CEPI in brief:
Energy and Climate Change
Position on the Commission proposal to back-load (set-aside) EU ETS allowances
In July, the European Commission issued a proposal to postpone the auctioning of an as yet undefined number of CO2 Allowances until towards the end of the third trading period. The purpose is to ensure the ‘orderly’ functioning of the EU ETS. This is likely to be the first step in further regulatory proposals to intervene in Phase 3 with the overt intention of reducing the existing cap on emissions. This cap is already set to meet the EU’s requirement to reduce EU ETS emissions by 21% by 2020 from a 2005 baseline.
While supporting the EU ETS as a policy instrument to meet the EU’s climate objectives, the Alliance of Energy Intensive Industries is opposed to any modification of the EU ETS rules which would damage further industry’s competitiveness. The EU must stick to the 2020 target formula agreed upon under the third Climate and Energy package and must not revise it unilaterally unless the carbon leakage issue is solved by a binding international climate agreement.
The proposed interference within the agreed policy framework will simply increase the costs for industry. By hampering predictability and by increasing regulatory risk of further intervention, it will also deter investments at a time when the EU economy is struggling to find a way out of the crisis.
Instead, policy makers should focus on the post-2020 policy framework and endeavour to work out a scheme that makes the EU more competitive.
In this context, the ‘back-loading’ initiative is inappropriate, and the Alliance of Energy Intensive Industries therefore calls for the rejection of the back-loading proposal for the following reasons:
1. No artificial cost increase: the back-loading proposal will inevitably lead to direct and indirect EU-only CO2 cost increases, affecting the energy-intensive businesses and private consumers, at a time when growth and value creation are needed to combat the economic crisis. Rising energy and CO2 prices do not create overall value or jobs. They will hamper Europe’s economic recovery and diminish the global competitiveness of European industry.
2. The carbon market is functioning. The carbon price today reflects the economic downturn exactly as it should do.
3. The proposal puts an end to the notion of the ETS as a market-based instrument. Trying to manipulate carbon prices through political intervention will now require a risk calculation based on the likelihood of further political intervention.
4. In the absence of an international climate agreement providing level playing field, higher carbon prices do not bring forward breakthrough technologies but do increase carbon costs and potentially carbon leakage instead. It's worth recalling that the ETS is technology-neutral - neither intended to promote one technology over another, nor to lead to the emergence of new technologies. So only the mitigation objective matters, not the carbon price.
5. Business needs predictability and transparency: political intervention to change rules, often through Comitology, creates instability. Piecemeal interventions in the market hamper predictability and deter investments.
6. Consult Industry in order to look forward: the EU should look forward and link its post-2020 climate and energy policy to industrial competitiveness, working with industry on solutions based on technical feasibility and economic viability. Amendment of the present EU ETS must also remove barriers and risks for EU growth, taking into consideration binding mitigation commitments by third countries and their impact on sectors and sub-sectors, so as to secure an international level playing field for EU industries.
Plenary debate on backloading necessary
20 February 2013
Dear Member of the European Parliament,
On January 24th the EP Industry Committee strongly rejected the Commission proposal amending the EU ETS Directive, clarifying provisions on the timing of auctions of greenhouse gas allowances (backloading). Conversely, on February 19th the Environment Committee voted in favour of the rapporteur’s compromise amendments in support of the Commission proposal. The Committee rejected the position of the Industry Committee and decided to vote at its 26 February meeting on whether or not to give the rapporteur a mandate for negotiating a first reading agreement with the Council Presidency and the Commission.
There are significant differences between the view of the Industry and the Environment Committee but in fact in the two Committees combined there were more votes opposing backloading than in favour. This highlights the wide differences in views and the importance of having a full, democratic and transparent plenary debate on this crucial issue for the EU. The plenary debate, followed by a vote, would allow all MEPs to express their views and provide required political support for the final decision before negotiations with the Council Presidency and the Commission, which might commit Parliament, are opened.
This is an important debate for EU competitiveness and deserves full consideration by all the institutions. So the Alliance of Energy Intensive Industries, representing the interests of over 30.000 European companies, asks you and your political group to support this view. We are opposed to backloading because it pushes up energy costs in the EU for industrial and individual energy users alike, without any environmental benefit. In the current economic climate the measure is unnecessary and ineffective. The ETS continues to function as designed and is on target to achieve its emission reduction targets ahead of schedule at the lowest possible cost.
We thank you in advance for taking the above into consideration.
Dr. Annette Loske, IFIEC
Gordon Moffat, EUROFER
Hubert Mandery, Cefic
For the Alliance of Energy Intensive Industries
No support for co-firing biomass in coal plants
CEPI calls upon the European Commission and member states to remove support for co-firing of wood in coal plants which only produce electricity. In addition CEPI asks not to resort to mandatory co-firing shares. Biomass that has a use as raw material should not be used as a source of energy. CEPI calls to promote the transition towards much more efficient coal plants.
