EU-ETS: Work in progress paves the way for key decisions

August 2009 - The summer recess in Brussels typically shows a contrast between a very busy month of July, when the European Commission clean their desks, and a sleepy August when most Eurocrats enjoy a well deserved rest.

This year, however, this pattern was altered as a result of the short term deadline imposed by the revision of the Directive on emission trading. In order to comply with the 31 December deadline on the decision regarding which sectors or subsectors will qualify as vulnerable to carbon leakage – a decision to be made through a regulatory comitology procedure with EP scrutiny – the Climate Change Committee must have made up its mind in September. Over the summer, the question arose whether the assessment should go ahead, as initially planned, on the combined basis of €30 per tonne of CO2 and at full auctioning. The latter parameter raised a difficulty as, in 2020, only 80% of the allowances, rather than 100%, will have to be auctioned. The point was loudly made by E- NGOs.

The European Commission, while maintaining the €30 per tonne of CO2, went through a complex exercise taking into account the reduction obligation imposed by the Directive for the years 2013 and 2014 and attempting to estimate the extra quantities of allowances that will have to be purchased in those years as a result of the anticipated benchmarks. As benchmarks are still a long way from decision, this is a perilous exercise. Eventually, in early September, the European Commission has come up with a revised proposal under which the assessment will be made at 75% auctioning for 2013 and 2014.

To the European cement industry this does not seem at first to be a problem as it is clear that it will qualify as vulnerable to carbon leakage as a result of increased production costs directly and indirectly induced by the EU-ETSⁱ that are far in excess of the 30% of GVA set by the Directive. In actual fact only two sectors – cement and lime – do qualify under this criterion whilst a large number of other sectors qualify on the basis of trade intensity related criteria. It remains, however, that the position of the 2 sectors is far from being entrenched. A first revision of the list will take place in 2014 and, if the same approach is taken, the volume of auctioning to be taken in the assessment may dwindle down and make qualification on the CO2 increase basis more dubious.

The Climate Change Committee’s decision is expected to be adopted on 18 September. After that, it will be subject to parliamentary scrutiny.

During the same period, the Commission proceeded with a stakeholders consultation on the internet regarding auctioning.CEMBUREAU’s response can be found here.

It is easy to guess that the summer was also very busy for ECOFYS, the consultant appointed by the European Commission (DG ENV) to lay the structural ground for decisionsto be made in 2010 on benchmarks for those sectors and/or subsectors at risk of carbon leakage. CEMBUREAU provided ECOFYS with all the information required to support the EU-wide clinker benchmark. ECOFYS has submitted its report to the European Commission. The final report is expected to be published by the end of October.

All those topics are very time consuming for industry as well as for the European Commission. The technical background is now more clearly defined than before the summer and the political battles will no doubt start in the autumn.