July 31, 2014 / 5:55 PM / in 3 years

EU must shield industry from future CO2 costs - manufacturers

* Industries want cost assurances before carbon market reform agreed

* Tying reform to protection issues risks reform delay

* Governments split over whether to link reform to 2030 goals

By Ben Garside

LONDON, July 31 (Reuters) - Manufacturers in the European Union want clear assurances they will be insulated from costs of complying with emissions regulations before lawmakers agree reforms to the bloc’s carbon market, industry lobby group IFIEC Europe said on Thursday.

The European Commission admits the EU Emissions Trading System (ETS) is failing to drive low carbon investment and wants to reform it with a reserve to set aside surplus permits.

This so-called market stability reserve was the only legislative proposal among a package of measures the EU executive published in January reflecting 2030 climate and energy objectives.

Analysts say the reserve could add 11 euros ($14.72) per tonne to carbon permit prices currently trading at around 6 euros, but tying it to wider 2030 discussions risks the Commission’s goal of getting it agreed by early next year.

“This should be one process in parallel, there shouldn’t be a decision on the market stability reserve in advance of the whole carbon leakage area,” IFIEC’s Lena Recknagel told Reuters.

She was referring to the risk of carbon regulations resulting in the transfer of industrial production to countries with looser environmental policies.

“The Commission has a very strong agenda to strengthen the ETS and take measures to the end of increasing the CO2 price while the agenda on giving industry more certainty over carbon leakage protection is not driven forward with the same verve,” she added.

The EU ETS regulates around half of Europe’s greenhouse gas output by forcing power plants, factories and airlines to surrender a permit for every tonne of carbon dioxide they emit.

Heavy industries such as chemical companies, steelmakers and cement producers represented by IFIEC receive the vast majority of their permits for free to prevent carbon leakage.

The Commission has yet to propose whether this system should continue beyond 2020 and the issue is being fiercely debated. One senior Commission official has said the list of industries getting free permits should be trimmed.


The International Emissions Trading Association (IETA), representing a mostly different group of companies regulated and participating in the ETS, also want assurances over carbon leakage but without hampering the reserve’s passage into law.

“A political commitment on how to deal with industrial competitiveness should be in place by the time the (reserve) is adopted,” the group said in a statement on its website.

The reserve proposal has yet to be debated by the European Parliament and is at an early stage of talks between national governments. To pass, a majority of both must agree.

Italy is chairing talks between EU member states as the current holder of the EU presidency, but observers expect Latvia, the next presidency holder from January, to steer it to a conclusion.

A spokeswoman for Latvia’s representation in Brussels said national governments were divided over whether the reserve plan should be tied to the 2030 talks.

“There are still diverging views, therefore for us the first thing to do, before taking any decisions, would be to await the results of (the) October European Council,” she said by email.

In October, all 28 European leaders have pledged to agree on 2030 climate and energy goals, which would allow the Commission to draft additional proposals on how to meet the goals. ($1 = 0.7471 euros) (Editing by Paul Simao)

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