INSIGHT: Chemical makers need climate decision

09 July 2008 16:48  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The pressure built in Strasbourg this week as parliamentarians discussed Europe's latest climate control proposals.

The chemical industry feels threatened, and rightly so. Proposed changes to the EU’s Emissions Trading Scheme (ETS) would hit it hard.

The way in which carbon credits are allocated in the scheme is vitally important and if Europe gets it wrong it risks terminal damage to much of its heavy, energy consuming industry.

Yet talk at the European Parliament represented just the start of what will prove to be a global process. The world is moving, in fits and starts certainly, but moving nevertheless, to tackle climate change. The burden on chemical processing firms will be immense.

For players in Europe, the carbon control issue, in all its manifestations, is likely to be a burden that puts Reach, the EU’s registration, evaluation and authorisation scheme for chemicals, in the shade.

Not only are companies expected now to be carbon aware, they are also expected to be forward looking enough to be tackling the next stages of carbon capture and control. Having achieved a great deal, even more is being demanded of them.

The industry in Europe has cut greenhouse gas emissions and energy use per tonne of product significantly. It says it alone has achieved nearly one third of the EU’s commitment under the Kyoto Protocol to reduce greenhouse gas emissions between 1990 and 2012.

But what has been done, clearly, is not enough. To expand in Europe, even at high levels of energy and greenhouse gas emission efficiency, will still require the acquisition of carbon credits under the EU’s flagship ETS. The industry has had its misgivings about the designs of the scheme from the start.

Those misgivings, however, could turn rapidly into a nightmare if the sector does not win its current battle on ETS phase III.

Industry needs the polluter to pay if it is to improve but it cannot be expected to bear an even greater burden under a cap and trade system which encourages industrial development outside the region to which it applies.

Chemical firms this week have lobbied the EU on the emissions trading threat. They appear to have been lent a sympathetic ear but, unfortunately, little else.

Politicians are not wont to commit to sectoral exemptions from the decision to stop the allocation of free carbon credits after 2012. The European Commission indicated when it released its latest set of climate control proposals that most sectors would have to wait before a decision on whether exemptions might apply could be taken.

The French government, which currently holds the presidency of the EU, seems keen to broker a deal on how different businesses might be treated under the developing EU ETS.

The European Commission’s assessment of different sectors, however, could take until 2011, just a year before the third phase of the ETS is due to start come into effect. Companies cannot plan and are clearly discouraged from investing in Europe so long as such uncertainty exists.

For large parts of the chemicals industry in Europe, no decision on the way in which carbon credits will be allocated under phase III are almost as bad as a decision that goes against them.

The sector in Europe has detailed eight major production processes where benchmarking could provide a fairer allocation process. The industry in Japan has followed suit.

Producers in the US have yet to agree on their approach to the benchmarking idea but are seen to be waiting until after the November presidential election before making a commitment to the process.

The Europeans say that their ideas on benchmarking (the eight processes cover something like 90% of greenhouse gas emissions) will be available for lawmakers at the end of the year.

Making progress on benchmarking is vitally important for the sector globally as more attention is paid nationally to climate change.

The chemical industry is exposed in this global debate as never before. The issue extends across plants, processes, markets, technologies, and trade.

If producers are not to be saddled with potentially crippling burdens - effectively production taxes that affect global markets - there are many climate control battles to be won.

To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
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