Fears that tighter controls on CO2 emissions in Europe will drive factories to relocate abroad has led the EU to grant sweeping exemptions for industries deemed to be at risk.
Existing proposals for the permits to be allocated according to carbon intensity „benchmarks” were approved with only slight modifications by the European Commission on 15 December.
Barring rejection of the decision, the permits will then be issued under the EU’s Emissions Trading Scheme (ETS), the world’s largest carbon market. This will be its third phase. Phase I ran from 2005-2007 and Phase II from 2008-2012.
During discussions, some technical changes were made to the permit proposals. Product benchmarks were dropped for iron ore pellets while those for nitric acid, ammonia, carbon black, Electric Arc Furnace (EAF) carbon steel and EAF high alloy steel were revised.
Thus the benchmark for hot metal has been set at 1.328 permits per ton of product (lower than the price sought by the steel lobby), while for oil refineries it is 0.0295 allowances per unit of output. Oil refinery output is measured by „CO2-Weighted Tonnes”.
Warnings by some firms of „carbon leakage” have led the Commission to identify 164 industrial sectors with higher CO2 costs, and higher exposure to international trade.
These companies will be awarded 100% of their benchmarked allowances for free until the end of 2014 to encourage them not to „leak”. After 2014, the list will be revised according to unchanged criteria.
Environmentalists have expressed concerns that such high benchmarks may in effect subsidise carbon-intensive business sectors represented by powerful industrial lobbies. But Ms Kokkonen insisted that the new measures would deter leakage.
„It allows companies to earn money if they can reduce emissions at a cost below the carbon price,” she said „as they would earn money from investing in reducing emissions and selling allowances. At the same time it shelters them from carbon leakage as they need to buy fewer allowances for maintaining existing activities.”