The EU chemical industry calls for a reformed European Emissions Trading System (ETS) that enables allocation of free carbon allowances based on recent industry production and improved emissions performance so all sectors get the opportunity to thrive in Europe. ETS is designed to cut industrial carbon emissions from European manufacturing facilities. Recent proposals would see perceived at-risk sectors to receive greater free allocations of carbon allowances – the ‘currency’ underpinning ETS.

In late-May, Ian Duncan, member of the European Parliament (MEP), released his draft report with proposals for a much needed reform of Europe’s ETS, which aims to reduce industrial carbon emissions. 

Draft Report Does Not Deliver on the Key Issue

According to the European chemical industry council, CEFIC, the draft report is an improvement to the report by MEP Federley in the ITRE Committee because it recognizes the need to provide more room for EU’s manufacturing sectors by reducing the government’s auctioning share. However, it does not deliver on the key issue at hand. It fails to uphold the fundamental promise the European Council made to industry: that the best performers in each sector would not face undue carbon costs.

Finding the low carbon technology of the future will require industry to be present in Europe in order to deliver these technologies and scale them up. This makes the question of tackling carbon leakage effectively one of the central and most controversy-laden issues of this policy dossier.

MEP Duncan’s proposal brings solutions for innovation as funding will go beyond the Commission proposal, says CEFIC. The proposal recognizes carbon capture and utilization (CCU) as key technology, allows for flexible use of auctioning and free allocation volumes and in this sense he has clearly listened to industry. However, the Duncan report again stays with tiering, which is a system that discriminates between sectors. As the EU chemical industry is very diverse, different sectors would fall in the different tiers under this proposal.

The draft report proposes four tiers of shrinking carbon leakage protection, but there is no evidence base for why some EU energy intensive industries could be left more exposed than others. Europe’s chemical industry does “not believe in tiering as an effective way to offset carbon leakage risk. It’s most likely not even needed,” said Marco Mensink, Director General, CEFIC.

“With a more refined approach to allocation and benchmarking, there would be enough allowances in the system to cover all sectors’ needs until 2030. Using data about industrial production coming from 2008 and 2011 to calculate allowances for 2025 is not a basis for sound policy-making”. 

Sharing Recent Chemical Industry Data

“Proposed ETS reforms to divide industries in groups or tiers protect certain industries at the expense of others. This is not only unfortunate but undesirable, since it's based on old industrial production data. Before taking such a decision, updated and recent data should be applied at the very least”, said Marco Mensink, Director General of CEFIC, the European chemical industry council. “CEFIC has already promised the Commission to share data for the EU chemical sector, which includes over 1,100 manufacturing plants affected by ETS. We now ask other stakeholders to join this effort." The EU chemical industry provides 1.2 million jobs and contributes over €550 billion to the EU economy.

In February of 2015, after the EU Commission agreed measures to drive up the price of ETS allowances, then-CEFIC Director General Hubert Mandery said: “Anything that ups our costs relative to global competitors is another blow that we cannot afford. We want to stay in Europe. We want to grow in Europe. But for that we will need more than carbon leakage protection beyond 2020.”

CEFIC does welcome, however, the European Parliament’s call for effective carbon leakage protection for most efficient energy-intensive installations, an important measure that helps Europe’s real economy remain competitive. But it remains concerned that the Commission shows no signs of addressing the pressing need to review the fundamental structure of the ETS.

CEFIC’s vision is that factories that invest in cutting their emissions are incentivized by receiving more carbon allowances to offset the cost of this investment. This was echoed in the October EU Council Conclusions, that best performing companies shouldn’t bear increased carbon costs.