European industry groups give mixed response to EU ETS overhaul

European climate industry groups responded positively January 23 to the European Commission's announcement of an overhaul of the EU's Emissions Trading Scheme (ETS), although other industry groups criticized the move towards full auctioning of permits.

"There is no use damaging the chemical industry. We work for the benefit of all and we remain part of the solution." - Alain Perroy, Cefic director general

Tom Delay, head of UK carbon consultancy Carbon Trust, said the package had "put Europe firmly in the driving seat of international action on climate change." He added that the measures announced for the EU ETS would "increase and firm up the price of carbon."

This would be essential "to drive investment in low carbon technologies at the scale required to deliver the deep carbon cuts necessary to mitigate the impact of climate change," he said.

But there was some negative response from other industry sectors. The European Chemical Industry Council said the ETS needed to have a "sustainable and competitive impetus." To fight climate change, "we all need a competitive chemical industry in Europe," it said.

The council said that without an international agreement putting similar constraints on producers outside the EU, auctioning would "damage in fact the EU chemical industry's capacity to reduce its own emissions and to create products helping the rest of the economy to do so." It added that granting free CO2 emission permits was the only "workable solution."

Alain Perroy, Cefic director general, said: "There is no use damaging the chemical industry. We work for the benefit of all and we remain part of the solution. It is indeed thanks to chemistry that people have for example better insulation in their houses, less consuming cars, photovoltaic systems."

German suppliers' association BNE said the package lacked incentives for investment in power plants and did not encourage market transparency. The group slammed the structure and development of emissions trading, adding that time-consuming approval processes and rising power plant costs blocked further investment.

The planned auctioning of 100% of emission rights will "result in incalculable costs that will hinder further decisions on new power plants," it said. "It will result in an unnecessary conflict between climate protection and more competition in the generation market."

And Ifiec, a group representing Europe's largest energy using industrials, said the EC's plan to auction emissions allowances post-2012 would hurt Europe's industrials.

"We would rather have the allocation [of emissions allowances]," Ifiec spokesman David Gillett said. "Our members compete in global markets where at the moment there are no equivalent schemes," he said. "We are committing to a period for which we have no international agreements at present," Gillett added.

Robert Casamento, a director in the utilities team at consultants Ernst & Young, said the proposals looked "like a classic example of 'Catch 22.'" He said that to achieve the emissions cuts required, European legislators needed to show leadership and be prepared to make bold decisions, but that leadership only worked if others followed.

"Trading schemes are essentially proxies for creating the right signals to achieve technological advances and behavioral change. But in a world of accelerating global emissions, Europe cannot work in isolation."

The UK government said it welcomed the new proposals. Environment secretary Hilary Benn said he supported "the clear message from the Commission that there should be much more auctioning in the EU ETS." However, he added that the UK "would like to see increasing minimum levels of auctioning that allow member states to set higher levels unilaterally. We will consult on this and the rest of the detail of the EU ETS review in the spring."

On the announcements regarding carbon capture and storage, Michael Farley, director for technology policy liaison at services company Doosan Babcock Energy said the package recognized the "real importance" of clean power generation from fossil fuels. "Carbon capture and storage is identified as a key challenge to meet the targets and its that recognition that we are pleased about," he added.

But others in the climate change industry were less impressed by the proposals on carbon capture. Carbon-specialist investment bank Climate Change Capital said the measures had failed to make CCS mandatory, and had not provided an incentive framework for the 12 demonstration plants promised by EU heads of government in 2007.

"This is a disappointment in the package," said Kate Hampton, head of policy at Climate Change Capital. "The option to make CCS mandatory in the future has been kept on the table, but funding needs to be provided for first generation plant now. Coal is still a globally abundant fuel and has to be addressed with greater urgency."

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