INSIGHT: European Parliament vote on climate measures critical for chemicals

Nigel Davis

08-Jun-2022

LONDON (ICIS)–Industry wants clarity from Members of the European Parliament (MEPs) who are voting on changes to Europe’s ambitious carbon emissions trading scheme and the bloc’s Fit-for-55 climate proposals on Wednesday, European Commission Executive Vice President, Frans Timmermans has stressed.

Ahead of votes on key amendments, Europe’s big energy users, alongside other industrial sectors likely to be impacted the most from the extensive Emissions Trading System (ETS) and Fit-for-55 revisions, have been lobbying hard.

Essentially, however, European industry wants, in Timmermans words, “clarity, predictability and reliability”, from the measures being considered at this stage in the legislative process.

Time is of the essence if companies are to be able to invest to facilitate real climate action, a fact that has been stressed many times before.

And the details of proposals that are being considered now will create the ‘playing field’ on which companies will operate for years to come – and have an impact far beyond the EU’s borders.

Energy intensive industries such as chemicals, however, do feel that the playing field is being tilted against them in Europe despite their broad support for more intense climate action.

Energy intensive industries CEOs, in an open letter this week, said that legislation needs to accompany the energy transition with predictable measures and realistic timelines.

They are clearly concerned about step changes that run the risk of overburdening companies before they can invest to further tackle climate change and develop markets for low carbon products.

“In this regard, latest proposals on ETS and CBAM [carbon border adjustment mechanism] weaken carbon leakage provisions, further increase unilateral regulatory costs and harm the competitiveness of European industries in EU or international markets,” the letter, signed by almost 300 of them, said.

Energy-intensive industries in Spain have called for “supportive” reform of the ETS and shown how the rising cost of carbon in Europe has hit the industrial base.

“According to data from the EU Transaction Registry (EUTL), between 2012 and 2021 16% of European industrial facilities subject to the ETS have been forced to close,” chemicals trade group FEIQUE said.

“It is essential that … the ETS and CBAM support investments by companies, with effective measures against carbon leakage, avoiding disproportionate costs, capacity closures and job losses, due to international competition from companies from countries not subject to comparable carbon costs, or even no costs at all,” it added in a joint press release with other energy-intensive industrial sectors.

MEPs are voting on a range of proposals including the way in which free allocations under the ETS will be reduced and the CBAM introduced.

Debate on a phase-out date for internal combustion engines in cars and vans has been intense with support growing for longer use of biofuels and hydrogen in ICEs.

The complexities of the CBAM are of real concern for energy-intensive industries such as fertilizers, and in chemicals more generally as the inclusion of sub-sectors into the regime are considered.

ICIS Energy analysts believe that the EU carbon market will react to voting on how the free allocation of carbon under the ETS might change, a critical factor for chemical producers.

They also point to voting on the phase-in of the CBAM, possibly wider access to the ETS being agreed, proposals for the addition of shipping to the ETS, and changes to the Market Stability Reserve (MSR), which is designed to help stabilise the ETS, as being potentially market moving.

Insight by Nigel Davis

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