INSIGHT: Losing ground on CO2 benchmarking

08 October 2008 16:47  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS news)--The chemical industry has just lost ground in its attempts to have a globally-harmonised pollution performance process recognised as a concept for distributing carbon trading rights.

Sector players in Europe are once again put on the back foot and face continued uncertainty. Not knowing what burdens might be placed upon them by the EU’s Emissions Trading Scheme (ETS) makes investment decisions difficult to say the least.

The cost to the sector of a re-vamped ETS as proposed now could be as high as €5bn ($7bn), according to industry estimates.

And as the EU grapples with tighter carbon control, the chemicals sector still looks as it will lose out alongside other energy intensive industries.

A meeting of the European parliament’s Environment Committee on Tuesday could have helped alleviate concerns over the development of a potentially damaging situation.

But Environment Committee politicians could not be persuaded to accept proposals to recommend the adoption of an industry-wide benchmarking scheme.

Chemicals producers and manufacturers in other energy intensive sectors gained little as the committee voted to stick with earlier recommendations and not to look in any great detail at benchmarking until after the international climate change meeting  in Copenhagen at the end of 2009.

The delay in getting to grips with benchmarking and by doing so the failure to offer energy intensive industries such as chemicals any clarity in the development of the ETS will cause great harm.

Chemicals makers need more certainty if they are to continue to invest in Europe. BASF noted on Tuesday, before the result of the Environment Committee vote was known, that it was having to work based on a “worst case” scenario.

The EU’s drive towards a low carbon economy has created a dilemma and worked the sector into a corner.

EU politicians on the Environment Committee have recognised the concept of benchmarking but a decision not to accept industry-friendly amendments to the latest proposals is a blow.

“The European chemical industry shares the concerns raised by the Environment Committee, director general of Europe’s chemicals trade federation, Cefic, Alain Perroy, said on Wednesday.

“We all want to tackle climate change and to drive the shift to a low carbon economy; we all want to reduce CO2 emissions. But obviously, this vote falls short of equipping us with the appropriate tools”.

“It is now in the hands of the Council [representatives of the EU’s 27 member states] give the legislation a clear shape that safeguards the goal of reducing emissions by 20% in 2020 whilst securing the EU’s competitiveness and employment,” Cefic said in a statement.

Germany’s chemicals trade group, the VCI, earlier had been more forthright. “This vote is a bad signal for the future of Germany as an industrial site, it severely threatens competitiveness and jobs in the chemicals sector,” VCI president Ulrich Lehner said.

The industry has lobbied hard for a more industry-favourable CO2 package or one that recognises past performance and current climate change controls.

Without it, it expects investment decisions to favour locations that avoid what is tantamount to an additional carbon tax.

The Environment Council vote, however, means that this uncertainty will persist. A final package of carbon control proposals has yet to be worked up by the European Commission and the Council so industry attention will turn more to lobbying at the national level.

At the same time the sector realises that it has to push ahead hard with its global carbon control benchmarking study which is being prepared with the consultants McKinsey.

That study should be available next year but is needed is needed sooner rather than later to give the industry’s argument greater weight.

($1 = €0.73)

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By: Nigel Davis
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