Entec study for the European Commission
Industry has already expressed its position against an EU-wide trading scheme for NOx and SO2 emissions based on very strong reservations about the putative environmental and economic benefits of such a scheme.
A key point is that industrial and other emissions of these gases are already effectively regulated under several international agreements, European directives and national measures, such as taxation. A trading scheme would bring double regulation and generate unnecessary costs.
On 10 February 2010, the European Commission (DG-ENV) organised a stakeholder consultation meeting on NOx and SO2 trading during which the Entec study “Assessment of the possible development of an EU-wide NOx and SO2 trading scheme for IPPCi installations” was presented. The meeting was attended by representatives of the Member States, NGOs and industry, including CEMBUREAU.
The draft report on the first study does not make a convincing case and does not provide clear and satisfactory responses on a number of vital points.
Furthermore, CEMBUREAU has identified a clear error in the Business-as-Usual (BAUi) and REFERENCE SCENARIO emission assumptions for the cement sector.
Cement sector erroneously key for trading
The conclusions of the whole Entec study are driven by what may happen in the cement sector. Therefore, cement is the key sector in respect of which a trading system would make sense, according to Entec.
The study concludes that a huge reduction of emissions for the cement sector is potentially achievable and relatively cheap under a trading scheme. However, some of the assumptions by Entec are questionable:
This is even clearer for SO2. In the cement industry, SO2 emissions are directly related to the sulphur content of the raw materials, therefore EU-wide emission levels from cement plants are overall low, which means that most of the plants do not need any additional end-of-pipe abatement measures to operate according to BATi.
Plants with low SO2 emissions are not necessarily those with abatement measures in place. Those with emissions of 400mg/Nm3 may have applied abatement measures and thus have no further potential to reduce emissions. The only installations with the potential to reduce their emissions are but a few with high SO2 emissions related to the sulphur content of the raw materials.
This also applies to NOx, but to a lesser extent. Some plants have come down to 800mg/Nm3 and have no room for further abatement, whereas others, at 700mg/Nm3, may have.
The equivocal assumptions in the modelling are due to:
- The GVA in 2020 projected through the PRIMES Model has been applied directly to clinker production leading to an estimated huge capacity increase which is unlikely to materialise, and
This point has been acknowledged by DG ENV as crucial to the REFERENCE SCENARIO and Entec has been asked to clarify it. After the meeting, upon a query raised by CEMBUREAU, the European Commission confirmed that “DG ENV has agreed with Entec that they would do some additional sensitivity analysis to assess what would be the impacts of different assumptions concerning the uptake of SNCR under the baseline/reference/trading scenarios. A revised version of the report should be available around the end of March.”
General innacuracies in the Entec study
The report contains some inaccuracies and methodological approximations which raise questions about the robustness of the conclusions presented:
There is no assessment of the impact of setting ELVs for NOx and SO2 on top of trading, which is the likely situation. BAT/ELVs and trading do not work together as market liquidity will be very low.
Secondly, costs are presented in the report as savings compared to a reference scenario. In fact, they remain costs for industry. For companies already applying BAT the system will only bring costs. Only in the situation where the allocation rules would give full free allocation to any installation applying BAT would this be resolved. In any event, administrative costs would come on top of this.
The total cost of €35 million/year regarding monitoring, reporting and verification would appear to be an underestimation.
There is no assessment of the indirect costs to energy intensive industries due to the impact of a trading scheme on power prices. These effects need to be assessed at national level. The first study is not clear about whether the indirect costs (excluding the indirect impacts on power prices) will be taken into consideration in the second study.
The report does not address the issue of cross-media effects (page 150). There will be cross media effects if the IPPC/IED is no longer applied to the pollutants.
An EU-wide trading scheme does not make sense environmentally as it would be equivalent to giving the right to trade health effects across Europe.
Furthermore, a trading scheme has the potential to increase emissions in centres of population, thereby creating air quality hotspots. The study does not adequately address this issue.
It is questionable whether the database sufficiently represents the actual situation of the plants. If it does not, it is impossible to rely on data regarding emission reductions and related costs, as these two are strictly plant-related.
The basis of the study for 2020 projections is an out-of-date set of energy projections from the PRIMES model which do not adequately account for the effects of the economic crisis. In addition, the expected huge growth in emissions is unlikely as all new investments will be at BAT level.
The conclusions of the study are based on a very complex modelling process which contains significant uncertainties throughout.
For example, the BAU scenarios show enormous growth in sector emissions compared to the EPER 2004 data. There is little or no sensitivity analysis of the data used in the scenarios. The study lacks a more careful assessment and quantification of the impact of these uncertainties on the policy-relevant conclusions.
The perfect market conditions assumed in the report in fact do not exist. This is clearly visible in the EU CO2 ETSi and it has a significant impact. For instance:
The objectives of the Entec study are basically assessed against one single parameter: the theoretical cost-advantage of a trading scheme versus an IED approach, thereby concluding that a trading scheme would be substantially cheaper than the implementation of the IED.
Even the Entec study actually shows that the ‘window of opportunity’ for an trading scheme is quite small. Although this conclusion is somewhat hidden in the report, the large cost-gains seem to rely heavily on the assumption that all IED requirements are removed and upper-limit BATs can be reached via a trading scheme. The cost-advantage of moving beyond upper-limit-BATs via a trading scheme appears to be limited.
In actual fact, the trading scheme is being proposed at a late policy phase in which the environmental problem has already been substantially reduced. Industrial NOx and SO2 emissions in the EU, including those from the cement sector, have dropped substantially since the mid 1990s. This has been achieved through the legal enforcement of Emission Limit Values for individual emission sources.
Furthermore, the trading scheme is introduced within a policy framework that all stakeholders agree cannot be simply removed as Entec assumes. Interaction with standing polices will decrease its potential efficiency and increase the complexity of air pollution policies, whereas the Commission aims at simplification.
The proportionality of introducing a trading scheme for NOx and especially for SO2 is questionable as it goes in the opposite direction to the EU’s supposed policy making system. From the perspective of the cement sector, these arguments are even stronger because the SO2 performance of the sector is already good.
The desired air quality can be achieved by the better implementation of existing legislation, which is the motive behind the European Commission ongoing recast of the IPPC and six other directives into the Industrial Emissions Directive.