‘Fit for 55’ climate policies must be ambitious without undermining industry’s ability to invest in decarbonisation

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Anna-Maria Karjalainen is the Director for Clean Energy Transition at the European Copper Institute

The report of the Intergovernmental Panel on Climate Change (IPCC) last month evidenced just how devastating the impacts of climate change will be on humanity and nature unless urgent action is taken, with nearly half of the world’s population already vulnerable to its effects. In the grave words of Hans-Otto Portner, co-Chair of the group putting the report together, “There is a brief and rapidly closing window to secure a liveable future on the planet”.

As the EU institutions discuss the legislative package that seeks to make key EU policies fit for a 55 percent reduction of GHG emissions by 2030, there is a broad consensus across political groups and member states on the common objective of making Europe carbon neutral by 2050. However, when the discussion turns to the design of key policies, the suggested solutions are sometimes so far apart that the common objective appears to get lost in translation.

Decarbonisation of energy-intensive industry – getting the framework right

This is the case of industrial decarbonisation. Most people recognize that industry must fully decarbonise by 2050, but views on how to get there differ wildly, in particular as regards the level of support to industry efforts and the speed of change. Striking the right balance in these discussions will be of vital importance for Europe’s energy-intensive industry and its ability to invest in decarbonisation.

Getting it right is even more important for sectors needed to enable decarbonisation, such as copper and other metals. Copper is needed to produce renewable energy, electric vehicles and batteries and to expand the electricity grid and decarbonise buildings. The demand for copper and other metals is, therefore, expected to increase as the drive toward Net Zero accelerates.

As the need for metals increases, so does the need to ensure production processes are sustainable. In the case of copper, half of EU production is obtained through recycling today and the share of recycled copper is expected to rise in the coming years, but mining will still be needed as a consequence of rising demand and of the long life cycle of copper – around 25 years on average. Copper also contributes to resource efficiency through by-products that include other metals needed for the energy transition. The carbon footprint of copper production is relatively small, around 4 tons of CO2 for every ton of copper, but significant investments are nevertheless needed to decarbonise those processes.

The need for affordable clean electricity to unleash decarbonisation

Access to affordable clean electricity is a key requirement for decarbonising copper production. This is a significant challenge in the current context of sky rocketing electricity prices across the EU. Last week, the European Commission put forward its plan to ‘re-power’ the EU by reducing dependence on Russian fossil fuels. The Commission also acknowledged the impact of the unprecedented energy prices on energy-intensive industry and mooted the creation of a temporary crisis framework to offer compensation for a part of the increase in energy costs due to the conflict in Ukraine.

This can bring much needed relief to nonferrous metals producers in Europe, but investor certainty is needed in the longer term. In this respect it is crucial that the current EU framework that allows countries to compensate energy-intensive industries for the higher electricity bills they pay because of carbon costs that are passed on by utilities, is kept in place until 2030.

The case for a global level playing field in carbon pricing

Another crucial piece of the puzzle when it comes to the decarbonisation of energy-intensive industry in the EU is the revision of the EU Emission Trading System and the design of the new Carbon Border Adjustment Mechanism.

It is clear that these policies must be aligned with the objective of climate neutrality by 2050. However, the EU cannot reach Net Zero in isolation. Understanding this is fundamental for designing these frameworks in such a way that will deliver real net GHG emission reductions at global level. Carbon pricing can be an effective tool to encourage industry to cut emissions, but unfortunately robust carbon pricing mechanisms are yet to emerge outside Europe.

For copper and other nonferrous metals, this means if they had to cover the full carbon costs of their production under the EU ETS today, they would not be able to compete in global markets because they would bear significantly higher carbon costs than producers anywhere else in the world.

. As the EU’s climate ambitions increase, free allocation is more important than ever to ensure that the decarbonisation efforts of businesses, individuals and governments are not undermined by increasing emissions elsewhere. In this respect it must also be ensured that the Carbon Border Adjustment Mechanism, which is set to replace free allocation of emission allowances, delivers the same level of protection for all the sectors included before free allocation under the ETS is phased out.

‘Fit-for 55’ climate policies must leave room for a decarbonised metals industry in the EU

Decarbonising copper production processes in the EU by 2050 will require significant investments during this decade in the development of innovative production processes and the deployment of solutions to reduce carbon emissions and increase efficiency. In the absence of a global level playing field, while electricity and carbon prices soar, free allocation of carbon allowances and compensation for indirect carbon costs are important to maintain European copper producers’ ability to invest in decarbonisation.

As the EU Environment Ministers meet to discuss the revision of the EU ETS this week, they should look for a framework that puts Europe on track for carbon neutrality by 2050 and does what is needed to stop the IPCC predictions from coming true. However, they must do this in a way that leaves room for a competitive, increasingly decarbonised metals industry in Europe in 2030 to provide the raw materials needed to reach Net Zero.

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