INSIGHT: Industry eyes developing EU carbon credits scheme

10 September 2010 18:51  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--The chemical industry finds itself working in the dark over proposals from the European Commission for the mechanism it would like to see adopted in the third phase of the EU’s Emissions Trading Scheme (ETS).

Proposals for implementing the next phase of the ETS were circulated across the European Commission directorates general this week. A common European Commission position should be arrived at within about six weeks.

The chemical industry and other sectors that will be hardest hit by the expected changes in the ETS - the move to an allocation of carbon credits based on separate industry benchmarking systems as opposed to the free allocation to member states in the current phase of the scheme - find themselves in a dilemma.

They have only a limited period in which they can have any further influence on the Commission's position. They would like to see a system of allocations that rewards those that have done the most to reduce carbon emissions and not protect the laggards. The trouble is they just don’t know what’s in the current, highly sensitive document.

The European chemical industry says it is supportive of the proposed auctioning process that is intended to slowly replace the free allocation of carbon allowances to all EU industries apart from aviation.

It has spent a great deal of time and money promoting its position across the EU executive and developing a benchmarking system for production plants in various product lines.

Chemical industry benchmarks have been developed with the help of sector consultants for 12 products and processes covering 80% of the carbon emitted by the industry in Europe.

The sector should be relatively confident with such a system in place but there have been suggestions the EC wants to look outside Europe to compare European industrial plants with the best elsewhere. That raises concerns for the future of some European production facilities that perform well on a regional basis.

So called ‘carbon leakage’ also threatens if the base years for performance improvement are not set fairly. The European Environment Agency (EEA) showed on Friday that the recession had accelerated the decline in EU greenhouse gas emissions. But one environment group suggested that the over allocation of carbon credits would allow industries to pollute for years to come.

The slump has made defining the base years on which the next phase allocations are made an extremely difficult task.

Free allocations are also likely for the best 10% of industrial plant but the definition for some chemicals in Europe is clouded by low numbers of facilities and by laggard units.

Clearly, allowing laggard producers to drag down the whole is not acceptable to the majority. The industry would also react sharply if it believed that an operating environment was to be created in which the best performing producers were saddled with additional costs.

Controversy surrounds the ETS proposal as always. Industry is right to fear additional costs.

To discuss issues facing the chemical industry go to ICIS connect

By: Nigel Davis
+44 20 8652 3214

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