Blog
08.July 2008 - 00:00
Emission Trading Scheme (ETS) – Summary of My Position, Eija-Riitta Korhola.
Emission Trading Scheme (ETS) – Summary of My Position, Eija-Riitta Korhola.
The EU ETS is a complicated and controversial issue involving high risks and benefits to industry, citizens and the planet. In theory this brilliant idea gives companies time to adjust to a large-scale change, where atmosphere has a price tag just like land. Companies must buy permits to pollute. Reducing emissions reduces the number needed so the spare permits may be traded on the market thus incentivising cleaner processes. However, the existing system is flawed, not least because it is not yet global. As long as there is no international agreement, the situation is challenging and carbon leakage must be prevented.
One key to its success lies in the methodology of allocating or selling the tradable permits required for an industrial or energy generating activity. The choice is between auctioning, free allocation or an intelligent combination of the two. Auctioning is favoured by the EC partly because it provides revenue that could be used for subsidising clean technologies needed for the fight against global warming – Carbon Capture and Storage is most often mentioned in this context. Even this is problematic as Member States seem unlikely to pass those revenues to the EC for such centralised projects. Moreover, buying permits is a tax on industry not seen anywhere else in the world. Energy intensive industries exposed to global markets will be rendered less competitive and will either move out of the EU or simply close down. I believe we must be most sensitive to this issue. Even Vice President Verheugen is on record as saying that to export pollution and import unemployment would be crazy. Giving free allocation to some industry sectors and not others is also problematic as no-one can draw the line without major disagreements and the consequent failure at vote.
I propose free allocation to all industry sectors – but with the proviso that only those getting their processes to meet lowest emissions and energy use benchmarks, will get totally free allocation. This is not only essential to encourage use of Best Available Technologies (BAT), it is also an essential part of preparation for those much needed but indefinable future international agreements. It will also make our own industries more efficient and ahead of others once the international playing field has been levelled. I see no logic in delaying the allocation until international agreements are ratified. This would cause uncertainty just when our industries need investor confidence for the best technologies. Auctioning is still possible in the power sector and I support that with the exceptions detailed in my amendments. So the possibility to collect significant revenues to support emerging clean technologies remains possible.
Most importantly, free allocation does not mean business as usual – it means that the reduction targets must be achieved through cost-incentivised benchmarking. According to several studies, auctioning is not a better system in terms of the final goal: Cutting the emissions – that should be the decisive criterion. This is a methodological choice and I believe it is a safer and more predictable approach for our industry until auctioning becomes a global system.
When we talk about granting free allowances for all manufacturing industry, according to performance based benchmarking with EU-reduction targets, there is no reason to talk about protection yet. It is a purely methodological choice and has nothing to do with protection. We still think that the commission study on carbon leakage on 2011 with the protection measures is needed but that is another thing and has most to do with the increased energy price in global market environment.
The details are all within my proposed amendments. Please do contact me if I can further assist in the understanding of what is before us. I believe this is not a party political matter; it is a question of balancing environmental aims with EU jobs using Best Available Technology and cost incentives.
Amendments for Article 10 a par. 7 and 8, Article 10a – paragraph 1 sub para 3 – proposing that in the absence of an international agreement, which provides for equivalent treatment of these sectors affected, 100% free allocations should be provided through benchmarks for all EU manufacturing industry until a real international agreement is reached. These benchmarks should be established for each sector covered by the Community scheme and they should be based on the best greenhouse gas and energy efficient technologies, the potential including the technical potential to reduce emissions and technologies available on the market. Also, free allocations to installations shall be made at a level no higher that is indicated by the appropriate sectoral benchmark so as to reward the most efficient operators. Auctioning should only be used for the electricity producers and to those as the Commission has proposed. For the sake of planning security, benchmarking systems should be agreed on in mid 2010.
Amendments for Article 10 a para 1 sub-para 3, Art. 10 a par 6 sub-para 3 and Recital 18 – The exception from auctioning for electricity production is the electricity produced in connection with industrial heat consumption or produced from residues from industrial processes, both for the own consumption of the operator of the installation. Should this electricity be then sold on to the grid, allowances should be bought the same as do the electricity producers. However, CO2 from the use of waste gases is inseparably linked to the installation producing these gases. All allowances should therefore be allocated for free to the operator of the installation producing the gases in accordance with the same allocation principles applied for that installation under the directive.
Amendment for Article 10 a para 3 – Heat produced efficiently through combined heat and power, independently of the source has environmental benefits and should therefore be encouraged.
Amendments for Article 10 a para 4, 5 and 9, Article 10 b and Recital 20 – Article 10a will be completely restructured according to our alternative allocation methodology, while still maintaining the concept of carbon leakage. Article 10a paragraphs 4 and 5 are not deeded anymore. The measures in Article 10a para 9 will be moved to Article 10b that specifically addresses the possible event of carbon leakage.
Amendment for Article 10 b – The cost incurrent by the pass-through of CO2-prices on electricity consumers could significantly impact on profitability of electricity intensive sectors. If connected to this the risk of carbon leakage is demonstrated, allowances shall be allocated additionally to those allocated for direct emissions.
Amendment for Article 28 para 2 – International agreement must be defined already now to a certain extent. It must lead to global emissions reductions of the magnitude required to effectively address climate change and which are monitorable, verifiable and subject mandatory enforcement arrangements. The measures should result in an equivalent burden for all industries exposed to international competition.
