Carbon leakage (The Parliament Magazine)

Eija-Riitta Korhola, Climate Matters:

Continuing her series on energy and climate, Parliament Magazine editorial board member Eija-Riitta Korhola asks, will the EU’s climate measures push industry and jobs elsewhere?

Despite the European Union having 23 official languages, when it comes to any one of our major issues, we always invent another one. Climate change is a case in point. We have COPs and MOPs; JI’s and CDM’s; hot-air, carbon sinks, ETS, CCS and more. We also have “Carbon leakage” – which refers to an increase in CO2 emissions in one country as a result of a reduction by another. Why does this happen? Well several reasons but I will deal only with one: The cost of emitting CO2.

Currently, in the European Parliament, we are up against our mandate deadline to play a crucial part in getting the Commission’s package of climate change abatement measures agreed so that they can become adopted next year. Chief among the measures is the revision of the Emission Trading Scheme (ETS) which is a market based mechanism to encourage clean technologies and penalise those who emit CO2. Of course, since over half of our electricity still comes from fossil fuel, that will put up the cost of energy which is passed on to consumers. In turn, energy intensive industries exposed to global markets – who are usually employment intensive too – could find they cannot be competitive so are tempted to move out of the EU to where the so-called ‘cost of carbon’ is free and other environmental norms are lower.

The EU ETS works by a system of permits to emit CO2 that have to be bought or traded on the market – or rather it doesn’t work, which is why it has to be modified in the proposed Directive. A main problem is in the initial allocation of these permits. The EC wants to auction them and use the money to invest in clean energy technologies such as Carbon Capture and Storage (essential for continued use of coal oil and gas), wind, solar and wave energy. Today, existing large hydro and nuclear are the only significant clean technologies that can compete in global terms without such subsidies. Another often expressed view is that permits to industry should be allocated free.

In fact there are lots of views – when what we really need is vision.

The draft directive proposes free emission allowances for some market-exposed, high carbon-leakage risk industries, which is most probably necessary so long as ETS is not global. Of course, carbon leakage would be impossible if the cost of carbon were the same everywhere, so I welcome all possible links of the EU-ETS with other corresponding systems outside the EU – provided that they appear one day soon.

We must also look closely at the levels of sector-specific emissions for a ton of production and reward those who achieve the theoretical minimum. This would provide a genuine incentive for real emission reductions anywhere in the world. An ETS linked up with this kind of a BAT-approach (BAT = best available techniques) wouldn't distort the markets nor give a competitive advantage to the polluter.

We must work together in the Parliament, the Commission, the Council and the industry if we are to succeed. It’s emissions that must be traded, not dogmas.

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08.kesäkuu 2008

21:00

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