EU to set easier CO2 regime for heavy industries

By Paul Taylor

BRUSSELS (Reuters) - Europe's steel, aluminum and cement industries will have a special, less strict regime for greenhouse gas emissions under European Commission proposals to fight climate change to be announced this week.

After weeks of intense lobbying by business and governments, EU sources said on Sunday those three energy-intensive industries would be introduced more slowly into a new system for auctioning permits to emit carbon dioxide (CO2) from 2013.

The sources insisted on anonymity because wrangling is continuing in the Commission on final details of the proposals on CO2 emissions, renewable energy sources, biofuels and carbon sequestration to be unveiled on Wednesday.

A key flaw of the EU's Emissions Trading Scheme -- the main instrument for curbing pollution blamed for global warming -- has been that governments issued emission permits for free, handing industry windfall profits.

Under a planned reform, the sources said most sectors covered by the ETS will have to buy about one-fifth of emission permits from 2013 -- fewer than in early drafts of the proposal -- rising annually to reach 100 percent in 2020.

Those sectors include energy and power generation, including refineries, despite fierce lobbying by European oil majors BP and Shell to go easy on refineries.

The overall aim is to reduce European emissions of CO2 by at least 20 percent by 2020 compared to 1990 levels.

However, the sources said the EU executive was sensitive to concerns that the three big energy-intensive industries could be driven out of Europe if subjected to the same regime.

"Those concerns are being sufficiently taken into account through the benchmarking regime and a different allocation regime," one official said.

WHITTLED DOWN

He declined to give figures but said energy-intensive industries would have a bigger initial allocation than originally planned, a lower starting point for the percentage of emissions permits to be auctioned and a slower phase-in.

The Carbon Trust, a British government-funded body charged with helping companies cut emissions, warned earlier this month that cement, steel, aluminum, chemicals, fertilizer and pulp and paper businesses might be hurt by the stricter EU regime.

But the sources said officials had whittled down the number of energy-intensive sectors likely to enjoy special treatment to just the three.

Europe's top business lobby last week attacked Commission plans to implement the deep emissions cuts agreed by EU leaders last year, saying that auctioning pollution permits could hurt industry in global competition.

"In the absence of a comprehensive international agreement, auctioning of allowances will harm the competitiveness of European companies, especially in energy-intensive industries," BusinessEurope Secretary-General Philippe de Buck wrote in a letter to Commission President Jose Manuel Barroso.

The draft proposal provides for a review in 2011 of the impact on energy-intensive industries, depending on whether there has been an international pact on curbing emissions by then.

The EU package will also propose mandatory national targets for cutting CO2 emissions from buildings, heating and cooling and transport, as well as binding national targets for using renewable energy sources in power generation.

(Editing by Caroline Drees)