Energy and Climate Change
ETS: on the right track but pitfalls remain
Following today’s vote at plenary on the Emissions Trading System the Confederation of European Paper Industries (CEPI) is overall encouraged by the compromise text reached. There is much in the agreement that the industry can be positive about, retaining many of the key components of the compromise text agreed the Environment committee (ENVI) stage.
“The ETS has moved a step further on its pro-investment track. Although pitfalls still remain at Council level we are confident that the current text can be improved on” says Nicola Rega, Energy and Climate Change Director at CEPI
The industry commends several key aspects of the Parliament’s decision:
• Reemphasising the need for all sectors to contribute to reducing carbon emissions
• Encouragement of early movers investing in low-carbon technologies
• Maintaining flexibility in setting the auction share
• A first step in finding solutions to help member states with compensation for indirect carbon costs
• The development of a wider-ranging fund for innovation supporting industry transition towards a low-carbon economy
Unfortunately, the macro-agreement at the core of the decision by the Parliament still maintains traces of discrimination between sectors, ultimately rewarding those investing the least in carbon emission reductions. But we are confident that this environmentally and legally questionable element will be removed as the next stage of the negotiations. This would guarantee that fairness remains a core component of the ETS.
For more information, please contact Nicola Rega at email@example.com or by phone at (+32) 485 40 34 12
For press related enquiries, please contact Ben Kennard at firstname.lastname@example.org or by phone at (+32 487 39 21 82)
Energy-intensive sectors call on MEPs to reject any "tiered approach"
We, the signatories of this paper, energy-intensive sectors representing about 2 million jobs in the EU and comprising many SME’s, are under direct impact of the EU ETS and are recognized as exposed to carbon, investment and employment leakage.
We ask Members of the European Parliament to acknowledge the mutual importance of our sectors for the EU economy, in particular for European jobs in your constituencies, and all our economic value chains by fully rejecting any “tiered approach” to free allocation and voting against it.
In order to ensure an equal level playing field for all energy-intensive industries, we call for the rejection of all approaches which aim at discriminating a few from other sectors exposed to carbon leakage risks, namely: the “tiered approach” to free allowance allocation, the “tiered CSCF” and the “import inclusion mechanism”.
This discrimination between industrial sectors goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, it would ensure that even best performers in most sectors would bear significant carbon costs.
We appreciate that all policy makers want to avoid undue carbon costs to industry and the triggering of the cross-sectoral correction factor (CSCF, reduces benchmark-based allocation to undertakings). The fairest and most effective way to provide eligible companies with the allowances needed for controlling the carbon leakage risk and still avoiding the CSCF is to increase the free allocation share and to reduce the auctioning volume accordingly. However, we are concerned by the ENVI proposal to exclude only certain sectors from the application of the CSCF, via the so-called “tiered CSCF”. Other sectors in turn would be severely undersupplied. Again this approach would arbitrarily differentiate between different European industries. Protection of some sectors should not be achieved at the expense of the others. Such segregation would also bring into question the environmental integrity of the scheme.
Moreover, we are alarmed by the late introduction of an entirely new proposal for an “import inclusion mechanism” for sectors with lower trade intensity. This is discriminatory, legally questionable and would limit the ability of certain sectors to compete on a level playing field. The notion is contrary to the principal idea of the carbon leakage risk assessment being based on two main criteria (trade intensity and CO2 intensity) as the “import inclusion mechanism” only considers the former. Finally, it goes against the Paris Agreement which does not contain any suggestions allowing for unilateral trade measures. Overall, it introduces a major change to the future of the ETS scheme increasing the legal uncertainty for the ETS reform post 2020.
We reiterate our opposition to any differentiation between the energy intensive industries and under any form of the “tiered approach” and ask you to reject it in the Plenary.
ETS review: Game over for Tiered Approach
Today’s vote in Environment Committee of the European Parliament marks another major stepping stone for the ETS review.
“There are no more doubts. The message from the Parliament is unequivocal: Game over for the tiered approach. The time has come to promote and reward low-carbon investments” says Nicola Rega, Climate Change and Energy Director at the Confederation of European Paper Industries (CEPI).
The vote reinforces the decisions already taken by the European Parliament’s Committee on Industry, Research and Energy in mid-October. It underlines the need for all sectors to contribute in reducing carbon emissions; flexibility in setting the auction share; a pragmatic solution to help member states with compensation for indirect carbon costs, and a wider-ranging fund for innovation.
The broad range of political support reached proves that the difficulties negotiators faced over the last months were worth it. We therefore fully congratulate the rapporteur, Ian Duncan, and the shadow rapporteurs Ivo Belet, Jytte Guteland, Gerben-Jan Gerbrandy, Kateřina Konečná, Eleonora Evi, Bas Eickhout and Mireille d’Ornano for their commitment to achieving a common position.
Although these are positive developments, a lot still needs to be achieved ahead of the Council negotiations. In particular, the solutions to address the impact of the cross-sectoral correction factor are far from satisfactory. The attempt to shield more than 50% of industrial emissions from this mechanism is unjustifiable from an environmental, economic and equitable perspective. It doubles the uncertainty connected to the CSCF for less carbon intensive sectors and limits their investment security for low carbon investments. In addition, the last-minute solution to include a border adjustment mechanism into the ETS raises more questions than answers.
A significant investment challenge lies ahead for European manufacturing industry to transform its production base and regain competitiveness. With our positive attitude we will constructively continue to engage with policy-makers to ensure that the ETS will work as a tool to reward low-carbon investments. It is high time we put the ETS on a pro-investment track.
For more information, please contact Nicola Rega at email@example.com or by phone at: +32 485 40 34 12
ETS Review: European paper industry commends rejection of tiered approach
Today’s vote in the European Parliament marks a major stepping stone for the ETS review.
“This message reads loud and clear:
NO to a tiered approach on carbon leakage and YES to a dynamic and predictable benchmark’s reduction”
says Nicola Rega, Climate Change and Energy Director representing the Confederation of European Paper Industries (CEPI).
