ETS - The best acheivable compromise: a formidable challenge ahead

January 2009 - The Political Agreement reached in December 2008 on the energy and climate change package, all in first reading, was a real “tour de force” of the French Presidency. Regarding the ETSⁱ, much of the credit must also be given to Avril Doyle’s work as Rapporteur (EPP-IRL) in the European Parliament on this part of the package.

For CEMBUREAU, the agreement is the best achievable compromise. Certainty was obtained on key points, nevertheless a lot of uncertainty remains on key issues to be resolved by comitology with scrutiny.

The cement industry should have no problem qualifying as an energy intensive industry vulnerable to carbon leakage. It no doubt meets the quantitative criterion set out in the agreement: an increase of production cost, directly and indirectly induced by the ETS, of at least 30% of Gross Value Added (GVA). With such a precise quantitative test in the Directive, there should be no room left to interpretation. CEMBUREAU, however, will have to pay attention to the calculation that will be required.

From this essential recognition, flow a number of consequences of high relevance to the cement industry: free allocation of allowances via a benchmark reflecting the average of the top 10% most efficient installations in the EU and the possibility to seek an international level playing field by including EU importers in the ETS for as long as no international agreement brings about equal treatment.

CEMBUREAU also welcomes the inclusion in the text of some key requirements to be used by the international agreement: it must lead “to mandatory reductions of GHG emissions exceeding 20% compared to 1990 levels, as reflected in the 30% commitment endorsed by the Spring 2007 European Council” [Art. 28.1]. In spite of these numerous improvements, compared to the initial European Commission’s proposal, a lot of uncertainty still prevails regarding the amount of allowances to be received free of charge. One thing is certain: it will not be 100% of the industry’s needs. The volume of allowances will be reduced by the cap and various adjustments and corrections foreseen by the Directive. A precise calculation is impossible for the time being as some parameters will be based on future data. If the market grows, as it is expected to in the period 2013-2020, it will be impossible for EU producers to meet demand by domestic production. That is why the inclusion of importers in the scheme is so important. Such inclusion would be equitable and would contribute to strengthen the environmental efficiency of the ETS. Whether this can be practically achieved in full compliance with WTO rules, as an environmental – not a tax – measure, is a task that CEMBUREAU will now have to address as the European Commission will have to make up its mind by June 2010.