The European Commission reduced on Monday (21 September) the number of industrial sectors eligible for compensation against higher electricity costs caused by the EU carbon market, the Emissions Trading Scheme.
Only 10 sectors will be eligible for compensation under the revised scheme, down from 14 under the previous ETS state aid guidelines, the Commission announced in a statement.
These include sectors such as aluminium, paper, and copper as well as iron and steel, some polyethylenes used in the production of plastics, and glass fibre – all of which face higher electricity costs than foreign competitors due to their inclusion in the ETS.
Many of these sectors have complained about low-cost Chinese products dumped on European markets and were kept in the revised EU list because they are considered strategic.
Hydrogen makes its first appearance on the list, reproduced below.
Relief for copper, metals and mining industries
The ETS state aid guidelines “aim at reducing the risk of ‘carbon leakage’,” whereby companies relocate factories outside Europe where carbon costs are lower.
To prevent this, the EU executive allows national governments to compensate businesses “since electricity producers pass on the carbon price” to industrial consumers, the Commission explained.
In the updated guidelines, Brussels confirmed its decision to lower the compensation ceiling from 85% to 75% of eligible costs and “exclude compensation for non-efficient technologies” in order to keep the pressure on companies to lower their electricity consumption.
Handouts will also have to be “conditional upon decarbonisation efforts by the companies concerned,” including compliance with the recommendations made under an energy efficiency audit which is compulsory for the largest firms, the Commission said.
The publication of the final list of sectors eligible for compensation will come as a relief for industries such as copper and iron ore mining, which were not included in a draft version of the list, published in January.
Among them are producers of non-ferrous metals, which spend spend around 40% of their overall production costs on electricity. “We hope today’s ETS State Aid Guidelines are the first in a package of measures towards achieving a global level playing field for industrial electricity costs and confirming electrification as a viable climate-neutrality pathway for us and other sectors,” said Guy Thiran, secretary general of Eurometaux.
Others like the fertiliser industry said they were “baffled” by the Commission’s decision to remove them from the list, saying companies that have partly electrified will be put at a competitive disadvantage as a result.
“Such decision is in contradiction with the Commission’s overarching objective of incentivising European industries to invest in low-carbon technologies, including electrification,” said Jacob Hansen, director general of Fertilisers Europe, a trade association.
Carbon leakage ‘remains a threat’
Despite a general tightening, rules are also being loosened in other places.
For instance, handouts will no longer be degressive but stable over time. And even though the number of eligible sectors is reduced, the overall amount disbursed is likely to increase over the years because of the rising price of CO2 on the EU carbon market, EURACTIV understands.
The revised guidelines will enter into force on 1 January 2021 and will replace the previous one which were last updated in 2012. A further update will be necessary once the EU revises the ETS in the coming years.
Although EU officials acknowledge that carbon leakage has not really happened to date, they are still worried that a tighter carbon market risks pushing companies and jobs outside of Europe.
“Carbon leakage hasn’t happened by and large” but “only at the margins,” said a senior EU official who briefed reporters ahead of an EU-China summit last week. However, it doesn’t mean it will not happen in the future, he added, saying carbon leakage “remains a threat” in the context of the EU’s tightening climate policies.
“As we strengthen our carbon market, inevitably, the number of allowances will be reduced,” the official said. “And we will have a hard look at this” during talks to reform the ETS, which are due to start next year when the Commission tables a proposal by June 2021.
The ETS reform will also have to consider a potential carbon border tax which the European Commission has promised to put in place to protect industries at highest risk of carbon leakage.
And officials have already made clear that EU industries protected by the upcoming border tax will no longer be eligible for free ETS allowances and other perks to compensate for higher carbon costs.
Meanwhile, disappointment was palpable in industries like the ceramic sector, which was left out from the final list.
Ceramie-Unie, a trade association, said ceramics failed to make the list because of criteria linking “carbon leakage” exposure to carbon costs, profits and labour costs.
“The result of such methodology is that a sector highly exposed to international trade, that has little profits (compared to carbon costs) but with high labour costs, will be considered as having a wider margin to absorb additional carbon costs,” Ceramie-Unie said in a statement.
This “has the perverse effect of penalising industries which are more labour intensive, typically SME sectors,” it added. In other words, the Commission “considers such a sector should not be eligible because it can compensate these costs by cutting down on jobs,” it said.
[Edited by Zoran Radosavljevic]