The proposed flexibility in setting the auction share together with proposed solutions to help member states with compensation for indirect carbon costs and the wider-ranging fund for innovation are also welcomed by our industry.
We recognise the efforts made towards reaching a broad political agreement embracing almost all the political groups. This is a very positive signal as it demonstrates the strong consensus behind this vote. We fully congratulate the rapporteur, Frederik Federley and shadow rapporteurs Esther de Lange, Edouard Martin and Hans-Olaf Henkel for their commitment to achieving a common position.
Although these are positive developments, more work needs to be done to address the text’s shortcomings, particularly on benchmarks, the impact of the cross-sectoral correction factor and on effective compensation for indirect costs across Europe.
A significant investment challenge lies ahead for European manufacturing industry to transform its production base and regain competitiveness. We will constructively engage with policy-makers to ensure industry’s viability and that the ETS rewards low-carbon investments. We urge the ENVI Committee to seize the opportunity to build upon ITRE’s lead and to put the ETS on a pro-investment track.
For more information, please contact Nicola Rega at firstname.lastname@example.org or by mobile: (+32) 26274918
Note to the Editor
CEPI aisbl - The Confederation of European Paper Industries
The Confederation of European Paper Industries (CEPI) is a Brussels-based non-profit organisation regrouping the European pulp and paper industry and championing the industry’s achievements and the benefits of its products. Through its 18 member countries (17 European Union members plus Norway) CEPI represents some 505 pulp, paper and board producing companies across Europe, ranging from small and medium sized companies to multi-nationals, and 920 paper mills. Together they represent 23% of world production.
Tiered approach impacts seriously the majority of energy-intensive industries in the EU and their associated value chains
We, the signatories of this paper, energy-intensive sectors representing about 2 million jobs in the EU and comprising many SME’s, are under direct impact of the EU ETS and are deemed exposed to carbon, investment and employment leakage.
We urge Members of the European Parliament to acknowledge the importance of our sectors for the EU economy, in particular for European jobs, and all their economic value chains by rejecting any “tiered approach” to free allocation and voting against it.
We strongly oppose any “tiered approach1” and continue to advocate for full (100%) free allocation up to emissions efficiency benchmark levels for all sectors.
We maintain that:
- The tiered approach would reserve free allowances for some sectors at the expense of others. It would go against the principle set in the October European Council Conclusions that best performing companies in the ETS carbon leakage sectors should not bear additional carbon costs. Fairness should be a key principle of policy making. Jobs in one sector are neither more nor less important than those in other sectors.
- The proposed tiering has no economic logic. It is based on flawed assumptions that the European industrial sectors could pass on costs without losing market shares and lacks any cost comparison between a given European and a non-European sector.
- Nor does it have proven environmental logic. It would not deliver decarbonisation through investment and innovation but rather drag those investments outside Europe. In fact, the tiered approach punishes a sector investing in carbon emission reductions by giving a lower protection against the risk of carbon leakage as a direct consequence of these investments.
- Moreover, it could well prove to have been unnecessary to prevent a Cross Sectoral Correction factor (CSCF). Many analysts’ reports, including the Commission’s Impact Assessment, predict that there will be sufficient allowances available to ensure full free allocation at the benchmark levels and there is no grounds for referring to discriminatory instruments.
Our industries have made several alternative proposals to tiering, which include a lower auctioning share (52% instead of 57%), the application of a dynamic allocation and a fully flexible reserve for growth that would deliver full and effective carbon leakage protection without the need for arbitrary discrimination.
In conclusion, we ask you to create a framework that gives all sectors an equal opportunity to thrive in Europe and not to pick and choose which sectors stay in Europe.
1. Cefic - European Chemical Industry Council
2. Cembureau – European Cement Association
3. Cepi – Confederation of European Paper Industries
4. Cerame-Unie - European Ceramic Industry Association
5. Epmf – European Precious Metals Federation
6. European Copper Institute
7. Esga – European Special Glass Association
8. Esta – European Steel Tube Association
9. EuroAlliages - Association of European ferro-Alloy producers
10. Eurogypsum - Gypsum Industry
11. Eula – European Lime Association
12. Exca - European Expanded Clay Association
13. Feve – The European Container Glass Association
14. Association of the world's Primary Nickel Producers
15. International Zinc Association
1 In fact, there is no single approach on tiering, as there is no sound basis to build a tiered approach in the EU ETS.
Hydrophobic Deep Eutectic Solvents promise to play key role in making paper industry more sustainable
PhD research carried out as part of the PROVIDES project has recently resulted in promising new sustainable hydrophobic Deep Eutectic Solvents (DESs). These hydrophobic DESs could successfully replace chemical solvents in the paper recycling process in order to remove transition metal ions such as iron and manganese from paper pulp.
Coordinated by ISPT, the industry-driven PROVIDES project focuses on developing environmentally friendly alternatives to chemical solvents in the European pulp and paper industry. It is financially supported by 20 industrial partners.
Deep Eutectic Solvents (DESs) are nature-based, renewable, biodegradable, low-volatile and cost-effective. When used for producing high-quality cellulose fibers in paper-making applications, they are extremely energy efficient, particularly because they do not require high temperatures. They offer a groundbreaking new method for the pulping of many different lignocellulosic materials for producing chemical pulp, pure lignin and other chemicals.
Read the full press release by ISPT here.
DES was the winning project of the Two Team Project, a CEPI project thanks to which the industry identified eight breakthrough technologies that would help decarbonise papermaking. Read more about it here.
CEPI joins demand-side flexibility platform
CEPI has joined I.D.E.A.S., a European informal multi-stakeholder platform for advocates of demand-side flexibility. I.D.E.A.S stands for:
• Improve energy efficiency
• Develop new business models
• Empower consumers
• Address security of supply and competitiveness
• Support a cost-efficient integration of renewable energy sources
The aim of the platform is to contribute to the development and implementation of European policies and initiatives to drive the deployment of flexible demand side resources in support of EU’s goals in energy and climate, security of supply and competitiveness.
