A key issue for energy industries such as steel and cement is whether they will lose their free allocation of allowances under the scheme. Industry argues that this could force production to relocate to countries outside the EU with less expensive but less stringent regulations, and thus indirectly increase global carbon dioxide emissions – so-called “carbon leakage”.
Damien Meadows, deputy head of the climate change unit at the European Commission’s environment directorate, said the Commission will consider measures to protect the competitiveness of European industry in the scheme’s third phase, which starts in 2013. These measures, he said, could include continuing the free allocation of allowances to those sectors most exposed to international competition.
Tomas Wyns, policy officer at Climate Action Network, dismissed the threat of carbon leakage as unfounded and challenged industrial sectors to come forward with evidence that a tougher scheme would damage their competitiveness: “Show us the figures. If carbon leakage is a problem then give us some proof.”
He was backed up by Stephan Singer, head of European climate policy at WWF. “It is not acceptable for industry to blackmail the EU with the threat of relocation,” he said. “If there is a problem, industry should pay for allowances up front and then claim them back like a tax rebate.”
Gareth Stace, head of environmental affairs at UK Steel, insisted the threat of carbon leakage was real. Imposing extra costs on European steelmakers, he said, would make them uncompetitive in the global market and result in Chinese or Indian steel companies gaining a bigger share of the market. He pointed to a recent study by the Carbon Trust which suggests the competitiveness threats exist, but are restricted to a handful of sectors.
Mr Meadows agreed that the risk of carbon leakage was real, but said the Commission will carefully assess different sectors to make sure they are not overcompensated for the risk.
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