Post-2020 free EUA rules unlikely until clearer global view

10 July 2014 14:00 Source:ICIS

The rules for free EU allowance (EUA) for industry after 2020 are not likely to be proposed until a clearer picture on international climate negotiations emerges, according to a senior official from the EU law-making body on Thursday.

Some industrial companies are currently given EUAs for free to prevent ‘carbon leakage’, a term for firms relocating to regions with less stringent climate laws to save costs.

The European Commission is currently examining how the handout rules could change once this decade ends.

“The commission is not going to make a proposal on carbon leakage in the coming weeks or months,” director of the commission’s climate unit, Jos Delbeke, said at a stakeholder consultation on Thursday.

International negotiations, which are due to strike a global deal on 2030 climate goals in Paris in December 2015, will be a factor in deciding future EU rules on carbon leakage as the proposed ambition for different countries – and the differences between them – will become more apparent.

“Following the decisions which heads of states are going to make, then the commission will be invited to make proposals [on topics including carbon leakage],” Delbeke said.

The EU is aiming to finalise its 2030 climate and energy position by October.

“The threat of carbon leakage is reducing as more and more jurisdictions introduce carbon pricing measures,” Martin Schoenberg, head of policy at London-based environmental asset management firm Climate Change Capital, said at the meeting on Thursday.

Emission trading systems (ETS) are popping up worldwide in countries including China and the US. However, there are wide disparities between schemes globally which still leaves the playing field uneven for businesses.

No carbon leakage to date

A number of studies have found no evidence of carbon leakage to date in the EU ETS ( see EDCM 7 July 2014 ). Many companies have received more free EUAs than they need to cover actual emissions, leading to carbon position length in industrial sectors. The carbon price has also crashed in recent years, lowering the cost of compliance for carbon-intensive industries.

However, carbon prices are forecast to rise in coming years, with analysts ICIS Tschach Solutions predicting that EUAs could hit €48/tCO2e by 2030, from just €5.83/tCO2e at Wednesday’s close.

This could place additional economic pressure on industry and companies are therefore keen to retain support for carbon costs.

“If industry is not profitable, it will not receive the investment and it will disappear,” Bill Thompson from EU petroleum refining lobby group FuelsEurope said at the meeting.

Future carbon leakage rules

Predictability, administrative simplicity and a focus on good data will be key tenets of any future carbon leakage rules, Delbeke said.

“This [consultation] should be taken as a positive sign that we are open to continuing free allocation and not phasing it out,” Delbeke said, who also hinted that money could be used to drive innovation in industry to improve energy efficiency.

The EU Climate Change Committee on Wednesday endorsed plans to continue giving industry a high share of EUAs for free until 2019 ( see EDCM 9 July 2014 ). Ben Lee

By Ben Lee