The platform consists of the following European industry associations and civil society organisations:
- European Building Automation Controls Association
- COGEN Europe
- EDSO for smart grids
- European Climate Foundation
- European Copper Institute
- Smart Energy Demand Coalition
- European Heat Pump Association
- Solar Power Europe
- IFIEC Europe
- EREF - European Renewable Energies Federation
- Wind Europe
We are looking forward to sharing intelligence and expertise and exchanging on possible common actions.
Post 2020 ETS reform
Statement in view of the Environment Council on 20 June 2016
As a market-based system, emissions trading has the best potential to reduce greenhouse gas emissions in the lowest-cost way, and to create a market signal to drive low-carbon investment. The undersigned associations support the principles of the EU ETS as the cornerstone mechanism to deliver cost-efficient emission reductions in the EU while at the same time securing a global level playing field for industry.
But, for this to be achievable, we need to ensure that the EU ETS works for every covered sector. We must make sure that the energy-intensive, carbon-intensive and/or trade-exposed industries, operating in a highly competitive global market get the right kind of support to enable them to continue to reduce emissions within the EU. For the power sector, which needs significant levels of investment to secure and decarbonise the electricity supply, we must ensure a carbon price that provides a meaningful signal towards the sector’s low carbon investment decisions today and tomorrow.
The post 2020 ETS reform must focus on achieving long-lasting, holistic and effective changes to the system in order to instil confidence in the market. An essential element of the reform is to provide long-term predictability and legal stability to industry and investors, and to avoid the quick-fixes and piecemeal approach we have seen in the recent past.
In this respect, the European Commission’s proposal to set, in the ETS Directive itself, the ratio between the shares of allowances for auctioning and those for free allocation is an element of certainty. However, the rules should ensure the right balance between ensuring liquidity with regard to the available auctioning volumes and providing the necessary volume of free allowances on the level of best performers in order to avoid carbon and investment leakage.
The undersigned associations are committed to make the reform of the EU ETS a success. But it must be a success for all the covered sectors. As representatives of major industrial sectors, we will remain firm on this point as this will be essential to develop and strengthen the industrial value chain across Europe as well as European industry’s international competitiveness.
The day Aristotle said: “The Tiered Approach doesn’t work”
This article appeared in the Parliament Magazine issue no 435, 30 May 2016
Aristotle often used the reduction ad absurdum to show the untenable consequences one would ensue from accepting the item at issue. If he was alive and would hear about the Tiered Approach in the ETS review, we would probably have engaged in the following dialogue:
Aristotle: What is the purpose of proposing a Tiered Approach?
N.Rega: To avoid the so-called cross-sectoral correction factor (CSCF) – a uniformed cut in free credits allocated to each industrial installation, should the total demand excess the total availability of free credits.
How would a Tiered Approach work? Sectors are clustered in different groups, and receive a different level of free credits. How would sectors be clustered?
On the basis of the different degree of the sectors’ exposure to the risk of carbon leakage, whereby industrial production would relocate outside the EU due to climate policies.
And how could different exposure levels to such risk be evaluated?
For every sector we should assess the impact of carbon pricing in and outside the EU, the carbon intensity of EU and non-EU production, specific trade patterns, products’ price elasticity, and so-forth.
Have any of these analyses been used in the proposed tiered approach?
Not really. Sectors have not been compared with their respective non-EU sectors. Instead, they have just been all lined up and assumed that the higher a sector strikes in terms of combined carbon and trade intensity, the higher it is exposed.
This is counter-intuitive: when a sector reduces its carbon intensity, shouldn’t it increase its exposure to the risk of carbon leakage?
Indeed, as relocation outside the EU in countries with less stringent carbon constraints would then increase global carbon emissions.
So far, the methodology behind the Tiered Approach doesn’t look very sound-based.
Indeed, one could argue that it is rather arbitrary and discriminatory.
Could it be legally challenged?
In case of rigid boundaries in defining the carbon leakage groups, companies not receiving the highest level of free credits will most likely go to court.
Would these companies have a chance to win?
Most likely, given the flawed methodology being used.
What would happen then?
Sectors would retroactively receive additional free credits at the highest level.
So, the risk of triggering the CSCF won’t be avoided.
And what if the boundaries were not be rigid but rather flexible?
In this case, sectors initially allocated in some clusters would still be allowed to prove their higher need for protection, via the so-called qualitative assessment.
But if sectors will be granted additional free credits, where would these come from?
Like in past cases, the Commission would have to take a relevant amount of free credits upfront and park them aside, in case all sectors would apply and receive full protection.
Does it mean that sectors will be deemed to receive 100% free credits?
Yes, as allowances potentially needed would not be allocated.
So, also in this case, the risk of triggering the CSCF won’t be reduced.
Indeed. Additionally, a generalised use of the qualitative assessment would exponentially increase both the administrative burden and the lack of transparency in the decision-making process.
Thanks to Aristotle, we have come to a straight-forward conclusion: the Tiered Approach defeats its original purpose, namely to reduce the risk of triggering the CSCF. With additional drawbacks impacting the stability, predictability and transparency of regulatory framework.
A better way to cost-effectively reduce industry’s demand for free credits is to focus instead on developing rules to stimulate and reward investments in low-carbon technologies. In this respect, tiering does neither. Something that even Aristotle would agree upon.
Strong industry concerns on the ITRE Draft Opinion on the EU-ETS Reform post-2020 and other thought experiments putting industries at risk of carbon leakage
Tiering is not the solution
The undersigned energy-intensive industries express their strong concerns regarding the proposal to introduce “tiered approaches” to carbon leakage protection, as introduced in the ITRE Draft Opinion.
According to all forecasts, “tiering” is not needed.
