Commission proposes caps on state aid for indirect CO2 costs
Proposed rules on how much compensation member states may offer heavy industry to cover indirect costs of the emissions trading system (ETS) from next year face opposition from some member states and influential industry lobby groups.
Industry-friendly countries such as Germany and Poland want energy-intensive industry deemed to be at risk of carbon leakage to be eligible for 100% compensation (within the limits imposed by energy efficiency benchmarks) for the indirect costs these industries may incur through higher electricity costs in phase III of the ETS, 2013-2020.
This was the position Germany and Poland put forward when the European Commission carried out a consultation on the matter late last year.
But Commission draft guidelines circulated internally earlier this month allow compensation of up to only 85% of these indirect costs, reducing to 75% over the course of phase III.
Europe's influential metals and steel lobby groups strongly criticised the move.
"Considerably reduced or absent compensation, even at low carbon prices, will lead to further job and plant closures in the EU," the non-ferrous metals industry body, Eurometaux, said in a statement.
Eurofer, the steel industry's lobby group, has complained to the Commission, but has yet to receive any response, a spokesman said.
"They are slashing compensation with no justification," the Eurofer spokesman said.
The guidelines document warns that state aid for indirect carbon costs must balance the risk of carbon leakage against the need to "preserve the price signals created by the EU ETS to achieve cost-effective decarbonisation".
The Commission also warns of the need to "minimise competition distortions in the internal market by avoiding subsidy races within the EU at a time of economic uncertainty and budgetary discipline".
For those reasons, aid "shall not fully compensate for the costs of EUAs [EU allowances] in electricity prices and shall be reduced over time".
Carbon leakage would occur if greenhouse gas emissions from any given sector were to increase in regions outside the EU as a result of the EU's rules.
The most straightforward way this could happen is if a company were to relocate from Europe to a region where there were no emissions rules, in order to avoid the cost of complying with the ETS (see EDCM 25 April 2012). VF
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