Energy and Climate Change
ETS falls short of expectations
The Juncker Commission today launched the largest industrial policy decision it will take in its entire mandate, with the new proposal for the EU Emission Trading System. The proposal has a number of good elements but falls short in its protection of energy intensive industries. Member states hold the key to the solution.
In October 2014 the European Council recognised that measures to protect energy intensive industry from carbon leakage should be maintained when revising the EU ETS. The Council concluded the most efficient installations in sectors such as the pulp and paper industry should not face undue carbon costs that would impact their global competitiveness.
Member states however added expectations on the revenues they want from the EU ETS. Today’s proposal therefore fixes the share of auctioning vs. the share of free allocation. “The proposal shows the member states cannot have their cake and eat it. If policy makers in Brussels and the member states are serious on growths and jobs, the fixed share of free allocation should be changed to really protect industry as agreed by the Heads of State”, said Marco Mensink, CEPI Director General.
CEPI does appreciate the focus on low carbon investments and support for technology and innovation in the new proposal. The use of more accurate production data is good, even though the proposal could be more ambitious. CEPI also believes the linear reduction of the benchmarks used for free allocation is reasonable and improves predictability.
The proposal does however not solve the lack of free allocation for Combined Heat and Power Plants in Europe, which has been an additional factor in closing down very carbon efficient gas-fired energy plants in Europe. The pulp and paper industry is a leading CHP sector, producing over 50% of its electricity consumption by itself.
Finally, the proposal strengthens the focus of member states on compensation for higher electricity costs to industry, but does not lead to a harmonised EU approach, which is what the internal market requires. Member States have to align their compensation schemes, so industry is treated equal across Europe.
The European Pulp and Paper Industry is a globally competing sector, with over 700 installations covered by the EU ETS. Total sector fossil CO2 emissions were 31 Million tonnes in 2014, already reduced from 43 Million tonnes of CO2 in 2005. The sector has a clear focus on breakthrough technology programmes through its 2050 Low Carbon Roadmap for the Forest Fibre Sector. “Sufficient carbon leakage protection is essential, especially for sectors that want to invest in low carbon technologies in Europe. In order to reduce emissions, we need to be attractive for investments”, concluded Marco Mensink. CEPI calls upon the policy makers to rethink their approach.
For more information, please contact Marco Mensink at email@example.com, mobile +32475769388
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 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.
The competitiveness of energy intensive industries is a pre-condition for EU growth
The competitiveness of energy intensive industries is a pre-condition for EU growth
Brussels 15 July 2015: Energy intensive industries are voicing concern about their capacity to remain competitive and attract investment in Europe following the publication of the Commission’s proposal for the reform of the EU Emissions Trading Scheme (ETS). We call on EU policy makers to ensure that the post-2020 carbon leakage provisions fully offset direct and indirect costs at the level of best performers with no cross sectoral correction factor.
The Alliance of Energy Intensive Industries supports the fight against climate change and the Commission’s ambition to transform the EU into a competitive, low-carbon economy. Our industries play an instrumental role in delivering the technologies and solutions to reach that common goal.
The ETS is an important tool to be used in achieving this common ambition. However, the initial assessment is that the Commission proposals’ contents are inadequate. They elicit severe concern for energy intensive industries as they undermine the EU’s own key priorities on investment, job creation and growth in Europe.
Energy intensive sectors are capital-intensive. A large part of their investments are geared towards energy efficiency, decarbonisation and emission reduction efforts, in full support of the Climate and Energy Package 2030. However, securing these investments and preventing them from leaking outside of the EU requires strong carbon leakage provisions.
The current Commission proposals fall short on this requirement. In particular, fixing the auction share means shrinking available free allocations for manufacturing industry. Under the proposed rules even Europe’s most carbon-efficient installations in exposed sectors would face significant direct and indirect carbon costs.
We call on the Council and the Parliament to reform the ETS system in such a way that the economy can resume growth and that the most carbon efficient undertakings are not incurring a carbon cost penalty.
Notes for Editors
The Alliance of Energy Intensive Industries represents over 30,000 European companies and four million jobs in the EU. Our industries are at the core of the EU economy and the starting point of multiple value chains, such as the car industry, fuels, buildings, energy production, including renewable energies, food and drinks, and pharmaceuticals.
For more information, please contact AEII’s members directly.
• European Chemical Industry Council (CEFIC): www.cefic.org/
• European Cement Association (CEMBUREAU): http://www.cembureau.be/
• Glass Alliance Europe: www.glassallianceeurope.eu/
• Confederation of European Paper Industries (CEPI): www.cepi.org/
• Chlor-alkali Industry in Europe (Euro Chlor): www.eurochlor.org/
• European Steel Association (EUROFER): www.eurofer.eu
• FuelsEurope: www.fuelseurope.eu
• International Federation of Industrial Energy Consumers (IFIEC Europe): www.ifieceurope.org/
• European Ceramic Industry Association (Cerame-Unie): www.cerameunie.eu/
• European Association of Metals (Eurometaux): http://www.eurometaux.be/
• European manufacturers of gypsum products (Eurogypsum): www.eurogypsum.org/
• Fertilizers Europe: www.fertilizerseurope.com
• European Lime Association (EuLA): http://www.eula.eu/
• European Expanded Clay Association (EXCA): http://www.exca.eu/
• Association of European ferro-Alloy producers (EUROALLIAGES): www.euroalliages.com/
Strategic choices for ETS Post-2020: Allow energy intensive industries to be competitive and grow in Europe
The Alliance of Energy Intensive Industries, representing over 30.000 European companies and 4 million jobs, wishes to be an active contributor in the upcoming revision of the EU ETS. This paper contains Alliance proposals on carbon leakage protection, free allocation principles and competitiveness under ETS Phase IV to ensure simple, fair, predictable and effective rules i.e.:
- Carbon leakage protection needs to be the first element of the ETS revision based on the same criteria and assumptions as under Phase III, as well as on technically and economically achievable benchmarks;
- An EU-wide harmonized system must be put in place, which fully off-sets direct and indirect costs at the level of the most efficient installations in all Member States; therefore, no cross-sectoral correction factor should be applied to free allocation;
- Allocation methodology must be closely aligned with real/recent production levels;
- Innovation support must be extended to industrial sectors;
These principles are fully compatible with the March and October 2014 European Council Conclusions and reflect the industry contribution to the Commission questionnaire, following the meeting with Commissioner Arias Cañete in February 2015. Those principles are further detailed below.
Best industrial performers must not be penalized by ETS allocation rules
The concept of declining free allocation for industry is in contrast to the need for full protection against carbon leakage and should not serve as a justification to reduce protection. The limit on the total issuance of allowances in ETS sectors defined by Heads of State and governments covers both free allocation and auctioning. They did not impose a decrease of free allocation as such. On the contrary carbon leakage provisions should be improved in order to encourage carbon-efficient production and growth in Europe, and allocation must be guaranteed at the level of realistic benchmarks. Only predictable and effective carbon leakage measures will enable companies to invest in innovative solutions in Europe.
Accordingly there should be no direct and indirect cost at the very least at the level of most efficient European installations in sectors at risk of carbon leakage.
The effect of the cross sectoral factor (CSCF) is that even the best performers cannot achieve these levels due to economic, technical or thermo-dynamical limits. Ignoring this turns the EU ETS into a penalty system rather than an incentivising system.
For that reason, all our sectors call for a deletion of the CSCF, in accordance with the European Council conclusions of 23-24 October 20141.
Current carbon leakage assessment methodology remains valid
The carbon leakage risk will not decrease and may well increase on the contrary:
- It can currently not be expected that there will be a large breakthrough in negotiations at international level that would lead to climate policies, imposing equivalent carbon costs for industries located in competing regions.
- Meanwhile, the GHG reduction target will be increased to 43% for EU ETS sectors compared to 2005 levels (meaning that the cap will be tightened)
- The Market Stability Reserve will result in rapid carbon price increases.
