for industry to transform and deeply decarbonise. I’m hopeful that this revision is a sign that the Commission is starting to take a different stance on this issue,” she said.

Lehne admitted that minerals are needed for green technologies like car batteries, wind turbines and solar panels. But only half of EU member states have chosen to compensate their industries from the ETS, she pointed out, suggesting state aid intervention was mostly unnecessary.

ETS reform: EU tightens screw on 'carbon leakage' handouts for polluting industries

Energy intensive industries will continue to receive free carbon emissions allowances, as compensation for the EU’s stricter climate rules, under planned reforms to the EU’s Emissions Trading System (ETS), but fewer will be granted.

Fertiliser industry disappointed

Conversely, disappointment prevailed In the fertiliser industry.

“For us, there is no doubt: we are at very high risk of carbon leakage,” said Antoine Hoxha from Fertilizers Europe, a trade association.

The fertiliser industry mainly uses gas as a feedstock and has a low average level of electrification, which is probably why the Commission decided to withdraw it the list, Hoxha suggested.

But he said this ignores the fact that some manufacturers have electrified their production, which is the main way to decarbonise. “If you cut compensation to those which are electrified, you put them at a disadvantage in comparison to those using gas, which is a fossil fuel,” Hoxha said.

“The Commission itself says we have to electrify more. And here, Europe would be punishing those who are leading the way,” he added, saying the new rules will “discourage electrification”.

[Edited by Zoran Radosavljevic]

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