EU Approves List of Sectors Exposed to 'Carbon Leakage' Under Emissions Trading Scheme
October 1, 2009 // Published as a news service by IHS
European Union (EU) member states approved a draft decision on Sept. 18 listing 164 industrial sectors and subsectors deemed to be exposed to "carbon leakage," in conjunction with the EU's strategy to combat climate change.
Under the revised EU Emissions Trading System (ETS), to become effective in 2013, installations in such sectors will receive a higher share of greenhouse gas emissions allowances free of charge than other industrial sectors.
The issue of carbon leakage relates to the risk that companies in sectors subject to strong international competition might relocate from the EU to third countries with less stringent constraints on greenhouse gas emissions.
At a meeting of the Climate Change Committee of the European Commission (EC), EU member states gave a favorable opinion on a list of 164 sectors and subsectors that the EC judged face a significant risk of carbon leakage. The list was drawn up on the basis of detailed criteria on carbon dioxide (CO2) emissions costs and trade exposure set out in the revised ETS directive agreed upon as part of the climate and energy package in December 2008 (see IP/09/628).
The risk of carbon leakage could be lessened by the international climate change agreement due to be concluded at the United Nations climate conference in December in Copenhagen. Therefore, the EC plans to review the list in light of the Copenhagen agreement and possibly propose revisions. If the list is not revised, it will apply for five years, until 2014, but sectors can be added to the list during this period. A new list would apply for the period 2015-2019.
The sectors and subsectors judged at risk of carbon leakage are estimated to account for around a quarter of total emissions covered by the EU ETS and around 77% of the total emissions from manufacturing industry in the EU ETS. A large part of the emissions covered by the ETS come from the power sector, which from 2013 will not receive any free allowances, subject to a limited exemption to aid modernization of the electricity sector in some member states.
The actual number of free allowances that industrial installations will receive will be decided in 2011. This will be done on the basis of common performance benchmarks, which should be determinedby the end of 2010.
Under the revised ETS directive, industrial sectors will receive 80% of benchmarked allowances for free in 2013, decreasing annually to 30% in 2020. Those sectors that are deemed to be exposed to carbon leakage will receive 100% of the benchmarked allowances for free.
The benchmarks will reflect the average performance of the 10% most efficient installations (in terms of their greenhouse gas emissions) in a sector or subsector in the EU over the years 2007-2008. The benchmarks will thus create additional incentives for ETS installations to reduce emissions and improve energy efficiency. Given the stringency of the benchmarks, only the most efficient installations have a chance of receiving all of their allowances for free.
To prepare the draft decision, the EC held several broad stakeholder consultations as well as a large number of bilateral meetings with industry, nongovernmental organizations, academics and member state representatives. The work was carried out in close cooperation between the EC's Directorate-General for Environment and the Directorate-General for Enterprise and Industry.
The final decision is expected to be adopted by the EC by the end of 2009, following three months of scrutiny by the European Parliament and the European Council.
Further Information
The draft decision on the list of sectors and subsectors proposed by the EC will be put on the EC's carbon leakage web site. For more information, see the amended ETS directive and frequently asked questions on the EC's Emissions Trading System web site.
Source: European Commission (EC).