Commission eyes end to free pollution credits

Details of the EU’s post-2012 greenhouse gas reduction regime are filtering through, revealing that industry could yet face a much tougher carbon trading scheme than the current one, according to internal documents currently under discussion within the Commission.

The EU Emissions Trading Scheme would be considerably toughened up after 2013, according to a leaked draft of a Directive due to be presented by the Commission on 23 January. Another draft Decision seen by EURACTIV gives an insight into how the burden for implementing the EU’s goal of cutting greenhouse gas emissions will be shared out among member states. 

Meeting the EU’s 20% greenhouse gas reduction target by 2020:
 

• Individual country targets are still missing, but the document says they will be based on emission levels in 2005 – which is the latest available verified greenhouse gas emissions data. 
• Solidarity: National targets will be set according to a country’s GDP. “Member states that currently have a relatively low per capita GDP and thus high GDP growth expectations may increase their greenhouse emissions compared to 2005 […] Member states that currently have a relatively high per capita GDP will need to reduce their greenhouse emissions compared to 2005,” states the draft. 
• Fair contribution: In order to ensure that all member states contribute to the overall target, “no country should be required to reduce its greenhouse gas emissions in 2020 to more than 20% below 2005 levels and no country should be allowed to increase its greenhouse gas emissions in 2020 to more than 20% above 2005 levels,” the text states. 
• Flexibility: Member states will continue to be entitled to meet part of their target by financing emission reduction projects in countries outside the EU, although the use of such credits will be limited to 3% of member states’ total emissions in 2005 – or, in other words, around one quarter of the total reduction effort.

Toughening up the carbon trading scheme for industrial emissions:
 

• Industrial emissions to be capped at 21% below 2005 levels, although according to another draft, this figure would be decided at a later stage by expert-panels within the Commission through the so-called comitology procedure – often criticised for its secretive and non-transparent nature. 
• Scope: The scheme will be enlarged to include new sectors, including aviation, petrochemicals, ammonia, the aluminium sector and emissions from the production of nitric, adipic and glyoxalic acids. However, road transport and shipping so far remain excluded. Agriculture and forestry will also remain outside the scope of the Directive due to the impossibility of measuring emissions from these sectors with accuracy. Industrial greenhouse gases prevented from entering the atmosphere through the use of so-called carbon capture and storage (CCS) technology are to be credited as not emitted under the EU Emissions Trading Scheme (EURACTIV 16/11/07). 
• Auctioning: While currently 90% of pollution allowances are handed out to installations for free, the draft foresees a huge increase in auctioning. “Overall, it is estimated that at least two thirds of the total quantity of allowances will be auctioned in 2013,” states the text. It adds that “full auctioning should be the rule from 2013 onwards for the power sector, refineries and carbon capture and storage”, while installations in other sectors would benefit from a gradual transition, starting with a yet-to-be-determined percentage of free allocation that would decrease by equal amounts each year, arriving at zero free allocation by 2020. While in earlier drafts, there had been talk of allowing exemptions for a number of energy-intensive sectors, allowing them to receive up to 70% free allocations until 2018, BusinessEurope told EURACTIV that the most recent draft makes no reference to this and refers again to the comitology procedure. 
• Competitiveness: A detailed impact assessment recognises the risk that European companies will be put at a competitive disadvantage compared to countries with no similar climate change objectives, causing “carbon leakage”, whereby companies move their activities to third countries in order to keep prices down. The draft cites a number of measures under consideration in order to avoid such a situation, although it appears that none will be taken immediately. Rather, the text suggests that the Commission should present a review of the situation by 2011 at the latest, identifying energy-intensive industrial sectors that are likely to relocate outside the EU. “Energy-intensive industries which are determined to be exposed to significant risk of carbon leakage could benefit from a higher amount of free allocation or from a carbon equalisation system,” states the document, adding that any carbon equalisation system would “seek to put EU and non-EU producers on a comparable footing”. This would be done by “applying to importers of goods requirements similar to those applicable to installations within the EU, by requiring the surrender of allowances […] Also a refund of allowances to exporters could be thought of.” 

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