Implementing Emission Trading

Arguments and Positions

The costs from the EU emission trading system (ETS) for the chemical industry rise because of political measures. The ETS reform adopted in 2017 led to the removal of chemical sectors from the carbon leakage list. Consequently, in the future the impacted companies will only receive 30 percent of free CO2 allowances, even though they are engaged in international competition. Moreover, the market stability reserve was tightened and allowances are deleted.

Electricity price compensation

The EU state aid guidelines on electricity price compensation are currently being revised. They serve to make up for indirect emission trading costs in electricity. In this exercise, the Commission is planning a much reduced circle of beneficiaries. In consequence, many chemical sectors that currently benefit from electricity price compensation will no longer continue to do so. These indirect costs threaten the competitiveness of energy-intensive chemical companies.

Clearly higher costs

Already now, the costs of emission trading for the chemical industry alone amount to 1.34 billion euros per annum. These costs will rise due to the tighter reduction target for green-house gases of minus 40 percent to 2030, as compared with 1990. This is because the annual reduction in the emission trading sector - which includes, inter alia, the chemical industry - is thus tightened from currently 1.74 to 2.2 percent from 2021. The new target, together with the other measures, brings higher allowance prices and - consequently - higher electricity costs: In the medium term, the EU Commission expects at least 40 euros per tonne. In the German chemical industry alone, this would lead to costs of at least 2.3 billion euros annually in the purchasing of electricity.

Competitiveness at risk

The chemical industry contributes to reducing production-related greenhouse gas emissions. Here, benchmarks for installations have a role by setting reference values for the allocation of free allowances. Their review is still forth-coming, however, a tightening is already planned. Here, the "heat benchmark", which addresses the heat production and is particularly important to the chemical industry, has a major part. This benchmark is becoming even more important as some heat-consuming productions are no longer on the carbon leakage list.

All these extra costs from ETS are detrimental to competitiveness. As there is no level playing field in competition internationally, there is the risk of carbon and investment leakage.

Carbon leakage measures remain necessary

The Paris climate agreement has not brought comparable rules for competition at a global level. Therefore, adequate electricity price compensation and free allocation remain necessary to prevent "carbon leakage", i.e. production relocations to regions outside the European Union.

THE VCI IS CALLING FOR THE FOLLOWING

  • Ensure adequate carbon leakage protection and reduce bureaucracy
    It is important that the planned tightening of benchmarks reflects the achievable state of the art. The heat benchmark should remain unchanged.
  • Full electricity price compensation is needed
    In the European shaping of the electricity price compensation, it is important that such compensation is adequate - i.e. that it effectively makes up for the carbon leakage risk. The categorisation of sectors as beneficiaries needs to follow transparent rules and rely on up-to-date data as the basis. The existing range of benefi¬ciaries should be maintained, however, it should be extended by selected energy-intensive sectors.

For questions or suggestions, please feel free to contact us.

Contacts

Jörg Rothermel

E-Mail: rothermel@vci.de