In the face of recent plant closures, restructuring and layoffs throughout the whole value chain of European manufacturing industry, the EU should avoid all political measures that would add to the cost burden of its economic base. The Alliance of Energy-Intensive Industries urges the European Commission to abandon its plans to amend the Emission Trading System (ETS) in a way that would increase energy costs for private and industrial consumers in Europe.

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 25.3 million or 10.4% in the EU 27 in September 2012, a historically high level.

The situation will become even more critical if the crisis is not overcome soon. Its impact will grow across EU societies, their manufacturing industries, their employees and their families. The same is true for the commerce and the communities that depend on them. Recent incidents in the manufacturing industries in France, Belgium or the UK represent but a few, though particularly striking examples of the critical state of Europe’s economy.

As it is outlined in the Industry Policy Communication published recently, investments are much needed to reinvigorate industrial production and reestablish growth. The Commission proposals now on the table to artificially increase the carbon price in the EU Emissions Trading Scheme will further undermine the competitiveness of the European industry. It will add more costs and create confusion in the ETS market and damage its credibility. It forces industry to operate within a framework which doesn’t provide any legal certainty.

Soaring carbon costs will be passed on by the power sector through higher power prices. The recent Industrial Policy Communication has highlighted that energy costs (electricity) in the EU are twice as expensive as in competing regions such as the US, Korea or Canada. Increasing ETS costs will further add to this competitive disadvantage. European industry cannot offset these additional costs.

The proposed amendment of the ETS is therefore neither helpful nor necessary. The EU ETS emission cap will be met in any case. The industry needs a stable legislative framework to operate in. And it needs political initiatives that strengthen its global competitiveness as well as protect the jobs of its employees.

The EU must stick to the 2020 package developed through full legislative process and not introduce ad hoc amendments to address perceived failings in such an important measure as ETS. The energy intensive industries are ready and willing to participate as they did in 2008 and 2009 in establishing a framework for EU ambitions beyond 2020 which balances EU competitiveness and jobs with energy and sustainability issues.

Position of the Alliance of Energy Intensive Industries on the Commission proposal to back-load (setaside) 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.