EU ETS could raise Europe chemicals production costs 5-10%

17 June 2010 11:00  [Source: ICIS news]

By Mark Victory

EUBERLIN (ICIS news)--The EU's Emissions Trading Scheme (EU ETS) could increase costs at European petrochemical plants by 5-10% when its third phase begins in 2013, an industry consultant said on Thursday.

“We’re talking about 80% [carbon emission] cuts by 2050 [in the EU]. Industries have to ask, how will we do that? It will increase cost. Your relative [worldwide] position will change – how much it will change we will have to see,” said Martijn Overgaag, senior consultant at Ecofys.

The EU ETS, a carbon cap and trade scheme begun in 2005, has been criticised by industry professionals because although it is mandatory in Europe for all carbon emitting plants, similar schemes are not in place in any other region in the world, which could lead to competitive disadvantage, Overgaag pointed out.

Others had complained about the possibility of plants abandoning Europe for other areas, such as Asia, where carbon-based costs were not incurred, he added. The problem is termed ‘carbon leakage’ within the carbon industry.

“It’s not likely in the next decade that there will be other carbon constrained economies outside of Europe,” Overgaag said, addressing the 8th ICIS Phenol-Acetone Conference in Berlin.

During the third phase of the EU ETS scheme, benchmarks based on the top performing plants in each sector would be added to decide the amount of carbon allowances that chemical industries were granted.

Any emissions above the allowances would need to be bought within an auction system, adding costs. The average price of carbon emissions after 2013 would likely be around €20/tonne ($25/tonne), although this could rise to €30-40/tonne if individual countries imposed stricter emissions limits in order to meet stringent carbon reduction targets, Overgaag explained.

Because costs would be passed down the supply chain, markets further downstream would most likely face higher costs, and would be the most at risk of carbon leakage.

“The further down the supply chain you are, the more you will be affected. Producers outside of Europe won’t have any [carbon related] costs,” Overgaag said.

Turning to the phenol and acetone markets directly, Overgaag said that carbon emissions generated in that industry were likely to cost European players €30m per year in direct costs. However, costs passed-on from upstream markets could add another €50-100m per year.

Ecofys is a global consultancy company focusing on climate change. It has been operating for 26 years and consults with the European Commission, governments and industry bodies on the EU ETS.

($1 = €0.81)

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By: Mark Victory
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