All Energy Intensive Industries should receive full protection at the level of the benchmark. Consequently, the quantitative and qualitative carbon leakage risk assessment criteria and assumptions as defined in 2008 remain fully valid and must remain unchanged. Energy Intensive Industries are characterised by long investment cycles. The carbon leakage list must only be updated at the beginning of each trading period.
Also, since the risk of carbon and investment leakage remains as acute as ever for EU industry, introducing differentiation in the level of protection will lead to unequal and incomplete protection for sectors at risk, and could have negative repercussions on EU industrial value/supply chains.
Establishing technically and economically achievable benchmarks
The benchmarks should be updated maximum once, ahead of each trading period to provide planning certainty for participants, decrease the administrative burdens and provide an appropriate reward for those that have invested in emissions efficiency.
The update of the benchmark values should be based on data collection from the EU companies. The process of establishing benchmarks must be as transparent as possible. If in a sector, no relevant changes in technology have taken place, such sector can request a simplified approach for data collection.
These benchmarks have to be representative for the sectors and based on representative technologies that have been adopted by the European market. Over-ambitious benchmarks artificially increase costs to industry overall and de facto undermine the effectiveness of the carbon leakage provisions. The current rules are already very stringent, as benchmarks are set according to the average of the top 10% most efficient installations in the sector; hence, even without the cross-sectoral correction factor, around 95% of the installations have to purchase allowances.
Indirect carbon costs need to be fully compensated throughout Europe
The current implementation of carbon leakage measures to deal with indirect carbon costs has resulted in a fragmented approach as eligible sectors exposed to electricity price increases due to carbon costs may only receive from few Member States a partial financial compensation. This creates an uneven playing field in the internal EU market, and creates a disadvantage for those installations that are not receiving any, or only partial, compensation, vis-à-vis extra-EU competitors.
While designing the new system, several measures/principles should apply:
- EU-wide harmonized system, which fully off-sets indirect costs (100% of the CO2 cost-pass through in electricity prices) at the level of the most efficient installations in all Member States and reflects most recent production levels. Sectors with a fall-back approach should also be properly treated.
- Cost compensation could be assured using different complementary mechanisms (free allocation and/or harmonised financial compensation).
- Mechanisms should ensure predictability over the entire trading period by being described in the revised directive. The current system is unpredictable, as it relies on a state aid compensation assessment, and is granted annually, digressive and uncertain for future years.
- The eligibility assessment for such an EU-wide scheme should be based on a consistent methodology that identifies qualified sectors on the basis of their exposure to indirect carbon costs or their total electro-intensity.
- As indirect costs arise from the price setting mechanism prevailing in the power sector (marginal price setting), an EU-wide compensation scheme should be in place without delay.
For the longer term, the Commission should also assess the possibility of redesigning the electricity market in a way that prevents carbon cost pass through in electricity prices to sectors at risk of carbon leakage.
System based on real/recent production must replace the ex-ante straightjacket approach
Moving to an allocation methodology closely aligned with real/recent production levels would provide the required allowances at the level of the benchmark to companies expanding or restarting production to avoid undue costs, help prevent over- or under-allocation, stop rewarding ETS participants for moving production overseas and ensure simplified and fairer rules as regards new entrants, capacity increases or decreases, plant rationalisation and partial cessation. For example, the reference period could be the rolling year n-2. The required production data are already available as verifiers have to ascertain the activity data needed for the allocation. The bureaucratic burden will be therefore minimal.
For installations covered by fall-back approaches as opposed to benchmarks, emission reductions resulting from efficiency measures should not result in a penalty.
Creating a reserve for growth
To ensure sufficient availability of allowances for free allocation for industry, a reserve for growth would be needed. This reserve for growth would act as a buffer to ensure predictable access to both free allocation and auctioned allowances.
There are several ways to operate this proposed reserve for growth:
- It can be filled with unused free allowances due to lower production in phase III, back-loaded allowances, un-allocated allowances from New Entrants Reserve. Then it can provide allowances for growth in case of higher production.
- In addition, the Market Stability Reserve could also be used as the source for granting such allowances, if it would be designed as a sink for unused allowances from which allowances could be released for said purpose.
Support to innovation
The extension of innovation support to industrial projects is welcome. However, it should not happen at the detriment of carbon leakage protection by reducing or limiting the amount of free allocation. Industry exposed to carbon leakage risk will struggle to invest or innovate without predictable efficient carbon leakage protection.
The revenues from auctioning should be reinvested for low carbon technology support, as foreseen in the ETS Directive, or energy efficiency, but more importantly they should be used by Member States to stimulate economic growth and relevant R&D investments. Innovation funding under EU ETS should be allocated to energy intensive sectors appointed in Annex I of the directive. The NER400 should be technology-neutral and refer instead to R&D and deployment of new technologies for those Annex I sectors.
In order to achieve a realistic policy and to allow for effective reduction of emissions, there is a need to identify the abatement possibilities in the industry (linked to technological, thermo-dynamic and physical/chemical limits that cannot be overcome due to feedstock, process emissions and lack of break-through technologies). Some sectors have already developed 2050 decarbonisation roadmaps, in which transformation technologies are mentioned. A dedicated fund taking into consideration these abatement possibilities will bring innovative technologies (e.g. industrial breakthrough technologies, including CCS and CCU for industry) forward and secure buy-in of industry sectors.
Industry needs an objective impact assessment for Phase IV ETS
In light of the better regulation policy of the new Commission, an objective impact assessment on the different European energy intensive industries is crucial, taking into account their ability to reduce emissions (low carbon roadmaps). Any flawed impact assessment could lead to wrong policy decisions for the energy intensive industries in Europe.
1 See legal opinion on article 2.9 by Luther of April 2015Download here
Consultation response on the revision of the EU Emission Trading System (EU ETS) Directive
Background: On 24 October 2014, the European Council agreed on the 2030 framework for climate and energy, including a binding domestic target for reducing greenhouse gas (GHG) emissions of at least 40% in 2030 as compared to 1990. To meet this target, the European Council agreed that the emissions in the EU Emission Trading System should be reduced, compared to 2005, by 43%. A reformed EU ETS remains the main instrument to achieve the emission reduction target. The cap will decline based on an annual linear reduction factor of 2.2% (instead of the current 1.74%) from 2021 onwards, to achieve the necessary emission reductions in the EU ETS. The European Council furthermore gave strategic guidance on several issues regarding the implementation of the emission reduction target, namely free allocation to industry, the establishment of a modernisation and an innovation fund, optional free allocation of allowances to modernise electricity generation in some Member States.
The strategic guidance given by European leaders on these elements will be translated into a legislative proposal to revise the EU ETS for the period post-2020. This constitutes an important part of the work on the achievement of a resilient Energy Union with a forward looking climate change policy, which has been identified as a key policy area in President Juncker's political guidelines for the new Commission.
The purpose of this stakeholder consultation was to gather stakeholders' views on these elements.
CEPI's Key messages :
- The ETS in general, and the benchmarks in particular, should reward installations and sectors reducing GHG emissions, without penalising early movers, new investment made, and low-carbon economic growth. Fiscal and legislative stability and predictability are needed to enable investments in low-carbon technologies.
- The pulp and paper industry cannot pass through carbon costs to its customers: the global market of export goods sets prices, not the production costs of the European industry. This can be easily verified by the lack of correlation between carbon prices and final product prices.
- For “direct carbon costs”, free allocation is a necessary condition but not sufficient to avoid carbon leakage: support mechanisms should be set up to help the EU industry improve its energy efficiency and reduce its GHG emissions.
- Concerning “indirect carbon costs”, it would be better for a mandatory and harmonised EU-wide compensation scheme to address the impact of rising electricity costs due to ETS in all Member States. Financing of compensation schemes should include also, but not be limited to, auctioning revenues from ETS.
