Implementing the EU Emissions Trading System

The EU Emissions Trading System (ETS) is a key tool for achieving the EU’s target to reduce greenhouse gas emissions by 20% by 2020. Implementing the ETS is an important challenge for the European chemical industry and other energy-intensive industries.

ETS, competitiveness and innovation

The EU ETS was launched in 2005 to curb greenhouse gas emissions in the EU through a “cap and trade” system. Industrial installations within the system receive emission allowances which they can sell to or buy from one another.  Companies emitting more than foreseen have to purchase permits to make up for the excess (for example at auctions), invest in low-carbon technology or reduce their production.

The ETS has a significant impact on the competitiveness of the European chemical industry and other energy-intensive industries, due to EU-specific direct costs (purchase of allowances) and indirect costs (CO2 element of electricity price).

Today, energy prices in the EU are higher than in other industrialised regions relevant for international competition. For the European industry to remain globally competitive, it is important that market-based mechanisms like the ETS do not create unilateral financial burdens that risk directing resources away from innovation and investments for example for energy efficiency improvements.

Cefic position on ETS Phase III

The three implementation measures for ETS Phase III – the list of exposed sectors, the auctioning rules and sector benchmarks – have been adopted, paving the way for the third ETS trading period to start in 2013.

Cefic sees the ETS as the primary EU tool to achieve the agreed emission reductions in an economically efficient manner. In the current global climate policy context, however, high unilateral carbon costs in Europe would further increase the risk of carbon leakage and thus discourage domestic low-carbon investment.

To ensure a predictable framework for carbon market participants, it is crucial that regulators refrain from altering ETS market mechanisms – for example by artificially increasing the carbon price. Cefic stresses it would be inappropriate to set aside emission allowances during the third trading period. Altering the regulatory framework would undermine investors’ trust in EU industrial policy and the ETS as well as affect investment planning by EU companies.

Additionally, the European Commission should provide guidelines for State Aid as soon as possible enabling member states to compensate their electro-intensive businesses for the indirect carbon costs (carbon cost paid through electricity prices) that will otherwise remain fully exposed to the risk of carbon leakage.