June 4, 2015 / 7:54 AM / 4 years ago

Exclusive: EU regulators find some industries may need another 10 years of free carbon credits

BRUSSELS/LONDON (Reuters) - Some of Europe’s most heavily polluting industries could need to retain access to free carbon allowances covering all their emissions for the decade to 2030 if the EU is to avoid pricing companies out of the bloc, a regulators’ assessment has found.

The EU wants to tighten up the issuance of free permits to industry to emit carbon dioxide as part of efforts to curb the release of the gas blamed for climate change. But the assessment seen by Reuters says some companies may still need to be allowed free credits covering all their emissions.

In a review of the European Union’s Emissions Trading System (ETS) it suggests a range of free credits covering between 30 and 100 percent of companies’ carbon emissions, depending on how likely they are to relocate abroad, a phenomenon known as “carbon leakage”.

The ETS, a system pioneered by the EU which allows to buy and sell allowances to emit carbon dioxide, already allows some companies to get 100 percent allowances. Launched a decade ago the ETS is meant to be central to the 28-member bloc’s efforts to cut greenhouse gas pollution.

But the EU wants to tighten up the system as part of its environmental efforts, and also to avoid some companies making windfall profits from selling their permits.

The current ETS runs through 2020 and EU regulators are preparing a draft law to cover the next 10 years, looking to fine-tune the system and ensure it helps meet broad carbon-cutting goals.

The assessment explores a range of factors to assess how to hand out ETS allowances to sectors such as cement, glass and oil refining, industries that say they risk being driven out of Europe because it would become cheaper to locate elsewhere.

One option suggested is a baseline carbon leakage option of 30 percent that would not differentiate between sectors.

Another option looks at emissions intensity and how much international trade takes place.

This breaks industry down into very high, high, medium and low carbon leakage factors. They could be entitled to respectively 100 percent, 80 percent, 60 percent and 30 percent of a benchmark set by the Commission to determine free allocation.

The Commission, the EU executive, had hoped to publish draft legislation on reforming the ETS before its summer break that starts in August, but Energy and Climate Commissioner Miguel Arias Canete said last week it might not be ready until later.

Reporting by Barbara Lewis and Nina Chestney; Editing by David Holmes

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