The European Commission has released provisional figures showing that the EU chemical industry is exposed to international competitioen and therefore entitled to free, performance-based CO2 allocations. While the analysis remains to be completed, the aim is to prevent ‘carbon leakage’ or the relocation of production to regions without similar carbon constraints or -costs.

From mid-June to mid-July, the European Commission will be finalising internal discussions among its different Directorates General about the status of industrial sectors exposed to international competition and come up with a definitive recommendation towards the Council and European Parliament, for decision end of 2009. In the Emissions Trade Scheme (ETS) to manage post Kyoto CO2 emissions in the period from 2013 to 2020, such sectors recognised as exposed would benefit from free allocations of emissions throughout the trading period up to the benchmark of the 10% best performers. This is to limit the loss of competitiveness against companies outside the EU that could emit CO2 for free or without binding targets.

The importance of levelling the competition playing field

All sectors of the European economy and society benefit from such innovative capacity: The chemical industry has many downstream users: Services account for 16% of domestic chemical consumption, automotive industries account for 5.3% and agriculture for 6.4%. Everything that impacts the chemical industry will impact equally downstream users and the end consumer. In short, a competitive European economy is vitally dependent upon a competitive chemical industry. Without provisions safeguarding the sector’s competitive position, such innovation is put at risk. In analysing the exposure of EU industries to international competition, the European Commission gives supportive signals to that view.

Sectors exposed to carbon leakage

Among the evaluated sectors are dyes, pigments, inorganic and organic basic chemicals, synthetic rubber, pesticides, agrochemicals, pharmaceuticals, perfumes, essential oils, photographic chemical materials, man-made fibres, …

This Commission task is challenging: To declare them exposed sectors, the European Commission had to receive data accurate enough to prove that:
 

•  the CO2 cost is greater than 5% of the Gross Value Added (GVA) and the trade intensity is beyond 10 %
• Or, that the CO2 cost is greater than 30% of the GVA of the said sector
•  Or, that the trade intensity is beyond 30 %.

The data issue is therefore crucial and incomplete assessments (greenhouse gas process emissions not included) resulted e.g. in fertilizers and nitrogen compounds not qualifying as exposed sectors yet. These preliminary findings need to be corrected. In addition, the EC estimate of average carbon content is very low (0.465 ton CO2/Mega Watt hour) and does not correspond to reality: the CO2 content passed through with the power price to industrial electricity consumers is significantly higher.

Non-exposed sectors will face high carbon costs from increasing auctioning

Because data might not be properly collected or understood, there is a risk of chemicals industries being considered as non-exposed sectors and thus subject to auctioning. The European Commission has never hidden its desire to distribute emission rights under the Emission Trading Scheme on the basis of auctioning: Companies will have to buy and submit the amount of emission rights according to their own carbon emissions (20% in 2013 up to 80% in 2020).

While it is the declared key element of EU climate policy to ease the development of technologies that reduce the carbon footprint and that ensure a high level of competitiveness for our economy, measures taken and costs created must not turn out to hinder the key climate solutions-enabling industry, the EU chemical industry. The current exposure debate is thus not just about statistics but it concerns the European economy and society.

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