Brussels — The Alliance of Energy Intensive Industries (AEII) has published an open letter to the heads of State and Governments of the EU Member States, the European Parliament, the Council of the European Union and the European Commission on carbon leakage. It says that the 2030 climate and energy framework must guarantee predictability for industry by setting the principles for measures against carbon and investment leakage now.
The undersigned manufacturing industries are the foundation of Europe’s economic fabric, drivers of jobs and growth in Europe. They represent over 30 000 companies in the EU with more than four million direct jobs, and around 30 million jobs in our manufacturing value chains.
Stable and long term legislative framework needed
As the letter says, the EU should focus on promoting recovery and growth of industrial production in Europe, in line with the objective to reinstate industry’s share of EU GDP to 20 per cent by 20201. European industries need a stable and long term legislative framework that effectively combines EU climate ambition with EU industrial competiveness.
„Current carbon leakage provisions under the EU Emissions Trading Directive, if not revised rapidly, will result in a huge shortage in free allowances and increasing direct and indirect costs (the pass-through of carbon costs into power prices) for even the most efficient installations in Europe. In the period from 2021 to 2030, when the provisions against carbon leakage and free allocation would be phased out, our industries are expected to face hundreds of billions of Euros in direct costs and costs passed through in electricity prices. The impact on energy intensive industries will simply be overwhelming.“
Clear outline of policy measures necessary
Knowing that the Commission will be looking at “an improved system of free allocation of allowances with a better focus” for 2021-2030 is not enough. Industry needs a clear outline of policy measures to effectively prevent the risk of carbon and investment leakage.
The Commission’s legislative proposals currently only cover EU ETS structural reforms, which increase both carbon prices as well as the unilateral burden on EU industry, and expose EU jobs and growth to aggravated carbon leakage risk. Unfortunately, the Commission intends to publish proposals to prevent carbon leakage only at a later stage.
Accrding to AEII, this is contrary to the guidance resulting from the March 2014 European Council, instructing the Commission “to rapidly develop measures to prevent potential carbon leakage in order to ensure the competitiveness of Europe’s energy-intensive industries”, and this to provide by October 2014 “the necessary stability and predictability for its economic operators”.
No direct or indirect additional costs?
The European Parliament stressed in February 2014 “that the 2030 climate and energy policy targets must be technically and economically feasible for EU industries and that best performers should have no direct or indirect additional costs resulting from climate policies; [that] the provisions for carbon leakage should provide 100 per cent free allocation of technically achievable benchmarks, with no reduction factor for carbon leakage sectors.”
The AEII therefore urges the European Council to give guidance at its summit on 23/24 October confirming that carbon leakage measures will be continued after 2020, as well as outlining the principles for the level of protection in order to safeguard predictability, investment certainty, jobs and growth in Europe:
Until a global agreement on climate change provides for a level playing field for energy intensive sectors at risk of carbon and investment leakage, best performers should not be penalised by direct or indirect additional costs resulting from the framework. This implies:
- Truly 100 percent free allocation based on technically and economically achievable benchmarks (including heat and fuel based benchmarks), reflecting recent production, and without a correction factor.
- Harmonized off-setting of all CO2 costs passed through into electricity prices in all Member States.
The open letter can be downloaded from cembureau.eu.