Cefic warns CO2 permit ‘backloading’ may hit innovation

03 July 2013 17:03  [Source: ICIS news]

LONDON (ICIS)--The European Parliament’s vote in favour of an amended European Commission proposal for the backloading, or delaying, of some CO2 allowances under the Emissions Trading System (ETS) is detrimental to energy-intensive industries, the European Chemical Industry Council (Cefic) said on Wednesday.

In comments on the vote, passed earlier on Wednesday, Cefic director general Hubert Mandery said: “The proposals for backloading will not help. They signal a willingness to intervene in the market and push up prices, risking weakening competitiveness and distracting investment from innovation.

"We need a better strategy that will deliver low-carbon and low-cost solutions for the European economy.”

The backloading measure, allowing for a delay in the timing of the auctioning of a portion of credits, is aimed at restoring the incentive effect of the ailing ETS.

A glut of greenhouse gas emission allowances, caused by oversupply and the economic slowdown, has seen the carbon price fall far below levels forecast at the time of the creation of the ETS in 2005.

Brussels-based trade association Cefic said backloading would do nothing except create uncertainty for market participants.

Moreover, it would not exclude the cancellation of allowances, or other politically inspired market interventions designed to push up the carbon cost for EU industries, it added.

Another drawback of the proposal, Cefic said, was that it did not provide any guarantee that ETS-generated funds would be recycled back into innovative low-carbon technologies.

Such low-carbon and energy-efficient solutions was something that the European chemicals industry was actively engaged in developing, said Mandery.

“Our members are investing substantial sums to increase their efficiency and to make products that help other sectors to be more efficient,” he added.

Germany’s chemical industry trade group VCI also criticised the vote by the European Parliament and said the freezing of auctions will raise prices for ETS emissions permits, thus further driving up the already high energy costs chemical and other energy-intensive industrial producers are facing.

The parliament’s vote was “bad news” for Europe as a site for industrial production, and it was damaging participants trust in the ETS system, said VCI general manager Utz Tillmann.

Tillmann appealed to politicians in Berlin and Brussels to find to find a “comprise for a reliable climate policy” in Europe in upcoming negotiations on backloading between the Commission, the council and the Parliament.

However, environmental NGO Greenpeace was among organisations that welcomed the European Parliament vote, although it warned the stronger-than-expected fix would only have a temporary impact.

Calling for the removal of some emissions allowances from the ETS, Greenpeace’s EU climate policy director Joris den Blanken said: “The parliament unexpectedly rejected a further weakening of the plan, but there is still not too much to celebrate today.

"This plan will not restore the credibility of the carbon market, because as soon as the suspended allowances are allowed to re-enter the system, the carbon market will be back to square one.”

Additional reporting by Stefan Baumgarten

By: Will Conroy
+44 20 8652 3214

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