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Battle lines drawn over new carbon leakage list price

11 Jun 2013 20:38:26 | edcm


The carbon price that will underpin the new carbon leakage list - which influences free allocation of EU allowances (EUAs) in the bloc's Emissions Trading System (ETS) - is set to become the new battleground for industrial lobbies in Brussels.

The European Commission is preparing a new list to replace the current one - set up in 2009 for 2013-2014, assuming a carbon price of €30.00/tCO2e, which is almost 10 times higher than current price levels on the secondary market. The commission has said it may use a lower price to calculate the new list, but lobbies claim changing the price would be illegal.

As a result of the €30.00/tCO2e price used to calculate the previous list, it deemed some 166 sectors and subsectors at risk of carbon leakage, which entitled them to more free EUAs. Carbon leakage occurs when industry outsources production to low-carbon-price regions, for instance, outside the EU.

But as the economic crisis bit and emissions decreased, industrials accumulated a significant surplus of EUAs over phase II of the EU ETS. As a result, the risk of carbon leakage - even in the absence of any free allocation - is estimated considerably lower than when the previous list was created in 2009.

"No choice" on the price?

Industrial lobbies, referring to the EU ETS directive, claim the commission cannot change the price the list is based on. The directive stipulates that carbon leakage risk should be based "on an average carbon price" derived from a commission impact assessment of measures needed to meet the bloc's 2020 climate and renewable targets. It makes no mention of basing the calculation of carbon leakage risk on current market prices.

Cement lobby CEMBUREAU told ICIS it "trusts that the commission will comply with European legislation".

"There is no choice on carbon price," echoed paper lobby CEPI.

Peter Botschek, director of energy, health, safety and environment at chemical lobby CEFIC, said any change in the price by the commission would "trigger a reaction from the industry".

Steel lobby Eurofer would not comment on the issue.

The commission has just launched a 12-week consultation on the issue and will meet with stakeholders (see EDCM 6 June 2013).

Commission advised to lower price

The commission recently said it could base the new list on a price below €30.00/tCO2e and is evaluating its options (see EDCM 30 May 2012).

It tasked consultancy Ecofys with drafting a "support" study, which found that "there may be certain legal constraints" on the carbon price used in carbon leakage lists, which, however, it did not assess.

But the consultancy also told the commission that, given the disparity between the carbon price used in the previous assessment and the actual current carbon price, it has to consider updating the list price to reflect this.

Ecofys recommended that the commission base the new list's carbon price on forecasts from the end of 2013/early 2014 and for the period covered by the new carbon leakage list. The advice to hold off on picking a new price was made because many "fundamental decisions" about the future of the carbon market are due in coming months, such as the possible back-loading of EUAs in phase III.

Analysts previously told ICIS they expect the new list to be based on a lower price (see EDCM 29 April 2013). Silvia Molteni

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