Originally published March 22, 2011.
Keywords: EU Emission Trading Scheme, EU ETS,economic, carbon leakage,
The EU Emission Trading Scheme ("EU ETS") was
established in 2005 for the purpose of limiting the CO2 emissions
in the EU. It allocated allowances to economic operators and
provided the possibility to trade these allowances. In 2008,
Directive 2009/29/EC amended the EU ETS resulting in a further
expansion of its scope and setting an overall EU cap. Under this
Directive, EU Member States could provide state aid to concerned
sectors in order to reduce the risk of so-called carbon leakage,
i.e. industry sectors shifting production to non EU countries due
to higher electricity costs (so-called indirect emission costs).
The European Commission ("Commission") intends to publish
guidelines on these EU ETS related state aids.
In essence, the consultation will feed into the Commission's
official stance on which industry sectors will be eligible for
potentially millions of state aid and which criteria will have to
be complied with. Next to the obvious questions in the consultation
as to the eligible sectors, the Commission also seeks views on
whether other industry sectors might be disadvantaged as a
consequence and whether companies face similar burdens resulting
from indirect emission costs in other countries.
Among other things, the Commission asks why businesses would not be
able to pass on electricity price increases to consumers.
Furthermore, the consultation requests detailed information
regarding the factors that would drive a possible shift of
production to non-EU countries. In this regard the Commission both
asks for specific CO2 prices and their impact on profitability as
well as which countries companies would relocate facilities
to.
It is evident that the Commission does not intend to easily allow
state aid. Therefore, the Commission expects stakeholders in the
consultation to describe their activities and products in detail.
The Commission will also look into how far businesses could adapt
to the consequences of the EU ETS by changing inputs, introducing
new technologies and how price setting mechanisms work at a global
level. Thus, the Commission seeks a clearer picture on how likely
shifts in production are compared to what industry had claimed at
the time of the adoption of the new EU ETS framework in 2008.
In addition to sector specific inquiries, the Commission is also
interested in views regarding the level of financial support. The
aim is to find the balance between reducing potential disadvantages
for European industries on the one and not to undermine the EU ETS
on the other. Furthermore, it wants to ensure that sufficient
incentives are given to invest in more efficient technology and
that sectors do not become dependant on aid. Finally, a benchmark
for each sector needs to be found indicating the electricity
consumption per unit of production based on the best available
technologies and the mix of electricity used in terms of CO2
emissions.
Finally, the Commission welcomes input to the debate on how the
emissions factor, i.e. the CO2 emissions per electricity unit is to
be set. Here, several alternatives are possible, ranging from an
average factor for the whole of the EU, a factor according to
marginal power production in the relevant electricity market or a
geographic area or the installation.
For energy intensive industries, this consultation provides a key
opportunity to make their case in the debate regarding carbon
leakage that has been ongoing ever since the EU agreed on its first
climate and energy goals. The consultation is open until 11 May
2011.
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