All forecasts, including the Commission’s Impact Assessment, predict that a shortage of free allowances is highly unlikely during phase IV of the ETS. A shortage can be as good as excluded if the proposed share of allowances to be auctioned were properly calculated. Those 700 million ‘unused’ allowances of phase III (that were earmarked for free allocation but remained unallocated due to business closures or a lack of new entrants) should remain available and within reach if needed for production, recovery and growth during 2021-2030. Thus, the ETS reform can deliver the agreed emission reductions cost-effectively, encourage best performance through safeguarding full and effective carbon leakage protection to the benchmark level. There is no need for exposing parts of EU industry to undue carbon costs.
The ITRE Draft Opinion proposes to expose a lot of industrial sectors to the risk of carbon leakage.
Burdening companies with undue carbon costs by cutting free allocation would divert resources from modernising and upgrading industrial infrastructure, thus exacerbating the risk of investment leakage to countries with less stringent climate policies. This does not send a positive signal to European
industry to accompany its decarbonisation investments and undermines our faith in, and support for, the ETS as a cost-effective means of reducing carbon emissions.
“Tiering” is based on theoretical assumptions and distorts the internal market
The proposed tiering has no environmental or economic justification and is based on flawed assumptions (“cost pass-through”) of unpredictable market dynamics. It reserves free allowances for some sectors at the expense of others. It goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, tiering would ensure that even best performers in most sectors would bear significant carbon costs and expose them to carbon and investment leakage.
Statistical indicators vary - sometimes greatly - with time and depend on many factors (market conditions, company structures, exposure to international trade, etc.). Hence, the setting of thresholds would be arbitrary and would risk not reflecting future needs and leakage risks of the sectors.
As a result, we call on the Members of the ITRE Committee to react strongly to the Draft Opinion, so that the ETS reform delivers full and effective carbon leakage protection without the need for arbitrary discrimination. Jobs in one sector are neither more nor less important than those in other sectors.
We call for an approach based on realistic benchmarks, allocation based on more recent production data and an adequate reserve that ensures full allocation to benchmark levels. Fairness and solidity should become key principles of policy making. We ask you to create a framework that gives all sectors an equal opportunity to compete and thrive in Europe, and not to pick certain sectors to stay in Europe.
ETS Review: Five comments and proposals on the ITRE draft opinion
On 26 April the ITRE rapporteur published the draft opinion on the Commission proposal to review the Emission Trading System. While the report includes some positive proposals, other aspects still need to be improved. In some cases, some proposed solutions would need to be thoroughly thought through, as they would have the unintended consequence of negatively impacting industrial competitiveness and destabilising the regulatory framework.
The following five aspects are of primary importance:
1. Availability of free allowances for industry
On the positive side, the report seeks to increase the availability of free credits for new entrants and production increases. On the other hand, the report does not address the fundamental question of how to ensure enough free credits to meet industry’s needs.
CEPI proposal: as future industry demand for free credits is subject to many uncertainties, any firm decision taken now will likely result in either excess of unused free credits or an excessive shortage of these. We would thus suggest focusing on:
- Re-balancing the share free credits/auctioning to 47.5% /52.5%, to take into consideration free credits originally allocated to industry but unused due to the economic crisis.
- Stimulating and rewarding investments in low-carbon technologies: this would be the most cost-effective way to meet the free credits cap while improving industry’s competitiveness.
- Defining in the legislation a process whereby the availability of free credits is constantly monitored and, in case of upcoming shortage, the legislator is called to take the most informed decision, exploring all available options.
2. Carbon Leakage
The proposal from the rapporteur is simply unacceptable. The motivation that such a “tiered” approach would support the “sectors in greatest need” is arbitrary and lacks any evidence that such a system would target “those sectors genuinely and most exposed to carbon leakage”. Such a discriminatory approach, if approved, would inevitably entail legal challenges in courts, leading to an unstable and unpredictable regulatory framework. Moreover, it would increase the risk of carbon leakage for most sectors in the economy, putting millions of jobs across industries and local communities at risk.
CEPI proposal: keep the Commission proposal.
3. Benchmarks update
The proposal from the rapporteur is heading in the right direction. Building on the Commission proposal, it stresses the need to use real data and tries to accommodate the need of those sectors moving at a slower pace in emission reductions.
On the other hand, the slower reduction pace should be enlarged to any type of emission, not only to “unavoidable process emissions”. Moreover, the proposal does not address the risk for a sector of remaining “trapped” into one reduction pattern, independently of technological progress. The report also does not address rules for assessing progress in installations not covered by product benchmarks (so-called fall-back approaches), which are responsible for one third of industrial emissions.
- Build on the rapporteur’s proposed amendments.
- Assess progress in comparison to latest benchmark value set in the legislation.
- Broaden the 0.3% category to any type of source of emissions.
- Specify in the legislation the rules for assessing progress in installations not included in product benchmarks (fall-back), based on energy intensity improvements.
4. Indirect carbon costs passed on in electricity prices
Although we strongly support the need to reduce the impact of carbon costs in electricity prices, the proposals will have little or no impact in this respect. This is because most industrial installations purchase electricity on the wholesale market. Differing levels of compensation will not impact the way the electricity market operates, thus the way carbon costs are passed through in electricity prices. Suggesting that no compensation should be paid if the carbon price is less than 15 euros would expose industrial sectors to real costs in the short to medium term and is based upon the same flawed “tiering” approach proposed in the carbon leakage policy area.
The proposals would therefore increase the carbon cost exposure for industries while not addressing the shortcomings of the current state aid regime, namely the lack of compensation in all Member States and the unpredictability of the rules. It should also be noted that, in some countries, the lack of compensation for indirect costs coupled with no free credits for electricity produced and consumed on-site (as in the case of CHP) is already leading to up to 40% shortage in compensation for on-site emissions.
CEPI proposal: the ETS review needs to ensure 100% compensation for both direct and indirect carbon costs throughout the whole trading period, at benchmark level.
5. Innovation Fund
We welcome the rapporteur’s attempt to increase and facilitate access to the financing of innovative projects in the industry. We also welcome the attempt to clarify the parameters already upfront in the text of the directive; this will accelerate the process by timely releasing the first funding opportunities.