- Support for innovation in industry should not come at the expenses of carbon leakage protection: funding for innovation will have to come on top of free allowances for industry. It should be directed to directly finance large-scale demo and pilot projects, as well projects close to commercialisation stage (TRL 6-8). These are high risk, high capital investments where the private sector would not be able to deliver without the backing of public financing.
- The role that European industry plays in the circular economy and in the bioeconomy is of strategic importance for Europe’s access to raw materials and reducing Europe’s carbon footprint. This should be acknowledged when reviewing the EU ETS, by addressing the ETS impact on prices and availability of raw material, such as wood.
Read the full reponse.Download here
CEPI applauds European Commission’s Energy Union Package
Last chance for energy markets - Member states’ support key to its success
The Confederation of European Paper Industries (CEPI) strongly welcomes the Energy Union Package published today by the European Commission. CEPI especially welcomes the emphasis put on delivering competitive energy prices, investing in the bioeconomy and establishing synergies between the energy efficiency, resource efficiency and circular economy policies.
“This package is the last chance to make energy markets in Europe work”, says Marco Mensink, CEPI Director General. The success of the Energy Union no longer depends on the Commission, but on member states’ willingness to “walk the talk”. CEPI expects national governments to urgently give their support to make the package a reality. A strong EU energy regulator is part of the solution. “In this case, ‘more Europe’ is the answer to the industry and consumers’ need for affordable and competitive energy,” he added.
The package not only recognises that energy costs for industry in Europe are uncompetitive, it also acknowledges that the root of the problem lies in the levies, taxes and additional costs energy consumers are charged for by the member states. If no measures are taken, the need for capacity payments will add yet another layer of costs, affecting all European energy consumers.
CEPI has great expectations for a number of key elements to be later defined in the package proposal. The Commission indicates renewable support schemes would need to be rationalised. The system of subsidies for burning wood for energy can no longer be sustained. Furthermore, establishing an EU biomass supply policy is urgently needed. In addition, energy recovery from waste should be limited to non-recyclable fractions, in line with the waste hierarchy and the requirements for separate collection.
Among the first proposed actions, the Emission Trading System reform offers the possibility to turn the ETS into a tool that rewards investments in low-carbon technologies, while ensuring industrial competitiveness. Engaging industry in this process is crucial. Moreover, the Energy Union should support industrial co-generation, recognising its role in delivering demand side flexibility. This should be part of the combined initiative on the internal energy market, together with the review of the Energy Efficiency Directive and the Guidelines on State Aid for Environmental Protection and Energy.
For more information, please contact Annie Xystouris at firstname.lastname@example.org, mobile: +32(0)486 243 642.
Note to the author:
European Commission: Energy Union: http://ec.europa.eu/priorities/energy-union/index_en.htmDownload here
Alliance of Energy Intensive Industries renews calls for ‘carbon leakage’ protection
The Alliance of Energy Intensive Industries (AEII) has published an open letter to the heads of State and Governments of the EU Member States, the European Parliament, the Council of the European Union and the European Commission on carbon leakage. CEPI is part of this alliance.
The 2030 climate and energy framework must guarantee predictability for industry by setting the principles for measures against carbon and investment leakage now.
The undersigned manufacturing industries are the foundation of Europe’s economic fabric, drivers of jobs and growth in Europe. We represent over 30 000 companies in the EU with more than 4 million direct jobs, and around 30 million jobs in our manufacturing value chains.
The EU should focus on promoting recovery and growth of industrial production in Europe, in line with the objective to reinstate industry’s share of EU GDP to 20% by 20201. European industries need a stable and long term legislative framework that effectively combines EU climate ambition with EU industrial competiveness.
Current carbon leakage provisions under the EU Emissions Trading Directive, if not revised rapidly, will result in a huge shortage in free allowances and increasing direct and indirect costs (the pass-through of carbon costs into power prices) for even the most efficient installations in Europe. In the period from 2021 to 2030, when the provisions against carbon leakage and free allocation would be phased out, our industries are expected to face hundreds of billions of Euros in direct costs and costs passed through in electricity prices.2 The impact on energy intensive industries will simply be overwhelming.
Knowing that the Commission will be looking at “an improved system of free allocation of allowances with a better focus” for 2021-2030 is not enough. Industry needs a clear outline of policy measures to effectively prevent the risk of carbon and investment leakage.
The Commission’s legislative proposals currently only cover EU ETS structural reforms, which increase both carbon prices as well as the unilateral burden on EU industry, and expose EU jobs and growth to aggravated carbon leakage risk. Unfortunately, the Commission intends to publish proposals to prevent carbon leakage only at a later stage.
This is contrary to the guidance resulting from the March 2014 European Council, instructing the Commission “to rapidly develop measures to prevent potential carbon leakage in order to ensure the competitiveness of Europe's energy-intensive industries”, and this to provide by October 2014 “the necessary stability and predictability for its economic operators”.
The European Parliament stressed in February 2014 “that the 2030 climate and energy policy targets must be technically and economically feasible for EU industries and that best performers should have no direct or indirect additional costs resulting from climate policies; [that] the provisions for carbon leakage should provide 100% free allocation of technically achievable benchmarks, with no reduction factor for carbon leakage sectors.” 3
We therefore urge the European Council to give guidance at its summit on 23/24 October confirming that carbon leakage measures will be continued after 2020, as well as outlining the principles for the level of protection in order to safeguard predictability, investment certainty, jobs and growth in Europe:
Until a global agreement on climate change provides for a level playing field for energy intensive sectors at risk of carbon and investment leakage, best performers should not be penalised by direct or indirect additional costs resulting from the framework. This implies:
- Truly 100% free allocation based on technically and economically achievable benchmarks (including heat and fuel based benchmarks), reflecting recent production, and without a correction factor.
- Harmonized off-setting of all CO2 costs passed through into electricity prices in all Member States.
The Market Stability Reserve must only be considered in conjunction with the above measures, instead of through piecemeal approach.
The undersigned energy intensive industries are all at risk of carbon and investment leakage and therefore must be safeguarded through the above measures.
These measures provide the essential signal towards industry for predictability and investment certainty, and secure an environmentally and economically sound EU ETS which does not distort the market. We strongly believe that these measures, together with strong innovation funds to support breakthrough innovation in industrial technologies and processes, will offer a win-win situation for the global climate and the European economy.4
1 European Commission Communication "For a European Industrial Renaissance", COM(2014) 14/2
2 The Commission expects a price of €40/tCO2 in 2030, modelling presented by Point Carbon expects ca. €48/tCO2 (source: www.ceps.eu/taskforce/review-eu-ets-issues); Climate Economics Chair calculates a price of up €70/tCO2 in a high scenario in its report EU ETS reform in the Climate-Energy Package 2030: First lessons from the ZEPHYR model, Paris 2014.
3 European Parliament resolution of 4 February 2014 on the Action Plan for a competitive and sustainable steel industry in Europe (2013/2177(INI))
4 The agreement on the reform of the EU ETS between the Dutch government, industry and NGOs proves that a compromise and a balanced solution between the pillars of EU sustainable policy – growth, jobs, and environmental protection – is possible by applying an allocation more closely linked to economic reality e.g. a dynamic emissions trading system.
Europe should support, not hamper EU industrial competitiveness
CEPI comments on the draft EU guidelines on environment and energy aid
It is unwise to raise costs for the industry to promote competition in the internal market, by doing so Europe will lose competitiveness in the global market.
CEPI therefore calls the European Commission to urgently modify the proposed draft guidelines on environment and energy aid for 2014-2020, in order to:
• allow 100% aid intensity for cogeneration;
• do not cap exemption from electricity price increases due to support for renewables;
• do not change definition for energy intensive industry.
The Guidelines on environment and energy aid for 2014-2020 will be an essential tool for reaching the ambitious 2020 energy and climate goals in a cost-effective manner. It is therefore important to promote low-carbon investments while preventing distortion of competition.
The European Commission should scrutinise the impact of proposed measures on the overall EU industrial competitiveness. Preventing intra-EU distortion of competition is important. But in a global competitive market, EU industry is faced with costs unmatched by other economies.
