Carbon trading will hurt EU industry competitiveness

C&I Issue 19, 2008

Phase III of the EU’s emission trading scheme (ETS) could leave the chemical industry hamstrung, with production costs potentially sky-rocketing by as much as 35%, according to the European Chemical Employers Group (ECEG) and the European Mine, Chemical and Energy Workers’ Federation (EMCEF). And the EU ETS could have exactly the opposite intended effect, with global CO2 emissions from the chemical industry rising as companies flee Europe for countries with less stringent environmental standards.

In a joint statement the ECEG and EMCEF compare Phase III of the ETS to a ‘tax in disguise’ that will push up production costs by between 10 and 35%. Their calculation predicts that the burden of the EU ETS will cost the chemical industry an extra €1bn in 2013, rising to €1.8bn in 2020. This figure is based on the cost of a permit to emit a tonne of CO2 of €30. Permits currently trade at around €22. The cost to industry could potentially be much greater, with the EU Commission predicting that the price of CO2 permits could go as high as €60.

Reinhard Reibsch, secretary general of EMCEF, says, ‘What would be better would be to introduce certification on benchmarks for the best available technology and give allocations [of carbon permits] based on energy efficiency.’ Reibsch adds that ‘carbon leakage’ – the movement of chemical processes outside the EU to countries where emissions restrictions are less severe or nonexistent – could become a serious problem.

As a result of Phase III of the ETS, Reibsch says, that the cement and paper industry could almost disappear from Europe. Other energy intensive industries that could be hit hard include ammonia, ethylene and nitric and adipic acid production as well as installations with their own power stations.

Phase III will not allocate any free permits for power generators and all permits that power companies require will have to be bought at auction. Other large emitters of CO2 will have to buy a proportion of their permits at auction at the start of Phase III, rising to 100% by 2020.

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