CEPI proposal: build on the rapporteur’s initiative. Strengthen provisions on the share of financing support, ensuring all industrial sectors can really benefit from this opportunity.
Reaction to the tiered approach to carbon leakage protection
The signatories (see below), energy-intensive industries express concerns regarding the so called “tiered approach” to carbon leakage protection under the EU ETS
The tiered approach1 would reserve free allowances for some sectors at the expense of others. It goes against the principle set in the October European Council Conclusions that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, it would ensure that even best performers in most sectors would bear significant carbon costs and expose them deliberately to carbon and investment leakage.
The proposed tiering has no environmental or economic justification and is based on flawed assumptions (“cost pass-through”) of in reality unpredictable market dynamics. Depriving sectors of carbon leakage provisions would not deliver decarbonisation through investment and innovation. Moreover, it could well prove to have been entirely unnecessary. All forecasts, including the Commission’s Impact Assessment, predict that there will be sufficient allowances available to ensure full free allocation to benchmark levels at least until 2025: and there are other proposals for ETS reform that would deliver full and effective carbon leakage protection without the need for arbitrary discrimination.
To that end, we continue to support an approach based on realistic benchmarks, allocation based on more recent production data and an adequate reserve that ensures full allocation to benchmark levels. The proposed share of allowances to be auctioned shall also be recalculated downwards, as analysis of the EC proposal shows, it does not properly include the number of allowances which were to be given out for free (i.a. unallocated and left-over NER allowances).
In the circumstances, the “tiered approach” would introduce an unnecessary and unfair discrimination between sectors. Fairness and solidity should become key principles of policy making. Jobs in one sector are neither more nor less important than those in other sectors. The signatories fully share and support the BusinessEurope views on tiered approach as expressed in a statement on April 14th.
We ask you to create a framework that gives all sectors an equal opportunity to compete and thrive in Europe, and not to pick certain sectors to stay in Europe. It would undermine our industry’s faith in, and support for, the ETS as a means of reducing carbon emissions.
For further information please contact Peter Botschek, Cefic Director Energy & HSSE, e-mail email@example.com
1 i.e. as presented in a Non-paper on a Tiered Carbon Leakage List in Phase IV of EU ETS (authored by France, the United Kingdom)
Global Forest Products Industry is Part of the Solution to Climate Change
São Paulo – The International Council of Forest and Paper Associations (ICFPA) and its members welcome the signing of the landmark United Nations agreement to tackle climate change, set to take place on April 22. The agreement urges countries to implement policies that would allow them to keep a global temperature rise below 2 degrees Celsius. The global forest products industry has a highly significant role to play in the implementation of these targets.
“The global forest products industry has made significant strides in reducing its carbon footprint, stocking carbon, and generating greenhouse gas removals – all helping to mitigate climate change”, said ICFPA President and Brazilian Tree Industry (Ibà) President Elizabeth de Carvalhaes. “This agreement is crucial to implementing some of the policies that consider biomass as carbon neutral when harvested from sustainably managed forests and to further recognize all positive contributions that forests and forest products provide in combating climate change.”
The inherently-renewable global forest products industry remains committed to mitigating climate change for the benefit of the green economy and society at large. ICFPA members have achieved an impressive 5% reduction in their greenhouse gas emissions intensity since 2010/2011 and 17% since the 2004-2005 baseline year (2015 ICFPA Sustainability Progress Report).
The European pulp and paper industry has been a global champion in mitigating greenhouse gas emissions. It has set itself in 2011 a clear vision of becoming carbon neutral by 2050 and since then, taken concrete steps to reach that goal,” said Jori Ringman, Acting Director General of Confederation of European Paper Industries (CEPI). “Thanks to responsible sourcing practices and sustainable forest management, the forest area is growing in Europe by an area of over 1,500 football pitches per day. CEPI is pleased to see development in the same direction globally”, he added.
The forest industry’s significant role in mitigating climate change was highlighted in the ICFPA-commissioned report Analysis of Forest Contributions to the INDCs by acclaimed researcher Paulo Canaveira. Having looked at the contributions of forests in the national targets of ICFPA member countries (INDCs) and global mitigation effort from 2020 onwards, the report concludes that many countries identify forests and the land-use sector as relevant to policies and measures implemented to meet their targets. Reducing emissions from deforestation, but also sustainable forest management, afforestation and reforestation are commonly mentioned as key mitigation practices. In some developing countries, they even constitute the country’s main contributions.
Other climate change mitigation efforts of the global forest products industry include supporting national and regional climate policies and programs; investing in technologies with low carbon footprints and ones that improve carbon sequestration; and developing bio-based technologies to find innovative ways to use wood fiber and substitutes for goods traditionally made from fossil fuels.
Note to the editor:
The ICFPA represents more than 30 national and regional forest and paper associations around the world. Together, ICFPA members represent over 90 percent of global paper production and more than half of global wood production.
For more information about the global forest and paper industry, visit icfpa.org.
Joint declaration by a group of industry associations “2016, time to deliver… an ambitious power market reform”
The signatories of this declaration gather leading associations and industry groups with a clear stake in Europe’s energy policy. We share the conviction that only a flexible and dynamic energy system, making the best use of innovative and distributed supply and demand options, can ensure a cost-efficient and sustainable transition towards a decarbonised energy system.
We strongly believe that a market-driven environment is the best means to provide long-term investment signals while meeting all system needs and accommodating the growing share of renewable energy in the energy mix. The completion of the Internal Energy Market will improve system adequacy and efficiency, increase security of supply, support the competitiveness of European industry, and help deliver the energy and climate goals stemming from the COP 21 agreement and EU’s post 2020 objectives on emissions reductions, energy efficiency and renewables.
However, we see many constraints persisting in the energy sector that affect investment decisions, in particular: 1) depressed wholesale market prices due to overcapacity; 2) fading EU-coordination of energy policies with a tendency towards renationalisation; and 3) an antiquated set of market rules.