CEPI asks the European Commission to urgently correct three main issues.
First, allow 100% aid intensity for cogeneration.
The European Commission cannot adopt interpretative guidelines derogating from EU law. Art. 15 of the Council Directive 2003/96/EC (the so-called “Energy Taxation Directive”) specifically allows Member States “total or partial exemptions or reductions in the level of taxation” for energy used and electricity produced from combined heat and power generation (so-called “cogeneration” or “CHP”). However, the draft guidelines propose restricting investment and operating aid for cogeneration installations (from para. 17 onwards).
Such a restrictive interpretation is not only contrary to EU law, but also to the overarching 2020 energy-climate policies, where promotion of cogeneration is a key element of energy efficiency policies. It is arbitrary, inappropriate and acts as a disincentive for cogeneration, and the promotion of energy efficiency.
Second, do not cap exemption from electricity price increases due to support for renewables.
The draft state aid guidelines propose capping aid for industry at 85% for increased costs to support renewable energy sources (RES). This proposal in unacceptable for two main reasons:
1. From an environmental perspective, there is no link between the additional cost associated to RES promotion and the behavioural change expected by the beneficiary (industry) to achieve this environmental objective. Although RES contribute also – but not exclusively – to the environmental objective, the redistribution of costs within society is a social policy, where competency lies with the Member States;
2. The cost of promoting RES varies across Member States, even for the same technology. The cost depends on geographical conditions and on the way it fits into other cost components in the electricity bill, such as: national energy mix, network charges, other taxes and levies. Tackling just one component of the overall electricity price will not address intra-EU competition. On the contrary, an additional cost promoting RES set at EU level has the potential of further increasing market distortion.
Third, do not change definition for energy intensive industry.
The Energy Taxation Directive clearly defines “energy-intensive business” a business entity “where either the purchases of energy products and electricity amount to at least 3,0 % of the production value or the national energy tax payable amounts to at least 0,5 % of the added value” (Art. 17).
However, the draft state aid guidelines introduce a different definition of energy intensive industry, setting higher thresholds (10% trade intensity and 5% tax costs/gross value added). The new thresholds are based on carbon leakage criteria set in the EU Emission Trading System (ETS).
Such an interpretation is arbitrary and conceptually not correct. The carbon leakage criteria are meant to protect EU industry from unmatched costs from third countries. It looks at global competition. The state aid guidelines look at intra-EU competition. The basis for assessing distortion of competition cannot be the same.
The definition of energy intensive industry in the state aid guidelines needs to match the definition in the Energy Taxation Directive to avoid legal uncertainties distorting the internal market.
For more information, please contact Nicola Rega at (email@example.com)Download here
Focus is back on industry in EU policy, but will it work?
The fact that the 2030 Energy and Climate package includes an analysis of energy costs and was published together with the European Industrial Renaissance Communication is a landmark shift in EU policy. The Confederation of European Paper Industries (CEPI) interprets this as a signal showing the European Commission is starting to take industrial competitiveness seriously. However, there are still important steps to be taken.
In practice, this new package will not change the competitiveness of industry in the short run. The high pile of documents released by the Commission analyses and promises, but at the end it only proposes one legal act – the change of the EU ETS. In this regard, CEPI welcomes the Commission proposal to keep EU ETS unchanged up to 2020 to give the necessary stability for investments in EU industry. But is this enough?
The Commission finally acknowledged energy prices in Europe are uncompetitive, as electricity costs for industry are twice that of US competitors. It also rightfully recognised the way the EU supported renewable energy was unsustainable. It is now up to EU member states to change this. But more is needed. The gas market needs to be reformed. Energy interconnections between EU member states need to increase urgently.
The impact on European competitiveness of a 40% CO2 reduction target by 2030 for the entire EU economy cannot be underestimated either. The suggested changes by the Commission for industrial sectors will require emission reductions of 43% in 2030, 65% in 2040 and 87% in 2050. The European Council in March needs to assess the feasibility of this package in detail and develop tools that support the deployment of innovative low-carbon solutions in industry. This is especially needed, if no further global action is taken and the EU Economy does not improve.
Additionally, the cost of decarbonising the current power sector - a key challenge - is not addressed. This will most likely increase electricity bills, which the European Commission accepted as being too high already. The EU will have to explore new models of decarbonising the power sector, other than via the carbon price alone.
Specifically related to the European pulp and paper industry, CEPI applauds the long awaited recognition of the negative impact of subsidised bioenergy on EU wood markets. And CEPI welcomes the announcement in the 2030 Energy and Climate package to further explore funding tools for breakthrough technologies.
But the bottom line is: policy needs to be put into practice. “We appreciate the refocus on industrial policy. It is a good sign that the Commission recognises again our role in creating jobs and growth for Europe. However, the proposed measures for an effective industrial policy need to be translated into concrete actions as soon as possible”, said Teresa Presas, CEPI Director General.
For more information, please contact Daniela Haiduc at firstname.lastname@example.org, mobile: +32(0)473562936
Note to the Editor
2030 Energy and Climate Package from the European Commission:
Industrial renaissance Communication:
Regulatory and Market Aspects of Demand-Side Flexibility
Abstract from CEPI response to CEER public consultation
The Council of European Energy Regulators (CEER) has recently launched the public consultation “C13-PC-71: Regulatory and Market Aspects of Demand-Side Flexibility”.
Below an abstract from the CEPI response to main questions raised by CEER on:
1. main opportunities and benefits for demand-side flexibility;
2. main barriers to the emergence/functioning of demand-side flexibility;
3. most important 'preconditions' necessary for the emergence/functioning of demand-side flexibility
CEER Consultation Questions
1. What do you see as the main opportunities and benefits for demand-side flexibility in existing/future markets and network arrangements? How would you prioritise these?
1.1 Existing markets
The pulp and paper industry has already engaged, where possible, in demand-side programmes.
Mechanical pulping, an electro-intensive process, can be used for “peak shaving” programmes. It can react at reasonably short notice, like as short as 15 minutes and, depending on the frequency and schedule of interruptions, up to one hour. However, these are indicative figures, which need to be carefully assessed at mill level, as they will vary in function of the trade-offs between benefits from balancing the electricity system, the need to meet paper demand, and the overall economic impact that balancing the grid would have on the production process.
In some countries, paper production also participates in “valley filling” programmes: the whole industrial process is shifted to the night or to the weekends to optimise baseload electricity production. Example of this can be found, for instance, in Austria or Belgium. In Norway there are also provisions for flexibility markets where industry can participate. In this case, the transmission operator asks for bids.
The potentials for further exploring “peak shaving” or “valley filling” programmes are however limited. Beside auxiliary processes, the paper making process has little margins of flexibility when it comes to demand-reduction programmes. Moreover, most of the energy required from the sector (steam and electricity) are generated on-site, therefore mostly off the grid.
There is however quite some untapped potential if the market will develop flexible solutions for absorbing excess electricity supply at critical times (see next paragraph).
1.2 Future markets
One of the main criticalities of the electricity system is how to properly integrate electricity generated from “variable”, or “non-programmable” renewable energy sources (NP RES), like wind and solar, at a time of low or no demand. Curtailing these sources is particularly inefficient, as they produce at zero marginal prices. While most of R&D programmes are focussing on energy storage, the pulp and paper industry is in a rather unique position to potentially providing solutions to
- efficiently absorbing excess of electricity supply,
- while creating vale for the EU economy,
Most importantly, all this could be already delivered with current technologies.
To explain how this would be possible, few words on the pulp and paper industry are necessary.
CEPI represents 959 mills located in 18 European countries. According to our latest figures, in 2011 the European pulp and paper industry consumed 111 TWh of electricity, of which 57 TWh (52%) produced on-site via co-generation units. In 2011 the sector also consumed 557 TJ, or 155 TWh-equivalent, of heat, all on-site generated.
