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UK Green MEP - Emissions Trading Scheme Turning Into “Giant Subsidy Machine For Polluters

UK Green MEP - Emissions Trading Scheme Turning Into “Giant Subsidy Machine For Polluters

5 December 2008 - A UK Green MEP has urged the EU to clean up its act on climate change law as new proposals for legislation on the emissions trading scheme (ETS) emerge, claiming that the proposals risk completely undermining the viability and ambition of the scheme.

Greens/EFA shadow rapporteur for the ETS and Green MEP for the South East, Caroline Lucas, has condemned the watering down of the ETS in the latest negotiations in Council, and said it was appalling that as climate talks continued in Poznan, the EU was sending a message to the world that it is unwilling to commit to tough and binding legislation. She commented:

"It is deeply unfortunate, if not downright irresponsible, that EU leaders seem to be getting cold feet on their climate change commitments at just the critical moment when the world needs to see decisive action.

"Latest signs from the European Council confirm that they look likely to backtrack on their own 30% reduction commitment, offset up to half the reductions they do set themselves using credits from projects abroad, and criminally, fail to commit funds to show solidarity with developing countries."

The Council is also proposing to grant exemptions from the auctioning of emissions permits to a large majority of industry sectors outside the power sector by classifying them as being at risk of ‘carbon leakage’ (ie, where firms, production or market share relocate to third countries with less strict laws on emissions) (1). Referring to the suggested criteria for identifying the ‘carbon leakage’ sectors, Dr Lucas continued:

"It is common sense that for emissions trading to work properly, polluters should pay for the right to emit. If industry receives its permits for free rather than by auctioning, then either it makes huge windfall profits - by passing on the market price of allowances to consumers despite not having paid this itself - or it does not pass on the cost, in which case the price signal is lost and the scheme becomes meaningless as a tool for changing behaviour.

"It’s already bad enough that the proposals for full auctioning to the power sector are being progressively whittled away, and that the Council is so far trying its best to betray an agreement made with the Parliament that very meagre levels of auctioning for the aviation sector would be reconsidered.

"But now it seems the industries responsible for virtually all other emissions under the scheme may also benefit from large amounts of free allocation until further notice. Assessment criteria circulated by the Council Presidency looks set to classify sectors accounting for more than 90% of emissions from manufacturing as at risk of carbon leakage. Astonishingly these criteria appear to bear no relation to what the term carbon leakage is supposed to mean - namely a possible increase in global emissions if production were to move outside the EU.

"Effectively subsidising so much of our industry would be not only a real blow to the effectiveness of the ETS, but a terrible precedent to set from a global perspective - bearing in mind the huge proportion of emissions growth that is set to come from energy-intensive industry.

"Over the past months, analyst after analyst has presented MEPs and officials with figures and studies which show that true carbon leakage is likely to be a limited problem, confined to a few specific industries. To use it as a Trojan horse for exempting almost all industrial emitters from paying for their permits, risks turning the ETS into little more than a giant subsidy machine.

"Furthermore, irrespective of which industries are on the list the very concept of devising it before December 2009 makes a mockery of the international negotiations at Copenhagen. It signals to the world: ‘we have no confidence in the agreement we are likely to reach here, so have come armed with pre-conceived protection for our own industry’. The EU can and must do better than this."


Notes to Editors

(1) Under the European Commission’s proposals, all non-power sectors would be subject to transitional free allocation of permits, with 20% auctioning in 2013 rising to 100% in 2020. In the absence of a global climate agreement which places similar obligations on all countries’ industry, special measures would be introduced for a certain, specific sectors to avoid the risk of carbon leakage - whereby higher costs under the EU ETS might genuinely cause production to shift outside the EU to places with lower environmental standards, with consequent net increases in pollution.

Under the latest proposal by the Council, over 90% of the non-power sectors could be classified as being at risk of ‘carbon leakage’ and hence exempted from having to purchase emissions permits through auctioning (even though the result of international negotiations is unclear).