The European Commission has published a communication on the future of Renewable Energy Sources in Europe. A future binding target is amongst the issues to discuss. The situation in Europe has however dramatically changed. As the economic crisis continues member states have less appetite for and funds available for support schemes.
One of the Renewable Energy Sources is Biomass. Carbon neutrality of biomass can contribute to the European CO2 reduction targets. Biomass is a renewable, recyclable and climate friendly raw material. It is the basis for the much needed Bio economy in Europe.
The renewable energy directive of 2007 (2009/28/EC) stated that ”In the case of biomass, Member States shall promote conversion technologies that achieve a conversion efficiency of at least 85 % for residential and commercial applications and at least 70 % for industrial applications”. This language was not strong enough, although it gives a clear direction. Member states should not support but further even avoid the use of biomass in coal plants with the current low efficiencies. Supporting co-firing of biomass in coal plants at low efficiencies is an environmental harmful subsidy. This applies as well to national policies building on mandatory co-firing shares.
Efficient use of biomass does not include the use of biomass for co-firing in coal plants which only produce electricity. The current average efficiency of coal plants is between 30% and 35%. Burning wood, the main biomass source, in coal plants at these efficiencies is a waste of raw material, not a climate reduction measure. The same applies to biomass fired power stations without combined heat and power.
Why raise costs when growth is needed - CEPI position on measures artificially increasing the carbon price in EU ETS (backloading)
CEPI calls upon the European Commission and member states to abandon the proposed measures for back loading of EU ETS credits, meant to artificially increase the carbon price in the EU Emission Trading System. The European pulp and paper industry strongly questions the idea of increasing the costs for energy to industry and consumers in a time where growth and value creation are needed to battle the crisis.
The European Commission published its proposal to artificially increase the carbon price by delaying auctioning of EU ETS credits (changing the auctioning profile or back loading). This measure is the first of two measures. The second measure could take credits out of the market (set aside) or be a revision of the EU ETS legislation as a whole.
The measure is aimed at increasing the carbon price in the emission trading market. It does not change the achievement of the carbon reduction targets, as these are secured by the legal framework. Although the back-loading proposal might be less harmful than other proposals for set aside, price floors or changing the linear reduction factor in ETS/unilaterally changing the climate targets, it is still one step too far.
There are 10 strong arguments against this proposal:
1. The EU should not raise energy costs in times of crisis! The higher carbon price leads to higher energy costs when there is no need at all. Increasing costs does not create value or jobs, especially when done unilaterally. The US industry sees a large reduction in gas prices; the EU raises the costs of energy. We agree with the EU that a growth agenda is hugely important. Increasing costs is not part of this.
2. The ETS delivers its objective. The European ETS guarantees the EU climate target being met. The system is designed to this at the lowest cost for society. The carbon price today reflects the economic downturn exactly as the system should and functions well.
3. This ends the notion of the ETS as a market. The EU ETS was created to be a market. Already political decisions have great impact. This final measure is the end of the ETS as we know it, now becoming a designed system for a pre-set carbon price.
4. EU’s biggest risk is regulatory uncertainty. In order to grow the EU needs investments by industry in Europe. 2013 already sees a planned massive overhaul of the EU ETS with new allocation rules. 2014 already has uncertainty with the proposed re-evaluation of free allocation to the industry (the carbon leakage list). Not even before this has started, the back-loading proposal changes the rules again, announcing even more changes ahead. Regulatory uncertainty becomes a barrier to investments in the EU.
5. The proposal takes a huge risk. The measure brings a price floor into the system, but not a price cap. So far the political interference with the EU ETS market has not worked as planned. There are no guarantees that any additional measures will not spin out of control, either by crashing the market when the back-loaded credits are put back in or by exponential increases in the carbon price when the economy would pick up.
6. The just proposed link to the Australian ETS adds another unknown factor in the mix. The EU now links its carbon market to the Australian market, also expected to lower the carbon costs for Australia, but increase the costs for Europe. It is completely unclear how these measures interfere which each other. The future and benefit of CDM credits should be examined in this mix of measures as well.
7. Carbon prices do not bring breakthroughs in technology. The answer to reduce carbon emissions is breakthrough technology, which is a policy area failing in the EU. Higher carbon prices have no impact on the creation of this technology.
8. The ETS has been given a double function that is the problem. The problems raised underlying the proposal have to do with the double function of the carbon market, where the price set in ETS also has to bring renewable energy to the market, create global carbon markets, stimulate the energy sector to invest in new power plants, etc. etc. etc. A higher carbon price will do so, as in times of higher prices these events have not happened either or were pushed by other measures. But these measures come at a cost for actors inside the system. The one size fits all system no longer works.
9. There is a direct company impact. Although there are surpluses in the emission trading market, the vast majority of installations in the trading period has a shortage of credits and has to buy these on the market as of 2013. This measure directly increases the costs of these companies, and indirectly via the electricity price for all industry and consumers.
10. There are strong legal doubts that the back loading is possible. Several legal opinions show that measures to artificially increase the carbon price do not fit the ETS directive legal framework.