Combining the two figures for on-site generation, the sector generated and consumed about 212 TWh of energy in 2011. This is all energy sitting outside the energy system boundaries. To put these figures into context, it is worth noticing that in 2011 total European electricity production from wind and solar was about 223 TWh.
What would happen if, at a time of excess of electricity supply, the sector would ramp up electricity demand by ad-hoc moving form off to on the grid? It would absorb the peak of cheap electricity supply while maintaining the industrial output unchanged. Meaning more value per kWh, less primary energy consumption, less carbon emissions. In one word: a more competitive industry.
In most cases technology is already available and deployable. For instance, it would be sufficient to install an extra, highly-efficient electric boiler. With the support of additional RDI projects, more options could be envisaged in the near future, whereby electro-technologies could be used in the drying process.
The geographical distributions of mills in Europe allows for cost-effective absorption of excess electricity produced by decentralised energy sources, substantially reducing the need to costly investments in grid extensions.
Last but not least, this cost-effective measure will also reduce the need for additional costs to remunerate unused thermal capacity for electricity generation (so-called Capacity Remuneration Mechanisms – CRM), as the impact of NP RES on the running hours of conventional power plants will be largely mitigated.
Regulatory barriers are the main reason for not making this a reality. Without addressing this aspect first, it will be impossible for any mill operator to start any cost-benefit analysis to assess how to adapt a mill operation in a way that would deliver on-site financial benefits.
1.3 Existing network arrangements
In almost all CEPI countries, existing network arrangements act as a barrier against the absorption of excess supply of electricity.
The only exception is Norway. There, already since 1999, the government promoted the installation of electric boilers on industrial sites (although other incentives were already earlier in place). The rationale was to absorb seasonal excess of hydro electricity generated. The boilers are activated in remote by the network operators.
In exchange for this flexibility, industrial operators have a significant reduction in grid charges. While the usual tariff for the transmission grid (Statnett) is 170 NOK/kW (about 20 €/kW) in 2013, the tariff for flexibility load is 43 NOK/kW (about 5 €/kW). In addition there are distribution charge and taxes. Since 2010 the flexibility grid fee is open for all that can offers to decouple the load either by remote control or at 15 minutes or 2 hour notice.
For customers with remote control, the grid operator can move the load from day to night. The grid operators are very satisfied with this system. The possibility to decouple load has proven to save the grid from collapse. The use of flexible load in periods with excess of electricity stabilizes the grid.
We strongly encourage national regulators to urgently use the Norwegian example as a best practice case for promoting and valuing flexibility markets in their own countries.
2. What do you see as the main barriers to the emergence/functioning of demand-side flexibility? How would you prioritise these?
2.1 Legislative barriers/difficulties
In many cases, the industry is subject to stringent energy efficiency targets. In case of demand side flexibility, deliberately stopping CHP units would negatively impact the industry performance.
To promote energy efficiency programmes while incentivising demand side flexibility, it should be clearly stated in the legislation that importing electricity from the grid would be done in order to absorb
the load from NP RES, such as wind and solar. Therefore the electricity imported should be counted as 100% energy efficient.
2.2 Regulatory barriers/difficulties
This is the key barrier for demand-side flexibility in absorbing excess electricity supply from NP RES.
Currently, network tariffs and network charges (including levies and taxes) are set in a way that discourages industries from accessing the grid.
This approach is in principle correct, as it tends to promote stable and predictable demand from big energy users.
However, in this context, the network operator needs a service to balance the network. A service the industry is ready to provide. But here is the paradox: instead of being remunerated for such a service, industry would have to pay for offering it, to the benefit of the network operator.
In Germany, for instance, should a paper mill decide to import electricity from the grid, it would face additional costs up to more than 70 €/MWh.
Moreover, a mill has a very flat power consumption profile, like i.e. 7000 (or 7500 or 8000) full load hours a year. On this basis, it enjoys a reduced grid fee, i.e. in Germany it pays only 20% (or 15% or 10%) of the normal fee. Normal grid fee depends on local grid operator and might be between 5 to 11 €/MWh. When taking additional load from the grid, the profile will no longer be flat and the 7000 hours threshold might not be reached anymore. As a consequence, the mill would have to pay the remaining 80 to 90% of the grid fee.
A proper regulatory framework should incentivise both the “off-the-grid” baseload demand, and the flexibility to bring “on-the-grid” ad hoc electricity demand to help matching the excess of electricity generation from NP RES.
2.3 Market barriers/difficulties
It should be clear that RES balancing is not an industry prerogative. Industry can be part of the solution, and is willing to do so, provided there is a business case supporting it.
Industry lacks crucial information to build a proper business case. There should be some sort of guarantee on the minimum yearly number of hours one should reasonably expect to be called for balancing the market.
This minimum number of hours should be provided by the regulator and/or network operator and should be the founding element of any contractual agreement.
Moreover, commodity prices will have to be extremely low (or even negative) to compensate for the loss of revenues from CHP/green certificates or other support schemes. In fact, if commodity prices
would be on the level of the fuel used normally, it would just be equal costs for steam generation, but no compensation for lost electricity generation.
Energy supply contracts may need to be adapted to incorporate this additional flexibility.
3. For each of the barriers identified above, please describe the most important 'preconditions' necessary for the emergence/functioning of demand-side flexibility
To promote demand side flexibility in absorbing excess of NP RES supply, the following minimum preconditions would be required:
- Removal of regulatory barriers to create extra demand for electricity at a time of need: no extra costs (tariffs, levies, taxes) when participating in DSF programmes
- Maintain current incentives for on-site generation
- DSF to be compatible with energy efficiency targets: 100% energy efficiency for electricity taken from the grid when participating in DSF programmes
- Need for regulators/network operators to guarantee a minimum yearly amount of hours a paper mill should reasonably expect to be called when participating in DSF programmes.
Lastly, participation in DSF programmes would require significant changes in the way industry operates, both from a technological and industrial processes perspective. Support for Research, Development and Innovation would be needed.
For more information, please contact Nicola Rega at email@example.com
CEPI comments on the discussion document ‘Paper Vapour – the climate impact of paper consumption’ from the European Environmental Paper Network
The European Environmental Paper Network (EEPN) presented preliminary findings of their Paper Vapour report. The report aims to show that paper has a large climate impact and it questions the carbon neutrality of wood fibre. The Confederation of European Paper Industry (CEPI) analysed the report. CEPI advises a major reworking of the draft report before publishing final findings. There are several reasons for this:
I. The data do not match the sources referenced
The report concludes that pulp and paper industry emissions are 7 kg of vapour per kg produced leading to total emissions that are larger than those of waste and landfilling, chemicals, oil and gas, fuel and power, steel and aluminium and iron combined.
It uses data from the World Resource Institute (WRI). However, the report does not show the original WRI data for all sectors. In table 2 a new figures was inserted for the percentage of the pulp and paper sector. In the original WRI publication the emissions from pulp, paper and print are set to be 1.1% (http://www.wri.org/chart/world-greenhouse-gas-emissions-2005). Instead a number seven times higher than the original was included based on separate calculations. The report lists this fact only on page 11, which is misleading. Either WRI figures should be used entirely to be able to compare them correctly or all sector figures need to be re-calculated on an equal basis. At the moment the figures in table 2 do not add up to 100% any longer; they exceed that figure.
2. The underlying data are unlikely at best
The emissions of industry sectors are well documented by the International Energy Agency (IEA). The IEA publications on industrial efficiency and CO2 emissions show that 70% of industrial emissions are emitted by three sectors: iron and steel, non-metallic minerals (cement) and chemicals and petrochemicals. The direct emissions from the pulp, paper and print industry together add up to 189 Mtonnes in 2005 at global level, 2.8% the of industrial emissions (IEA Energy Technology Perspectives). These data are based on national country statistics. EU steel sector emissions in EU ETS published by the European Environment Agency (EEA) are around 140 Mtonnes in non-crisis years, four times that of the 35 Mt from the European pulp and paper industry according to EEA statistics.
