EU ETS: Industry concerned over proposed 'tiered approach'

Swedish MEP Fredrick Federley has been heavily criticised over his so-called 'tiered approach' to carbon leakage protection under the EU emission trading scheme (ETS).

By Martin Banks

Martin Banks is a senior reporter at the Parliament Magazine

28 Apr 2016

In an opinion report, Federley says the EU ETS should adopt a tiered approach to free allocation after 2020 to better protect those firms exposed to carbon leakage.

Federley, the ALDE deputy steering emissions market reforms through the European Parliament's industry committee, says this approach would divide industries into categories according to leakage risk and apportion shares of free EUAs accordingly.

In theory, this would help to prevent an across-the-board slashing of allocations to all via the cross sectoral correction factor (CSCF).


While the most efficient steelmaking and fertiliser installations would be likely to get all their required allowances for free under tiering, cement factories and paper manufacturers may get fewer depending on the method used.

Federley says that if the committee on industry, research and energy favours using the European Commission's outline from its impact assessment, then oil refineries and chemicals plants would also see their shares reduced.

However, his report has been condemned by some of Europe's leading energy-intensive industries, which have expressed concerns regarding the proposed tiered approach.

Several organisations, including the European Container Glass Federation, the Nickel Institute, European Lime Association and the European Copper Institute, have signed a letter outlining their concerns.

It reads, "The tiered approach would reserve free allowances for some sectors at the expense of others. It goes against the principle that best performing companies in ETS carbon leakage sectors should not bear further carbon costs. Indeed, it would ensure that even best performers in most sectors would bear significant carbon costs and expose them deliberately to carbon and investment leakage.

"The proposed tiering has no environmental or economic justification and is based on flawed assumptions provisions would not deliver decarbonisation through investment and innovation. Moreover, it could well prove to have been entirely unnecessary."

The tiered approach, it says, "would introduce an unnecessary and unfair discrimination between sectors. Fairness and solidity should become key principles of policy making. Jobs in one sector are neither more nor less important than those in other sectors."

The signatories says they fully share and support the position of BusinessEurope on a tiered approach which it expressed in a statement earlier this month.

On the Commission's emissions trading scheme post-2020 reform proposal, BusinessEurope said it is, "failing to safeguard the competitiveness of European industries. It does not match with the objective of keeping a strong and competitive industrial base in Europe."

Support for Federley's report, though, comes from Fertilizers Europe, the Brussels-based body which represents the major producers of nitrogen-based fertilizers in Europe.

Its spokesperson told this website, "Not all industries are the same and should not be treated as such. Tireing/differentiation/targeting any of these guises help to ensure that those most at risk get the protection they require to avoid carbon leakage. The CSCF is particularly damaging for the fertilizer sector because of the arbitrary reduction it imposes. As a result it would take us beyond what is technologically possible and become a straight forward tax."

He adds, "For some sectors the CSCF is a simple haircut for us it chops off our head. Avoiding the CSCF is key and a form of tiering is the only real preventative solution."

The end of May is the deadline for amendments to the ETS reform proposals which will then be considered on 12 July. The committee votes on the whole ETS package on 13 October.


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