Market rules have been tailored to centralised production within national boundaries for too long. Not only have they failed to adapt to developments in energy technologies and evolution of demand patterns both at industry and end-consumer level, but some of them hamper the deployment of renewables, storage and demand-side flexibility. These new technologies can today provide valuable services including balancing energy offering significant flexibility to the system.
The energy system is now more complex to plan, control and balance. It needs enhanced flexibility that could be provided by a mix of options, but this would require significant changes in the relevant legislation. In this respect, we consider the upcoming legislative package on market design as a unique chance to provide the energy sector with a predictable investment framework, fairer market conditions, and ultimately seize new opportunities arising from decentralised energy production and demand side participation.
In particular, we deem essential that any ambitious reform of the energy market addresses the following issues:
1. Providing adequate price signals and further integration of short-term markets across borders
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from renewable energy supply and demand sources
3. Implementing a level playing field for all flexibility providers to foster the pan-European trading ofelectricity and grid support services.
1. Providing adequate price signals and further integration of short-markets across borders
In a well-functioning electricity market, unhindered price-formation drives operational choices and investment decisions. Transparent and undistorted market prices must be in place in all time horizons, and allowed to move freely without caps. Wholesale electricity prices reflecting scarcity would signal the need for investments in new capacity. Therefore, price spikes should be treated as a positive sign of an efficient and cost-effective energy system where market participants are free to choose the level of hedging they prefer to contract, revealing the true value of flexibility and energy at all times.
Market rules also need to be adapted so as to enhance clean and flexible energy providers to trade power over broader geographical areas and as close as possible to the time of delivery. In this context, the opening and cross-border integration of intraday market is essential, especially for energy producers whose output is variable. A as long as separate procurement of balancing capacity and energy is guaranteed, another important aspect is the possibility to negotiate the duration of contracts, e.g. for balancing contracts. This is crucial, as certain flexibility technologies may require considerable capital investment and, therefore, contracts with a longer duration.
2. Ensuring a balanced approach to system adequacy that fully takes into account the contribution from different energy sources
The main challenge for security of electricity supply is not the availability of capacity as such, but the availability of flexibility that is needed to support the system and provide for a constant balance between supply and demand.
In order to identify potential, locally constrained adequacy issues, system adequacy assessments should be carried out according to a common methodology and metrics transparently defined in EU legislation1. Such analysis should be performed at regional level and consider the potential of all flexibility options, from the various energy supply and demand sources. This would ensure a rigorously needs-based approach to the introduction of Capacity Remuneration Mechanisms (CRMs) when the market cannot not deliver the adequate flexibility.
If CRMs are deemed necessary, they should be designed in a way that minimises any negative impacts on price formation on energy markets. They should avoid contributing to continued overcapacity situation by keeping redundant and polluting power plants online, and prioritise clean flexibility options as foreseen in the energy state aid guidelines.
3. Implementing a level playing field for all flexibility providers2 to foster the pan-European trading of electricity and grid support services
In addition to the modernisation and further opening of the balancing market, a proper market for ancillary or grid support services needs to be fostered to provide additional non-discriminatory revenue streams to flexibility providers, as well as overall operating cost savings for the energy system. As of today, a number of services and solutions from decentralised generation and demand-side response are technically feasible, but current market conditions do not properly value their commercial provision.
The continued adaptation of balancing and ancillary services markets should foster liquidity and incorporate innovative and decentralised solutions. Prohibitive pre-qualification requirements and access conditions for independent aggregators, extended product-durations or minimum thresholds and symmetric bids are some of the aspects currently hampering an effective market. Moreover, contradictory regulatory signals, e.g. regarding network tariffs, the operation of industrial loads or co-generation should be addressed to ensure demand side flexibility further develops without impeding the achievement of robust energy efficiency targets.
1 Incl. a clear system adequacy target level for all control areas in the EU as many countries are lacking one
2 “A service provided by a network user to the energy system by changing its generation and/or consumption patterns in response to an external signal” (Task Force Smart Grids report, 2015)in
European Paper Industry continues to reduce its carbon emissions
Preliminary estimates based on today’s publication of the Verified Emissions and Compliance Data for the year 2015 show that carbon emissions in the pulp and paper industry in 2015 fell by at least 1% compared to 2014. Compared to 2005, the year the EU Emission Trading Scheme came into force, absolute emissions fell by 27%.
With production levels remaining substantially the same in 2015, emission reductions were primarily driven by market consolidation, investments in bioenergy, and the push from international competition to improve efficiency in production processes. And with energy being the second main component in the cost structure, reducing energy-related costs, such as CO2 emissions, is a priority to secure an internationally-competitive position.
"We have been early-movers in low-carbon investments and have further plans to grow our business in Europe, building synergies with Circular Economy as well as the Bioeconomy”, says Jori Ringman, CEPI Acting Director General. “The EU ETS should support such efforts which are completely in line with its overarching scope of transforming the industries. Therefore the EU ETS should continue to improve the predictability of the regulatory framework, by promoting and rewarding investments in low-carbon technologies”, he added.
The European Paper Industry currently receives 1.4% of the total allocations for manufacturing sectors, while employing over 6% of the manufacturing industries’ workforce and being responsible for over 5% share of investments in Europe.
For more information, please contact Annie Xystouris at firstname.lastname@example.org, mobile: +32 486 243 642.
EU ETS: Three reasons why the Tiered Approach is bad for the EU economy
The non-paper jointly drafted by the French and British government on tiered free allocation arbitrarily determines which sector has a future in Europe and which sector has a future outside Europe.
Specifically, the proposal has three major critical points:
1. It is unjustified from both an economic and a fairness perspective
The proposal pretends to adequately ensure protection against the risk of carbon leakage. However, it reduces the share of free credits to the vast majority of industrial sectors, without providing any evidence of the impact of additional costs on their competitiveness. The proposal particularly lacks of any cost comparison between a given European and a non-European sector.
The proposal reduces the amount of free credits to certain sectors, as a supposedly fair gesture towards some others who would otherwise receive too little protection. Yet, some other sectors would unjustifiably be excluded from such a “solidarity clause”. This is far from being a fair approach.
