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Chemical sector gears up for increased involvement in emissions trading

10 Sep 2012 11:25:17 | edcm

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The EU's energy-intensive chemical sector is set to provide increasing demand for carbon allowances from next year, when the production of numerous industrial chemicals is incorporated into the EU's Emissions Trading System (ETS) for the first time.

Like other major manufacturing sectors, including steel and cement, the multi-billion-euro chemical sector will receive millions of carbon allowances free, softening the financial impact of inclusion in the ETS, which penalises emissions of the gases that cause climate change.

Many of the EU's biggest chemical companies already participate in the ETS because they produce their own energy, emitting 99m tonnes of CO2 equivalent (tCO2e) through fuel combustion in 2010, data from the European Environment Agency (EEA) shows.

But from next year, chemical producers will also have to surrender permits for the CO2 they emit during the production of ammonia and petrochemicals, as well as for their N2O emissions from the production of nitric, adipic and glyocalic acid.

Production of ammonia, nitric acid and adipic acid together caused greenhouse gas emissions of 41.8m tCO2e in 2010, EEA data shows. It's likely that the chemical sector's liability under the ETS will be far greater than this because petrochemicals alone account for around a quarter of all chemical production in Europe, according to statistics from lobby group the European Chemical Industry Council (CEFIC).

Short of allowances

Free allowances will be allocated based on a historical benchmark, whereby only the 10% most efficient installations in the sector will receive all of their allowances free. The more inefficient the other 90% of installations are, the fewer free allowances they will get.

"Ninety percent of these companies will be short of allowances depending on their emission performance level, if their output is the same as the historic one. Some companies that exceed the EU benchmark or that have sold allowances earlier on will be short of allowances - all depending on the actual production output," said Peter Botschek, head of environment at CEFIC.

Germany's BASF, one of the largest chemical companies in the world, produces all of the chemicals that will be included in the ETS from next year. It also produces 70% of its own electricity needs using combined heat and power (CHP) gas plants. BASF will be short of carbon allowances at some stage during ETS phase III (2013-2020) and expects an average annual financial impact "in the two-digit million-euro range", a spokeswoman said.

"Overall, BASF Group Europe is not short of allowances at the end of the second trading period (2008-2012), although some individual sites or plants are," the spokeswoman said.

"In general, emissions trading will gain increasing significance for industrial production. Although we expect in the mid-term that our chemical production within the EU will become somewhat more expensive, we don't believe that it will damage our long-term industrial production in the EU," the spokeswoman said.

"BASF invested in highly efficient plants at an early stage, so we have sufficient EU [allowances] available for the first years."

Chemical production is big business in the EU. The sector was worth €491bn in sales in 2010, around one fifth of the chemical industry's global value, according to CEFIC. Germany is at the forefront of the European sector. It accounted for 29% of production in 2010. France, Italy and the Netherlands are also major producers. CEFIC, like other industrial lobbies, is opposed to the European Commission's plan to delay carbon allowance auctions from next year in order to boost prices, which have slumped since last year (see EDCM 25 July 2012).

"We need to go away from planned economy and let the market find the right carbon price. If we can achieve our emission reduction targets at zero euros, no problem - sorry [to] the speculators," Botschek said. VF

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