EU Vote Sparks Competitive Concerns

Jan. 18, 2011
New emission rules put coal-fired installations at a considerable disadvantage.

Following a vote taken by the European Union (EU) Climate Change Committee (CCC) on December 15, the European Parliament and Council have three months to scrutinize draft legislation that establishes greenhouse gas emission allowance trading within member states.


From the outset, the European Commission was against any form of differentiation in benchmark levels when determining rules for the free allocation of emission allowances. Whether considering the basis of technology or fuel, or even particular regional conditions (for example, the raw materials used) to reflect the conditions in particular sectors in specific member states, its approach all along has been broad:

One benchmark per product, to limit the number of benchmarks (there may be a difference of up to 20% in emission levels in a group of products covered by a single benchmark);

Irrespective of differences between member states, neither fuel, technology or other characteristics are taken into account. For example, the same benchmark will apply to manufacture of a given product, regardless of whether coal or natural gas serves as fuel. This will put coal-fired installations at a considerable disadvantage, even if state-of-the-art production technology is used;

Natural gas is used as the reference fuel (not only to calculate the benchmark for the production of heat but also to estimate the potential for further emission reductions);

Benchmarks are to be calculated on the basis of the average performance -- which is 10% of the most efficient installations in a given sector/subsector in the EU. This will take into account the potential for further emission reduction according to the criteria listed in the directive -- including alternative production processes, biomass, combined heat and power, efficient use of energy from waste gases and combined cycle systems.

The draft decision containing the above proposal, with some amendments, was adopted by majority vote at the meeting. However, committee members from a number of nations, including Poland, voted against the decision.

Poland argues that for those countries that were against adopting the decision, it is crucial to take into account the type of fuel used in industrial processes and heat production when setting emission benchmarks.

A statement from the country's CCC representatives says that further discussion is needed, particularly for installations equipped with state-of-the-art technology but using a fuel that produces more emissions than natural gas.

"Taking into consideration the possibility of gas shortages on the European market, it is very risky for the EU energy security for benchmarks to be based on gas alone. The EU should focus on promoting the development of clean coal technologies (one of the most accessible fuels globally, in the long term). If benchmarks are set on too restrictive a basis, without taking into account the specific characteristics of particular industries and countries, this may undermine the key protection mechanism for sectors where there is a risk of carbon leakage," it adds.

Commenting on the proposal, the European Chemical Industry Council (Cefic), Brussels, applauded the principles involved but expressed fears about how they might work in reality.

"Cefic is supportive of benchmarking as an essential tool to reduce greenhouse gas emissions," said Hans-Ulrich Engel, a Cefic board member and chairman of its energy and climate change program council.

Cefic also says that it appreciates that the CCC decided to lower the thresholds for free allocation for new capacities compared to earlier drafts -- which it describes as one step to allow for investments in new, more efficient installations.

Nevertheless, Engel expressed serious concerns: "Despite the improvements through the CCC vote, the chemical industry in Europe -- and even the most efficient companies -- will be faced with substantial additional costs compared to competitors producing outside the EU This distortion of competition leads to our continued request for a global agreement on the reduction of greenhouse gas emissions and a level playing field. Overall, the setup will not fully avoid carbon leakage. The EU sector's competitiveness in a global market and decisions on where future operations will be located will be negatively impacted. And what concerns us most is that despite all the improvements in the rules, growth investments in even the most efficient installations cannot fully count on free allocations."

Seán Ottewell is Chemical Processing's Editor at Large. You can e-mail him at [email protected].