2. It penalises competitive industries investing in low-carbon technologies
Protection against the risk of carbon leakage should provide the regulatory certainty for industries in transition towards a low-carbon economy.
However the tiered approach rewards the most carbon intensive and least profitable sectors. This is intrinsic in the formula used, which rewards high carbon intensity combined with low value added (GVA).
On the contrary, the formula punishes a sector investing in carbon emission reductions by giving a lower protection against the risk of carbon leakage as a direct consequence of these investments.
3. It hampers innovation
The ETS is expected to ultimately promote the substitution of high-carbon with low-carbon production. In this respect, solutions may come from within a given sector or as a cross-fertilisation of ideas coming from other sectors. One example is the potential coming from the bioeconomy or circular economy to provide solutions to decarbonise other sectors.
However, the proposed tiered approach provides different carbon cost exposure to different sectors, with the paradox that the most carbon intensive will bear the least carbon costs. As a consequence, the investment signal from the ETS will be totally jeopardised.
Sectors which successfully invest in decarbonising their processes are systematically at risk of being pushed outside the EU.
Alternatives to the tiered approach
Discussions on tiered free allocation are triggered by the need to avoid the application of the Cross-Sectoral Correction Factor (CSCF). The timing and magnitude of the CSCF are far from being certain, as it depends on a combination of factors (production levels, changes in the market, technological developments, innovation, development of international carbon markets, etc.).
Rather than picking one scenario and fixing the rules for the next 15 years accordingly, the EU should:
1. Define a regulatory framework that stimulates and rewards investments in low-carbon technologies, as a way to reduce the demand for free credits;
2. Support programmes to accelerate the market-readiness of breakthrough technologies for industrial installations;
3. Secure a sufficient amount of free credits to allow for low-carbon economic growth in energy intensive industries exposed to international competition;
4. Set rules to predictably assess potential shortages in the supply of free credits and, when the case, explore all possible options to preserve industrial competitiveness.
For more information, please contact Nicola Rega at email@example.com mobile: +32(0)485403412.
Consultation on the Review of Directive 2012/27/EU on Energy Efficiency
This consultation was launched to collect views and suggestions from different stakeholders and citizens in view of the review of Directive 2012/27/EU on energy efficiency (Energy Efficiency Directive or EED), foreseen for the second half of 2016. The full consultation replies can be found here.
Here are some highlights:
In reviewing the EU energy efficiency target for 2030, the Commission should have in mind that energy efficiency has to be achieved by voluntary initiatives, rather than by mandatory requirements. An EU-wide binding energy saving target until 2030 would limit the scope for economic room to manoeuvre. A rigid objective as a binding cap on energy consumption would impede growth. Therefore, it is of vital importance that the Commission designs the target in such a way that recognises early measures and focuses on lowering the energy intensity, not the energy use as such. The European framework has to create ideal long-term conditions to realize energy efficiency measures covering all sectors. This is particularly important for the non-ETS sectors, where incentives to improve energy efficiency are often insufficient. Effective incentives are needed, especially for research and development as well as for the cost-efficient implementation of investments in energy efficiency measures.
In view of achieving the new EU energy efficiency target for 2030, we believe that energy efficiency work must be done locally and as close to the energy consuming unit as possible. The role of the EU should therefore only be limited to setting targets, creating the overall regulatory framework, monitor the process in terms of energy efficiency improvements and give non-binding advice to those countries that are not able to reach the given goals. But details on how to implement energy efficiency policies need to be formulated at national or even industry level.
The EU should also promote and finance research and innovation in the field of energy and process technology to enable breakthrough technologies.
Regarding the most appropriate financing mechanisms to significantly increase energy efficiency investments in view of the 2030 target, it is important to find a high efficient way of financing. To make sure that the highest possible potential is tapped with the available amount of money, it is important to prefer energy investment funding for measures with high returns on investment. One way would be to support investment in form of cheap call money from a revolving fund for efficiency measures that would otherwise not take place without support. Ensuring that the invested money always returns to the fund (e.g. oney is paid back to the fund in the same rate as the energy savings pay back), allows multiple use of the available budget and therefore enables highest efficiency.
Interest-free loans to finance investments are also a way to achieve energy efficiency measures.
Tax decrease/benefit could also be envisaged if companies are participating in energy efficiency programs and achieving results.
Income from auctioning of emission rights should also be used to finance energy efficiency measures.
CEPI's response to EU Commission's Preparation of a new Renewable Energy Directive for the period after 2020
In its Energy Union Framework Strategy, the Commission announced a new renewable energy package for the period after 2020, to include a new renewable energy directive (REDII) for the period 2020-2030 and an updated EU bioenergy sustainability policy. This consultation covered the REDII aspects. You can find the fully completed consultation here.
Here are some highlights:
CEPI believes that the RED has been successful in deploying large volumes of renewable energy sources. However, the costs directly and indirectly associated to such deployment in most Member States have been quite significant. The energy
prices gap with competing economies has widened, with policy-induced costs being particularly relevant in electricity prices. This has a negative impact on industrial competitiveness, as acknowledged by the 2014 Commission Guidelines on State aid for environmental protection and energy 2014-2020. Weather dependent renewable energy, solar and wind, is remarkable and growing challenge to secure availability of electricity.
The RED has also led to measures promoting the demand for bioenergy, not sufficiently taking into account the availability of wood for the wood processing industry, which is producing substitutes to fossil fuel based and more carbon intensive products. This negative impact on the competitiveness of the wood processing industry is hampering the uptake of the bio-economy and
its climate change mitigation potential. Support to bio-energy should rather focus on stimulating the supply of wood.
Member States have a responsibility to ensure that additional demand for bioenergy is met by supply of raw materials, taking into account local biomass availability. Therefore demand-side measures should be balanced with supply-side measures to mobilise existing additional potential of wood that can otherwise not be used for wood and fibre based products. Reference could be made to the biomass mobilisation brochure jointly developed by DG AGRI, Forest-Europe and the UNECE-FAO.
