Reforming the EU ETS is about striking a balance
Only a well-reformed and market-based ETS system can safeguard European industries, argues Angelika Mlinar.
Angelika Mlinar | Photo credit: European Parliament audiovisual
Last December, Parliament adopted a report on developing a sustainable European industry of base metals. The main goal of the report was to highlight the numerous challenges facing our metals industry.
The steel sector in particular has experienced a severe crisis in recent years, mainly due to a significant overcapacity on the global market, a decline in demand and higher energy prices in Europe than in many other steel producing countries.
The report focuses on two key aspects: the declining competitiveness of European base metals on the global market and how the measures taken against climate change affect the industry.
- Axel Eggert: Will revising the EU ETS encourage low carbon investment?
- Bas Eickhout and Peter Eriksson: Could a CO2 emissions performance standard fix the EU ETS?
- Edouard Martin: EU ETS reform: It's time to think outside the box
- EU ETS reform: Emission allowances must focus on industries at highest risk
- Esther de Lange: EU ETS reform should be simple and realistic
When it comes to the competitiveness of the base metals sector, the report identifies a few main problems such as a global oversupply and comparably high energy costs in Europe.
Other challenges include discriminating trading practices and trade barriers applied by some third-country economies, such as unfair subsidies and dumping.
While it is difficult to address global oversupply, one of the most pressing issues to be addressed on a European level is the creation of a global level playing field in the base metals sector.
This should first and foremost be achieved through the use of all measures available to fight unfair trading practices and by modernising and improving the effectiveness of the European trade defence instruments (TDIs). An important step in this process will hopefully be the outcome of the current discussion on the reform of the European TDIs.
Second, we need to address high energy prices in the EU by creating a common internal energy market and completing the energy union.
Therefore, ending the fragmentation on the energy market and developing a sustainable, forward-looking and modern energy system - based on energy efficiency, renewables and best use of Europe's energy resources - are essential.
The second main challenge addressed in the report is the need to act on climate change and what this means for European industries. The balance between creating sufficient incentives for switching to a low-carbon industry and reducing the risk of carbon leakage is of particular importance for the European base metal industry.
The report mentions a number of different instruments, such as a carbon border adjustment system, in order to safeguard European industries.
While this might be an attractive model for those who favour a new wave of protectionism, it is not the right model to effectively address the challenges set out above.
Rather, only a well-reformed and market-based ETS system will do the trick. As we all know, the current system has experienced a growing number of surplus allowances and, thus, a rather low carbon price.
Consequently, our industries and the power sector have only limited incentives to switch to low carbon technologies. For the EU to reach its ambitious climate goals, this needs to change. An effective and well-functioning carbon market is a key tool to reduce greenhouse gas emissions cost-effectively.
At the same time, we also need safeguards for our industry to remain competitive on the global market and we should not forget that several industries have already taken enormous efforts to increase their carbon efficiency.
Therefore, a reformed ETS needs to strike the right balance between climate protection and a healthy European industry. EU policies on climate, environment and energy need to act as a driver for innovation and change.
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