Climate Strategies Press Release: EU needs to rethink carbon leakage policy post-Copenhagen
· Climate expert says free allocation of permits is undermining EU climate policy
· New report from Carbon Trust says road to decarbonisation must include targeted measures to level carbon costs at the border
One of the UK’s leading climate policy experts will today say that, following Copenhagen, the EU needs to inject some fresh thinking into its approach on competitiveness and carbon leakage. The current system of allocating free permits to industry is inefficient and ineffective and the EU risks losing its leading position in international climate change negotiations if it is not overhauled.
Presenting the findings of a new study, Professor Michael Grubb will argue that the allocation of free permits risks creating windfall profits for some energy intensive industries and is driving up the price of carbon for the rest of EU business. Instead the blanket approach of allocating free permits should be replaced by a range of sector specific policy tools such as border leveling, which will create a fairer competitive environment for companies operating inside and outside the EU’s emissions trading scheme (ETS).
In a presentation at the Carbon Market Insights conference in Amsterdam, Professor Grubb, chair of
Climate Strategies, an international network of academics and experts that provides governments and industry with independent climate change policy and economic advice , will argue that border leveling may be the “least bad way” to tackle carbon leakage from the EU ETS in certain industry sectors – specifically cement and, over time, steel.
According to Professor Grubb, the lead author of a new report by the Carbon Trust on the issue of carbon leakage, in the absence of a global emissions trading system, the most effective way of mitigating against the loss of competition in high emitting industry sectors would be to impose carbon costs on imports from countries not included in the EU ETS.
“One of the major arguments against a unilateral climate policy like the EU ETS is that no other region has yet embarked on a similar carbon pricing scheme, putting European industry at a significant disadvantage when allowances are auctioned. Our research demonstrates that the overall risk of carbon leakage is actually quite low – less than 2% of total emissions are likely to leak if no countermeasures are taken. That said, in certain key, economically powerful sectors, a range of measures do need to be adopted to prevent Europe industry from losing out to other countries.”
“As world leaders weren’t able to sign up to an international carbon trading system at Copenhagen, our research demonstrates that a one size fits all policy of allocating free allowances is neither effective nor efficient. Policy makers ought to adopt a tailored approach to specific energy intensive sectors. To create a level playing field for the European cement and steel industries, for example, we believe that policy makers should consider the introduction of import costs on those sector specific imports from countries operating outside of the ETS.”
The Carbon Trust report shows that between 5-10% of carbon emissions from cement and steel – up to 25 million tones – could leak overseas undermining the effectiveness of the EU ETS. With the inclusion of the aluminium sector, the total annual leakage could be 30 million tones. These three sectors, and the electricity they consume, account for approximately one third of emissions capped under the EU ETS.
Supporting Professor Grubb’s argument, Adair Turner, the chair of the UK Committee on Climate Change said;
“Business needs a clear and consistent market-based incentive to move towards a low carbon economy. We can’t solve the problem by giving out emission allowances for free as the only option for internationally trading manufacturing sectors. It’s time that border taxation is taken off the index of forbidden thought in the UK, and subject to rigorous analysis alongside the other options.”
ENDS
For more information, or to speak to Michael Grubb please contact Nick Faith, Toby Pellew or Helen Davison at Luther Pendragon on 0207 618 9108.
The Carbon Trust report, ‘Tackling Carbon Leakage: sector specific solutions for a world of unequal carbon prices’, can be found at http://www.carbontrust.co.uk/policy-legislation/insights/pages/reports.aspx
Notes to editors
About Climate Strategies
Climate Strategies aims to assist governments in solving the collective action problem of climate change. It connects leading applied research on international climate change issues to the policy process and to public debate, raising the quality and coherence of advice provided on policy formation.
We convene international groups of academics and experts to provide rigorous, fact-based and independent assessment on international climate change policy. To effectively communicate insights into climate change policy, Climate Strategies works with decision-makers in government and business, particularly, but not restricted to, the countries of the European Union and EU institutions.
