INSIGHT: Chems like EC’s CO2 benchmarks; fret over allocations

19 October 2010 17:44  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--“The current ETS [emissions trading system] has already contributed to increased energy prices. The next ETS should address climate change issues in a more constructive and sustainable way,” the EU trade group Cefic says on its website. And increasingly it looks as though it may be so.

There are certain aspects of the current Phase III ETS proposals from the European Commission that energy intensive industries such as chemicals don’t like. But fears of extensive “carbon leakage” - the move by producers to parts of the world with much less onerous climate control legislation or, indeed, ambitions - could still be allayed.

The Commission’s period of ‘inter-service consultation’, within which tough trade-offs between different branches of the EU executive are made, has just ended. The chemical industry, generally, likes what it has seen of the Commission’s benchmarking proposals.

The Phase III ETS package now has to be discussed more widely by the EU member states before agreement on the directive is reached - early next year possibly - so there are still hurdles to be overcome.

But the 12 benchmarks for the exposed chemicals segments proposed by the industry are all in the commission’s draft or in the annexe to its proposals.

And the (chemicals) experts appear to be happy with the result - apart from in the case of nitric acid, which, they say, is a special case.

Yet the industry still struggles to get its message across that it is far from easy or indeed, equitable, to derive allocations for plants in certain segments when there are fewer than 30 of them across the EU.

Seven of the 12 benchmarked chemicals segments fall into this category. Adipic acid is a case in point: there are only five production plants in the EU.

Trying to establish a fair allocation level - the benchmarks will be used to set levels for the allocation of free carbon credits for trading under the Phase III ETS* - is extremely difficult.

The trade group Cefic and others are concerned that if the allocation hurdles are set too high - the top 10% of the benchmark curve has been proposed by the Commission’s climate directorate general - then most producers in such sectors will see no prospect of free carbon credit allocations and hence no incentive to install improved carbon dioxide (CO2) control technology. 

Also, the next-phase ETS, the scheme designed to help the EU meet its climate change targets, could also be easier on energy intensive industries if implementation of the 10% rule were phased in between 2013 and 2020, industry believes.

Allocating some free carbon credits to producers across more of the performance curve could encourage more to adopt the technologies that will place them in the top 10%, the argument goes.

Confirmed benchmark values for the segments will be needed before credit allocations under Phase III can be estimated.

*According to the EU, the at-risk industrial sectors will be allocated free allowances on the basis of product benchmarks - the amount of CO2 released per tonne of production by the most carbon efficient producers.

Sectors not deemed at significant risk of carbon leakage, it says, will receive 80% of their benchmarked allocation free in 2013, declining to 30% in 2020 and 0% in 2027.

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By: Nigel Davis
+44 20 8652 3214

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