European politicians are already hard at work to reform the EU’s Emissions Trading System (ETS).
Changes to the ETS have a big impact on metals producers in Europe. In this post, we’ve laid out our five priorities for ETS reform that will enable us to continue reducing CO2 emissions without endangering the viability of our businesses and creating carbon leakage outside Europe.
Over the next few months, we’ll be meeting with MEPs and Member States to share our views. Get in touch to talk details.
The ETS should recognise and reward the facilities that most efficiently reduce CO2 emissions. It should not punish them with undue direct and indirect costs from CO2 allowances and higher electricity prices, which foreign competitors don’t have to bear.
Our best performers need a stable compensation framework to compete with foreign competition. More predictability means we can invest in our European facilities and innovate through research into low-carbon production methods.
The ETS indirectly increases the cost of electricity, which is especially damaging for our industry since our production processes are electro-intensive. Perversely, the rising cost of electricity is actually more costly to our industry than buying CO2 allowances.
Currently, individual Member States compensate producers for these indirect carbon costs on a voluntary basis with state aid. Just seven Member States today offer this compensation, however, and at completely different rates.
European policymakers should make compensation mandatory across all Member States. Otherwise, European producers will be unable to effectively compete in global markets.
Metals are priced according to global pricing mechanisms, such as the London Metals Exchange. This means that one tonne of copper or aluminium is sold at the same price globally no matter in Europe, the US or China.
That means we cannot pass on extra ETS costs to our customers. Our industry has to bear this burden alone.
Policymakers must recognise the real damage that undue ETS costs cause to globally priced industries like ours. All globally-priced industries should be afforded the highest level of carbon leakage protection. Otherwise, investments will be directed outside of Europe where regulatory costs are lower.
To continue receiving ETS allowances, the European Commission has proposed that best performers from all industries must become 1% more efficient each year. This ‘one-size-fits-all’ approach to benchmarks sounds nice, but it doesn’t work in practice with such diverse industries in Europe.
Efficiency gains occur at different paces in different industries, according to factors ranging from technology to funding. A flat rate for benchmark improvements would artificially increase costs for industries without short-term options for lowering emissions.
The EU should analyse each industry separately, creating realistic benchmarks that do not artificially increase costs. To create real efficiency gains, benchmarks should be based on industry data, rather than arbitrary figures.
The Commission intends to use old data to determine production and compensation levels for each sector. As a result, companies that are downsizing will receive more compensation than those expanding production. We’re concerned that this could encourage companies to reduce their production in Europe.
Policymakers should set compensation levels based on production data from the last 1-2 years instead. This approach rewards companies that investment in Europe to improve their efficiency.