The IEA data divided by the global production figures used in the report (328 Mt pulp and paper produced), lead to a direct emission of 189/328 = 0.58 t/t as a global average, compared to the 0.34 t/t for Europe. These are direct emissions only. When adding indirect emissions from electricity in line with European data (0.34 vs. 0.10, CEPI sustainability report based on EU ETS and energy consumption statistics), the number used for direct production emissions in the report is 100% higher than reality.
Vice versa, the weighted average of 1.51 t/t used in the EEPN report would lead to 546 Mt global emissions for the paper industry, compared to the realistic 189 Mt from the IEA statistics.
3. The combination of data leads to mistakes
In table 1, data from a multitude of sources are combined resulting in an altered total figure. Similarly, the combination of different data leads to mistakes. An example is ‘Debarking and Chipping’. US data from a single study are used in the report in this instance. The emissions (0.45 t/t) are higher than the overall EU average production emissions. Moreover, debarking and chipping for pulp production is included in pulp production statistics, because they are part of our production process.
Wood chipping in the US, meant for exports of bio-energy, is delivering wood to the power sector, not to the pulp and paper industry. Additionally, a Carbon mass balance credit is added without any further explanation. Again a number is used higher than the real and verified emissions from paper production today. The source is the author of the report himself. CEPI believes a clearer explanation is needed to understand how these figures have been calculated.
4. The key number is not explained
A crucial discussion is missing from the report, linking forest accounting with the number 6.83 t/t in the first section. This number doubles the emission calculation made in the report, without explanations on how it is derived. The source seems to be the grey picture on page 5, which is not referenced properly. It seems to relate to a virgin paper production cycle. It is also unclear to what the percentages in the picture refer to. Yet this picture seems to be the basis for the entire allocation of biomass emissions, without any further explanation. The conclusions of the report are very difficult to assess, as the calculations included are contrary to current standards in life cycle accounting, monitoring or reporting rules in legal frameworks and the UNFCCC accounting rules
Carbon neutrality is an issue in emission accounting, based on the UNFCCC accounting rules, including LULUCF. The emissions of carbon emitted when burning wood for energy are calculated in the national forestry (LULUCF) accounts, enabling a zero factor to be used for biomass.
The report quotes in many cases from an article in the Science magazine and the discussions in the USA. The so called accounting error in forest carbon accounting as referred to in the Science articel is an issue for non-Kyoto countries. However, it is clear that in Europe, having signed the Kyoto protocol and following the agreements reached in Durban, proper forest accounting is taking place. It is based on the LULUCF legislation and a zero emission factor from the EU Monitoring, reporting and verification guidelines. Around 80% of all wood used in the European industry is coming from EU forests and the pulp from known and established planted forests.
But the core of the matter remains, if the wood used is sourced from sustainably managed sources one cannot double count carbon stock, flow approaches and forest and biomass emissions, as seems to be the case in this study. In Europe forest carbon stock has been growing for years, and proper forest accounting is taking place.
5. The report compares apples and pears
The report makes comparisons between the pulp and paper sector and other sectors in society, to emphasise the size of emissions calculated. The comparisons are flawed for a number of reasons. Some were mentioned before, additionally, the constructed pulp and paper LCA style number in the report is compared to non LCA data of other sectors. The basis for the calculations are completely different. In addition, the word “direct” emissions is used incorrectly in several cases throughout the report, not in line with scope 1 and scope 2 emissions normally used in reporting on industrial emissions.
6. Old and US data are used for a European study
The paper was commissioned by the European paper network and is intended for the European discussion, but only two of the sources are European and no European data has been used. CEPI strongly feels the data should also be European and reflect the real situation in the European production and consumption of paper and board. The current discussion paper does not. To address imports of paper into Europe for consumption, a weighted average can be calculated. But the fact remains that the vast majority of paper used in Europe is produced in Europe from European raw materials.
7. Sources are unclear
Last but not least, the study should avoid quoting background studies made by the same author, without further references. This leaves figures untraceable. Nine out of the 11 data used are either (co)sourced to Jim Ford, Climate for Ideas or EPN. There are many more public studies and materials available that could have been used, providing additional data and references.
In a nutshell, verification of the conclusions made in the report based on the calculations, data and sources presented is not possible. The 7 kg of paper vapour is not backed by the material presented. CEPI recommends a complete overhaul of the report to be credible.
For more information, please contact Marco Mensink at firstname.lastname@example.org
Extra emission cut should be wake-up call
The European Commission just announced it will cut free allocation of emission credits to industry with an additional 6% in 2013 - adding up to a startling 18% extra cut by 2020. The decision is very harsh as even the most carbon efficient companies in Europe will not receive the credits they need to operate.
It is time to make a reality check on all recent and misleading statements implying that EU ETS does not impact European industry.
The idea was simple. Industries receive free allocation of credits based on a benchmark. Only the 5% best installations receive what they need, all others have to buy carbon credits.
The decision on the so-called C-factor is part of the ETS directive. However, the factor was thought to come into force only at the end of the 2013-2020 trading period. It will now apply from the start and will be very high by 2020. This sheds a completely new light on the discussions around backloading in Brussels in the last months. Several hundred million Euros will be added to the already uncompetitive energy costs in Europe, just for the paper industry alone.
The publication of the C-factor takes place without the paper mills knowing their exact 2013 allocation yet, which causes increasing unrest in the industry. CEPI calls upon the Commission to publish the 2013 allocation data immediately.
“The huge cut in allowances is very disappointing for CEPI members, and a wakeup call for the discussions on ETS in Europe”, said Marco Mensink, CEPI Deputy Director General. “The European Commission will have to give maximum clarity on the calculations made. Not even two years ago the Commission was working on innovation tools based on an expected surplus of free credits, which would not have to be allocated. Now we start the period with a 6% shortage for this year alone.”
This information should have been on the table in the backloading debate where proponents of strong measures stated that the industry will not have to buy any credits in the coming period. This is simply not true. This is a wake-up call for the Member States as well.
European CEOs were just told today that investments in Europe face another layer of costs. Carbon leakage is real – it is the loss of investments Europe urgently needs.
For more information, contact Daniela Haiduc at (email@example.com), mobile: +32 473 562 936.
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 industry’s achievements and the benefits of its products. Through its 18 member countries (17 European Union members plus Norway) CEPI represents some 520 pulp, paper and board producing companies across Europe, ranging from small and medium sized companies to multi-nationals, and 950 paper mills. Together they represent 24% of world production.
European Commission documents announcing the C-factor:
http://ec.europa.eu/clima/policies/ets/cap/allocation/docs/20130905_nim_en.pdf - page 14
The cloud begins with coal - An overview of the electricity used by the global digital ecosystem
The cloud begins with coal
Big data, big networks, big infrastructure- An overview of the electricity used by the global digital ecosystem
A study by Digital Power Group
The information economy is a blue-whale economy with its energy uses mostly out of sight. Based on a mid-range estimate, the world’s Information-Communications-Technologies (ICT) ecosystem uses about 1,500 TWh of electricity annually, equal to all the electric generation of Japan and Germany combined -- as much electricity as was used for global illumination in 1985. The ICT ecosystem now approaches 10% of world electricity generation. Or in other energy terms – the zettabyte era already uses about 50% more energy than global aviation. This recent study (August 2013) by Digital Power Group includes interesting facts about the use of electricity by smart phones and tablets.
You can read the complete paper at : http://www.tech-pundit.com/wp-content/uploads/2013/07/Cloud_Begins_With_Coal.pdf?c761ac&c761ac.
EEA report: Bioenergy production must use resources more efficiently
Using biomass for energy is an important part of the renewable energy mix. However, bioenergy production should follow EU resource efficiency principles, according to a new report from the European Environment Agency (EEA). This means extracting more energy from the same material input, and avoiding negative environmental effects potentially caused by bioenergy production.