Emission Trading Scheme (ETS) – Summary of My Position, Eija-Riitta Korhola.
The EU ETS is a complicated and controversial issue involving high risks and benefits to industry, citizens and the planet. In theory this brilliant idea gives companies time to adjust to a large-scale change, where atmosphere has a price tag just like land. Companies must buy permits to pollute. Reducing emissions reduces the number needed so the spare permits may be traded on the market thus incentivising cleaner processes. However, the existing system is flawed, not least because it is not yet global. As long as there is no international agreement, the situation is challenging and carbon leakage must be prevented.
One key to its success lies in the methodology of allocating or selling the tradable permits required for an industrial or energy generating activity. The choice is between auctioning, free allocation or an intelligent combination of the two. Auctioning is favoured by the EC partly because it provides revenue that could be used for subsidising clean technologies needed for the fight against global warming – Carbon Capture and Storage is most often mentioned in this context. Even this is problematic as Member States seem unlikely to pass those revenues to the EC for such centralised projects. Moreover, buying permits is a tax on industry not seen anywhere else in the world. Energy intensive industries exposed to global markets will be rendered less competitive and will either move out of the EU or simply close down. I believe we must be most sensitive to this issue. Even Vice President Verheugen is on record as saying that to export pollution and import unemployment would be crazy. Giving free allocation to some industry sectors and not others is also problematic as no-one can draw the line without major disagreements and the consequent failure at vote.
I propose free allocation to all industry sectors – but with the proviso that only those getting their processes to meet lowest emissions and energy use benchmarks, will get totally free allocation. This is not only essential to encourage use of Best Available Technologies (BAT), it is also an essential part of preparation for those much needed but indefinable future international agreements. It will also make our own industries more efficient and ahead of others once the international playing field has been levelled. I see no logic in delaying the allocation until international agreements are ratified. This would cause uncertainty just when our industries need investor confidence for the best technologies. Auctioning is still possible in the power sector and I support that with the exceptions detailed in my amendments. So the possibility to collect significant revenues to support emerging clean technologies remains possible.
Most importantly, free allocation does not mean business as usual – it means that the reduction targets must be achieved through cost-incentivised benchmarking. According to several studies, auctioning is not a better system in terms of the final goal: Cutting the emissions – that should be the decisive criterion. This is a methodological choice and I believe it is a safer and more predictable approach for our industry until auctioning becomes a global system.
When we talk about granting free allowances for all manufacturing industry, according to performance based benchmarking with EU-reduction targets, there is no reason to talk about protection yet. It is a purely methodological choice and has nothing to do with protection. We still think that the commission study on carbon leakage on 2011 with the protection measures is needed but that is another thing and has most to do with the increased energy price in global market environment.
The details are all within my proposed amendments. Please do contact me if I can further assist in the understanding of what is before us. I believe this is not a party political matter; it is a question of balancing environmental aims with EU jobs using Best Available Technology and cost incentives.
Amendments for Article 10 a par. 7 and 8, Article 10a – paragraph 1 sub para 3 – proposing that in the absence of an international agreement, which provides for equivalent treatment of these sectors affected, 100% free allocations should be provided through benchmarks for all EU manufacturing industry until a real international agreement is reached. These benchmarks should be established for each sector covered by the Community scheme and they should be based on the best greenhouse gas and energy efficient technologies, the potential including the technical potential to reduce emissions and technologies available on the market. Also, free allocations to installations shall be made at a level no higher that is indicated by the appropriate sectoral benchmark so as to reward the most efficient operators. Auctioning should only be used for the electricity producers and to those as the Commission has proposed. For the sake of planning security, benchmarking systems should be agreed on in mid 2010.
Amendments for Article 10 a para 1 sub-para 3, Art. 10 a par 6 sub-para 3 and Recital 18 – The exception from auctioning for electricity production is the electricity produced in connection with industrial heat consumption or produced from residues from industrial processes, both for the own consumption of the operator of the installation. Should this electricity be then sold on to the grid, allowances should be bought the same as do the electricity producers. However, CO2 from the use of waste gases is inseparably linked to the installation producing these gases. All allowances should therefore be allocated for free to the operator of the installation producing the gases in accordance with the same allocation principles applied for that installation under the directive.
Amendment for Article 10 a para 3 – Heat produced efficiently through combined heat and power, independently of the source has environmental benefits and should therefore be encouraged.
Amendments for Article 10 a para 4, 5 and 9, Article 10 b and Recital 20 – Article 10a will be completely restructured according to our alternative allocation methodology, while still maintaining the concept of carbon leakage. Article 10a paragraphs 4 and 5 are not deeded anymore. The measures in Article 10a para 9 will be moved to Article 10b that specifically addresses the possible event of carbon leakage.
Amendment for Article 10 b – The cost incurrent by the pass-through of CO2-prices on electricity consumers could significantly impact on profitability of electricity intensive sectors. If connected to this the risk of carbon leakage is demonstrated, allowances shall be allocated additionally to those allocated for direct emissions.
Amendment for Article 28 para 2 – International agreement must be defined already now to a certain extent. It must lead to global emissions reductions of the magnitude required to effectively address climate change and which are monitorable, verifiable and subject mandatory enforcement arrangements. The measures should result in an equivalent burden for all industries exposed to international competition.