EU ETS: Six steps to ensure industry’s competitiveness
The EU ETS reform, published on 15 July, presents several positive elements that contribute to improving the predictability of the regulatory framework. However, these improvements are not yet sufficient in protecting the competitiveness of energy intensive industries, ensuring adequate regulatory stability and predictability, and in stimulating investments in low-carbon technologies.
From 2005 to 2014, our industry has reduced carbon emissions by 26%, resulting in 21% carbon-intensity reduction. We have been early-movers in low-carbon investments and have plans to grow our business in Europe, building synergies with circular economy and the bioeconomy.
To bring environmental protection in line with industry competitiveness, we ask to:
1. Remove artificial cap on free credits to industry.
Artificially capping access to free credits depresses future investments: it means acceptingdeindustrialisation as a legitimate way to reduce emissions in Europe, even if this wouldincrease Europe’s carbon footprint in the world.
The artificial cap will also lead, sooner or later, to the application of the cross-sectoralcorrection factor (CSCF). This is the most unfair among all instruments, as it cuts allocationirrespective of industry potentials, neutralises carbon leakage provisions, limits predictability,and punishes investments made by early movers.
2. Keep the proposed approach to benchmarks review, but improve key design aspects.
The benchmark review needs to predictably promote and reward investments in low-carbontechnologies, while finding the right balance between accuracy and administrative burden.Reducing benchmarks at achievable paces, with rules clearly stated upfront, will lowerregulatory risks and reward the installations who will invest in low-carbon technologies.
Looking at the administrative burden, the pulp and paper industry, with more than 700installations in the ETS – 60% of which below 25kt – emitted just 31.6 MtCO2 in 2014.Roughly 1.4% of total ETS emissions. Yet, it is the 2nd biggest sector for number ofbenchmarks (11), covering only about 50% of industry production – the rest being under theso-called fall-back approach. It is self-evident that opting for a full review of benchmark valuesinstead is disproportionately costly while only delivering marginal accuracy improvements.
This is why we look favourably at the approach proposed by the Commission. However, manyparameters need to be reviewed and/or clarified, starting with:
•Linearity of the reduction factor;
•Disruptive impact in moving from one reduction pattern to the other;
•Avoid/reduce administrative burden in data collection and verification;
•Fairly assess progresses for installations in fall-back approaches.
3. Grant to all energy-intensive industries equal protection against present and futurerisks of carbon leakage.
Industry is either exposed to global competition or not: there is no middle ground. In thiscontext, the Commission proposal seems reasonable. Moreover, it is worth noticing that therest of the world does not impose comparable costs on energy intensive industries, withcarbon leakage provisions appearing also in other non-EU countries.
4. Adopt binding EU rules for compensation of indirect carbon costs.
Indirect carbon costs affect industrial international competitiveness as much as direct carboncosts do. The principle of equal treatment in shielding industry from both carbon costs musteffectively and consistently apply in all Member States.
5. Stop penalising investments in industrial Combined Heat and Power (CHP).
In the pulp and paper industry CHP is considered as Best Available Technique. Installations are therefore expected to use this technology. Today however the EU ETS does not send the right investment signal to invest in industrial CHP: the EU ETS grants no free credits for electricity produced and no consistent and adequate compensation for indirect carbon costs is given across Europe either. Given the relevant co-benefits CHP delivers in moving Europe towards a low-carbon economy, corrective measures to provide the right investment signal are urgently needed.
6. Earmark innovation and modernisation funding to energy intensive industries.
The earmarked 450 million allowances is the largest industry innovation fund ever. To deliverits full potential it should be linked to the goal of 2050 sectoral roadmaps, and aimed at thedeployment of new technologies for each Annex I sectors. The modernisation fund should alsoprimarily support low-carbon technologies in industry.
For more information, please contact Nicola Rega, Climate Change and Energy Director, at firstname.lastname@example.org, mobile: +32 485 403 412
Global Forest and Paper Industry Releases Policy Statement on Climate Change
The International Council of Forest and Paper Associations (ICFPA) today released its statement on climate change ahead of the UN Framework Convention on Climate Change meeting (COP21) in Paris, France. The statement presents the contributions of forests and the forest products industry to the mitigation of global climate change and calls on governments to recognize these contributions. The full statement is available at: http://bit.ly/1MPD7ax.
The ICFPA will elaborate on the forest products industry’s efforts at a COP21 side-event – “Assessing transparency and ambition in the land use and forestry sector”, held at the EU Pavilion on December 1 at 2:30 pm. The side-event will be hosted by the ICFPA and the EU Joint Research Centre.
“Forests and the global forest products industry have a key role in helping to mitigate climate change. A low carbon economy has to consider the forest industry as a contributor to climate solutions”, said Marco Mensink, Director General of the Confederation of European Paper Industries (CEPI). “With this policy statement, we are encouraging national governments to recognize and foster all positive contributions that forests and forest products provide in combating climate change.”
The industry has made significant contributions to mitigate climate change. In addition to greenhouse gas (GHG) removals and stocking carbon in products, ICFPA members have achieved an impressive drop in their GHG emissions intensity: 5 percent since 2010/2011 and 17 percent since the 2004-2005 baseline year, as shown in the ICFPA 2015 Sustainability Progress Report (2013 data).
The statement calls on governments and the parties to the UN Framework Convention on Climate Change to recognize sustainable forest management and reforestation activities for their contribution to the global climate effort, as well as the recognition of the efforts and achievements of the forest products industry to mitigate climate change, including the carbon neutrality of biomass harvested from sustainably managed forests and the need to provide for market-based mechanisms capable of valuing mitigation actions to incentivize the industry’s potential contribution.
The ICFPA’s statement is the latest in a series of policy statements underwritten by its members associations. All ICFPA policy statements are available at icfpa.org/resource-centre/statements.
The ICFPA serves as a forum of global dialogue, co-ordination and co-operation. Together, ICFPA members represent over 90 percent of global paper production and more than half of global wood production. For more information, visit icfpa.org.
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