The report, ‘EU bioenergy from a resource efficiency perspective’, primarily looks at the potential for energy from agricultural land, although it includes forest and waste biomass in the overall analysis. Bioenergy should be produced in line with EU objectives to use resources more efficiently, the EEA report says. This means reducing the land and other resources needed to produce each unit of bioenergy and avoiding environmental harm from bioenergy production. According to the EEA analysis, the most efficient energy use of biomass is for heating and electricity as well as advanced biofuels, also called ‘second generation’ biofuels. First generation transport biofuels, for example, biodiesel based on oilseed rape or ethanol from wheat, are shown to be a far less efficient use of resources.
Download the report here: http://www.eea.europa.eu/pressroom/newsreleases/bioenergy-production-must-use-resources
Why the European Parliament needs to reject back-loading - Recommendation by the Alliance of Energy Intensive Industries
Today the European Parliament will vote on the Commission proposal amending the Emissions Trading Directive (ETS) so as to allow the Commission to withhold emission allowances from the ETS market and increase carbon and energy prices in Europe despite the fact that the 21% reduction target of the ETS will be achieved and despite the fact that we are in a deep economic crisis with 26 million European's without jobs, 10 million more than in 2008.
The Alliance of Energy Intensive Industries calls upon Members of the European Parliament to follow the opinion of ITRE and the combined majority of Members of ITRE and ENVI which rejected the Commission proposal in the committee votes in January and February and to support Amendment 20 which rejects the Commission proposal.
The Commission proposal is the first step to intervene in Phase 3 of the EU emissions trading system (ETS) by withholding 900 million emissions allowances from the market, with the intention to cancel these in a second step and therewith increasing the existing cap beyond 21%.
While supporting the ETS as a policy instrument to meet the EU’s climate objectives, the Alliance of Energy Intensive Industries is opposed to any modification of the ETS rules which would damage further industry’s competitiveness. The EU must stick to the 2020 target formula agreed upon under the third Climate and Energy package and must not revise it unilaterally unless the carbon leakage issue is solved by a binding international climate agreement.
The proposed interference within the agreed policy framework will simply increase the costs for industry and private consumers. By hampering predictability and by increasing regulatory risk of further intervention, it will also deter investments at a time when the EU economy is struggling to find a way out of the crisis.
Instead, policy makers should focus on the post-2020 policy framework and endeavour to work out a scheme that makes the EU more competitive and ensures affordable energy for the industry.
Please click here for a more detailed recommendation of the Alliance.
The AEII includes 15 European sector federations representing over 30.000 companies and 2.6 million directly employed people:
CEFIC, Cembureau, Cerameunie, CEPI, EuLA, EuroAlliages, Eurochlor, EUROFER, Eurogypsum, Eurometaux, Europia, EXCA, Fertilizers Europe, GlassAlliance, IFIEC.
Growth and Employment first: Energy-Intensive Industries warn against competitiveness impacts of proposed changes to the EU ETS
The increase in ETS prices targeted by the Commission through short-term intervention will further increase energy prices and by the same token, competitive imbalance between EU and overseas Energy Intensive Industries. The revision of the EU ETS Directive, which would leave more room for the Commission to intervene in the timing of auctions, also induces greater uncertainty for industry. Therefore, the Alliance of Energy Intensive Industries urges Members of the Parliament and Member States’ representatives to reject this proposal, which will alter the nature of the EU ETS. If approved, this proposal will not prevent industry closures and carbon leakage but rather relocate investments in manufacturing industry outside Europe.
Following the fundamental divergence of views between the Industry Committee and the Environment Committee of the European Parliament, all Members of the European Parliament will be asked to vote on the Commission proposal amending the EU ETS Directive, which should lead to a change in the timing for auctioning emission allowances (so-called “back-loading”).
The Alliance of Energy Intensive Industries, currently representing more than 30.000 enterprises and directly employing more than 2.5 Million people in the EU, urges the European Parliament and Member States to reject the Commission’s proposal on the following ground:
- Increase in ETS costs will push up operating costs for manufacturing industries that emit CO2 directly. Despite partial relief through free allowances, this will affect competitiveness;
- An artificial rise in ETS prices will push up electricity prices. Costs imposed on electricity providers will inevitably be passed on to private and industrial consumers through higher power prices. In the case of industrial energy consumers, recent Commission analysis highlighted that energy costs (electricity) in the EU are twice as expensive as in competing regions such as the US, Korea or Canada. Short-term intervention with the overt intention to artificially increase ETS costs will further add to this competitive disadvantage, as European industry cannot offset these additional costs.
- Increasing uncertainty for investors will also further delay economic recovery. In the face of recent plant closures, restructuring and lay-offs throughout the whole value chain of European manufacturing industry, the EU should avoid intervention that would add to the cost burden of its economic base and make climate policy less predictable. The European industry has been struggling for almost four years with recession conditions brought about by the financial and economic crisis. Unemployment has climbed to 25.9 million or 10.7 per cent in the EU 27 in December 2012, a historically high level. Investments are much needed to reinvigorate industrial production and reestablish growth but the Commission proposal to intervene in the market would create a framework which no longer provides legal certainty.
Any structural adjustment of the ETS should be the outcome of a thorough review of longerterm objectives, taking a broader view of climate, energy, industrial factors (i.e. technical and economic feasibility), while taking into account the global situation.
- The proposed amendment of the ETS is unnecessary as the EU’s climate objectives will be met anyway. The EU’s carbon emission reduction objective for 2020 will be reached even at low price due to the limited number of allowances representing the overall cap of the EU ETS. Currently, the carbon price reflects the economic downturn exactly as it should do.
- Energy Intensive Industries stand fully behind the ETS as a major instrument for Europe’s climate ambition. By rejecting back-loading, the Alliance wants to ensure that the EU-ETS stays as initially foreseen a cost-effective and market-based instrument and that its nature is not altered. The revision of the EU ETS Directive as proposed by the Commission would give additional and unjustified discretionary power to the Commission.
Energy Intensive Industries are ready to participate in establishing a framework for EU ambitions beyond 2020 which will address the longer-term picture.
For further information please contact: Daniela Haiduc, CEPI Communications and Public Affairs Manager firstname.lastname@example.org or 0032 26274915.Download here
Position on the Commission proposal to back-load (set-aside) EU ETS allowances
In July, the European Commission issued a proposal to postpone the auctioning of an as yet undefined number of CO2 Allowances until towards the end of the third trading period. The purpose is to ensure the ‘orderly’ functioning of the EU ETS. This is likely to be the first step in further regulatory proposals to intervene in Phase 3 with the overt intention of reducing the existing cap on emissions. This cap is already set to meet the EU’s requirement to reduce EU ETS emissions by 21% by 2020 from a 2005 baseline.
While supporting the EU ETS as a policy instrument to meet the EU’s climate objectives, the Alliance of Energy Intensive Industries is opposed to any modification of the EU ETS rules which would damage further industry’s competitiveness. The EU must stick to the 2020 target formula agreed upon under the third Climate and Energy package and must not revise it unilaterally unless the carbon leakage issue is solved by a binding international climate agreement.
The proposed interference within the agreed policy framework will simply increase the costs for industry. By hampering predictability and by increasing regulatory risk of further intervention, it will also deter investments at a time when the EU economy is struggling to find a way out of the crisis.
Instead, policy makers should focus on the post-2020 policy framework and endeavour to work out a scheme that makes the EU more competitive.
In this context, the ‘back-loading’ initiative is inappropriate, and the Alliance of Energy Intensive Industries therefore calls for the rejection of the back-loading proposal for the following reasons:
1. No artificial cost increase: the back-loading proposal will inevitably lead to direct and indirect EU-only CO2 cost increases, affecting the energy-intensive businesses and private consumers, at a time when growth and value creation are needed to combat the economic crisis. Rising energy and CO2 prices do not create overall value or jobs. They will hamper Europe’s economic recovery and diminish the global competitiveness of European industry.
2. The carbon market is functioning. The carbon price today reflects the economic downturn exactly as it should do.
3. The proposal puts an end to the notion of the ETS as a market-based instrument. Trying to manipulate carbon prices through political intervention will now require a risk calculation based on the likelihood of further political intervention.
