INSIGHT: EC will hit industry with further CO2 costs

22 January 2008 16:54  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--Energy-intensive industries will be the losers whatever package the European Commission (EC) proposes on Wednesday to control carbon emissions.

Much of the pressure to meet the EU’s tough carbon control targets will fall on heavy industries such as aluminium, steel and chemicals as well as the big power producers.

These carbon ‘polluters’ will have to pay to trade or curb emissions. Crucially, they cannot expect to receive free carbon allocations under Europe’s Emissions Trading Scheme (ETS).

EC president, Jose Manuel Barroso, suggested in London on Monday night that companies will have to pay for at least some of their tradable carbon.

Under the initial and, current, second phase of the ETS, carbon permits have been allocated by the EC and member state governments.

Chemical producers and other energy-intensive industrial sectors have been forthright in their opposition to additional carbon costs.

They want to see a carbon control scheme based more firmly on what companies actually do to curb carbon dioxide emissions rather than a free-for-all in which carbon allocations hand out windfall profits to some.

European industry will find it difficult enough to operate in a more restrictive carbon control environment. It can do without being saddled with unknown upfront costs.

Enterprise commissioner Gunter Verheugen has fought his corner in the debate within the EC over its carbon control proposals but appears to have been sidelined.

Verheugen has stressed that the EU has an ambitious approach to climate control but one that is realistic. Heavy industry believes that not only it competitiveness but its very existence is under threat.

The EC proposals will have a rocky ride through the political process involving the European parliament and the EU’s member states.

There has been clear opposition from Berlin and Madrid to an even more restrictive carbon control mechanism. Other countries appear to see more opportunities in the drive to reduce carbon dioxide emissions through a raft of measures.

An alliance of energy-intensive users in Europe reiterated the argument for a “benchmark” based allocation of carbon dioxide emission allowances in a letter to the EC president on 11 January.

“We have urged to deploy the benefits of fully developed global sectoral agreements and to effectively mitigate the impact of CO2 cost pass-through on EU electricity prices without further delay for industries competing internationally,” they said.

“We are very concerned that, despite previous acknowledgement of these fundamental requirements, the commission does not take upfront a firm stand on free allocation to globally competing industries.”

But Barroso also suggested in his London talk, at investment bank Lehman Brothers, that Europe might drag importers into its carbon control scheme, requiring them to buy carbon allowances to offset their own lack of emissions control.

The US particularly sees such a move as restrictive to free trade. Further unilateral action from Europe as it attempts to curb greenhouse gas emissions will bring its industries head to head with producers operating in less restrictive and heavier polluting markets like China and India.

Industry’s lament is that the EC may not be prepared to take upfront a firm stand on free allocation to globally competing industries. It is also concerned that a decision may be delayed until 2011 when further technical analysis s will be available.

“Such indifference and delay,” the energy-intensive users alliance says, “will send the wrong signals to industry and society of unpredictability and piecemeal legislation”.

By: Nigel Davis
+44 20 8652 3214

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