4. In the absence of an international climate agreement providing level playing field, higher carbon prices do not bring forward breakthrough technologies but do increase carbon costs and potentially carbon leakage instead. It's worth recalling that the ETS is technology-neutral - neither intended to promote one technology over another, nor to lead to the emergence of new technologies. So only the mitigation objective matters, not the carbon price.
5. Business needs predictability and transparency: political intervention to change rules, often through Comitology, creates instability. Piecemeal interventions in the market hamper predictability and deter investments.
6. Consult Industry in order to look forward: the EU should look forward and link its post-2020 climate and energy policy to industrial competitiveness, working with industry on solutions based on technical feasibility and economic viability. Amendment of the present EU ETS must also remove barriers and risks for EU growth, taking into consideration binding mitigation commitments by third countries and their impact on sectors and sub-sectors, so as to secure an international level playing field for EU industries.
Plenary debate on backloading necessary
20 February 2013
Dear Member of the European Parliament,
On January 24th the EP Industry Committee strongly rejected the Commission proposal amending the EU ETS Directive, clarifying provisions on the timing of auctions of greenhouse gas allowances (backloading). Conversely, on February 19th the Environment Committee voted in favour of the rapporteur’s compromise amendments in support of the Commission proposal. The Committee rejected the position of the Industry Committee and decided to vote at its 26 February meeting on whether or not to give the rapporteur a mandate for negotiating a first reading agreement with the Council Presidency and the Commission.
There are significant differences between the view of the Industry and the Environment Committee but in fact in the two Committees combined there were more votes opposing backloading than in favour. This highlights the wide differences in views and the importance of having a full, democratic and transparent plenary debate on this crucial issue for the EU. The plenary debate, followed by a vote, would allow all MEPs to express their views and provide required political support for the final decision before negotiations with the Council Presidency and the Commission, which might commit Parliament, are opened.
This is an important debate for EU competitiveness and deserves full consideration by all the institutions. So the Alliance of Energy Intensive Industries, representing the interests of over 30.000 European companies, asks you and your political group to support this view. We are opposed to backloading because it pushes up energy costs in the EU for industrial and individual energy users alike, without any environmental benefit. In the current economic climate the measure is unnecessary and ineffective. The ETS continues to function as designed and is on target to achieve its emission reduction targets ahead of schedule at the lowest possible cost.
We thank you in advance for taking the above into consideration.
Dr. Annette Loske, IFIEC
Gordon Moffat, EUROFER
Hubert Mandery, Cefic
For the Alliance of Energy Intensive Industries
No support for co-firing biomass in coal plants
CEPI calls upon the European Commission and member states to remove support for co-firing of wood in coal plants which only produce electricity. In addition CEPI asks not to resort to mandatory co-firing shares. Biomass that has a use as raw material should not be used as a source of energy. CEPI calls to promote the transition towards much more efficient coal plants.
The European Commission has published a communication on the future of Renewable Energy Sources in Europe. A future binding target is amongst the issues to discuss. The situation in Europe has however dramatically changed. As the economic crisis continues member states have less appetite for and funds available for support schemes.
One of the Renewable Energy Sources is Biomass. Carbon neutrality of biomass can contribute to the European CO2 reduction targets. Biomass is a renewable, recyclable and climate friendly raw material. It is the basis for the much needed Bio economy in Europe.
The renewable energy directive of 2007 (2009/28/EC) stated that ”In the case of biomass, Member States shall promote conversion technologies that achieve a conversion efficiency of at least 85 % for residential and commercial applications and at least 70 % for industrial applications”. This language was not strong enough, although it gives a clear direction. Member states should not support but further even avoid the use of biomass in coal plants with the current low efficiencies. Supporting co-firing of biomass in coal plants at low efficiencies is an environmental harmful subsidy. This applies as well to national policies building on mandatory co-firing shares.
Efficient use of biomass does not include the use of biomass for co-firing in coal plants which only produce electricity. The current average efficiency of coal plants is between 30% and 35%. Burning wood, the main biomass source, in coal plants at these efficiencies is a waste of raw material, not a climate reduction measure. The same applies to biomass fired power stations without combined heat and power.
Why raise costs when growth is needed - CEPI position on measures artificially increasing the carbon price in EU ETS (backloading)
CEPI calls upon the European Commission and member states to abandon the proposed measures for back loading of EU ETS credits, meant to artificially increase the carbon price in the EU Emission Trading System. The European pulp and paper industry strongly questions the idea of increasing the costs for energy to industry and consumers in a time where growth and value creation are needed to battle the crisis.
The European Commission published its proposal to artificially increase the carbon price by delaying auctioning of EU ETS credits (changing the auctioning profile or back loading). This measure is the first of two measures. The second measure could take credits out of the market (set aside) or be a revision of the EU ETS legislation as a whole.
The measure is aimed at increasing the carbon price in the emission trading market. It does not change the achievement of the carbon reduction targets, as these are secured by the legal framework. Although the back-loading proposal might be less harmful than other proposals for set aside, price floors or changing the linear reduction factor in ETS/unilaterally changing the climate targets, it is still one step too far.
There are 10 strong arguments against this proposal:
1. The EU should not raise energy costs in times of crisis! The higher carbon price leads to higher energy costs when there is no need at all. Increasing costs does not create value or jobs, especially when done unilaterally. The US industry sees a large reduction in gas prices; the EU raises the costs of energy. We agree with the EU that a growth agenda is hugely important. Increasing costs is not part of this.
2. The ETS delivers its objective. The European ETS guarantees the EU climate target being met. The system is designed to this at the lowest cost for society. The carbon price today reflects the economic downturn exactly as the system should and functions well.
3. This ends the notion of the ETS as a market. The EU ETS was created to be a market. Already political decisions have great impact. This final measure is the end of the ETS as we know it, now becoming a designed system for a pre-set carbon price.
4. EU’s biggest risk is regulatory uncertainty. In order to grow the EU needs investments by industry in Europe. 2013 already sees a planned massive overhaul of the EU ETS with new allocation rules. 2014 already has uncertainty with the proposed re-evaluation of free allocation to the industry (the carbon leakage list). Not even before this has started, the back-loading proposal changes the rules again, announcing even more changes ahead. Regulatory uncertainty becomes a barrier to investments in the EU.
5. The proposal takes a huge risk. The measure brings a price floor into the system, but not a price cap. So far the political interference with the EU ETS market has not worked as planned. There are no guarantees that any additional measures will not spin out of control, either by crashing the market when the back-loaded credits are put back in or by exponential increases in the carbon price when the economy would pick up.
6. The just proposed link to the Australian ETS adds another unknown factor in the mix. The EU now links its carbon market to the Australian market, also expected to lower the carbon costs for Australia, but increase the costs for Europe. It is completely unclear how these measures interfere which each other. The future and benefit of CDM credits should be examined in this mix of measures as well.
7. Carbon prices do not bring breakthroughs in technology. The answer to reduce carbon emissions is breakthrough technology, which is a policy area failing in the EU. Higher carbon prices have no impact on the creation of this technology.
8. The ETS has been given a double function that is the problem. The problems raised underlying the proposal have to do with the double function of the carbon market, where the price set in ETS also has to bring renewable energy to the market, create global carbon markets, stimulate the energy sector to invest in new power plants, etc. etc. etc. A higher carbon price will do so, as in times of higher prices these events have not happened either or were pushed by other measures. But these measures come at a cost for actors inside the system. The one size fits all system no longer works.
9. There is a direct company impact. Although there are surpluses in the emission trading market, the vast majority of installations in the trading period has a shortage of credits and has to buy these on the market as of 2013. This measure directly increases the costs of these companies, and indirectly via the electricity price for all industry and consumers.
10. There are strong legal doubts that the back loading is possible. Several legal opinions show that measures to artificially increase the carbon price do not fit the ETS directive legal framework.