Charging companies for CO2 emissions can be a great way of encouraging them to become cleaner, but also risks pushing them to move production to somewhere with lower environmental standards. The European Commission aims to prevent the practice known as carbon leakage by continuing to give some allowances away for free. Bas Eickhout proposed to block this decision, saying many industries can afford to pay for the allowances. The environment committee voted against his proposal on 24 September.
Some industrial sectors in the EU are given a substantial share of their CO2 emissions allowances for free, as it is feared they would otherwise relocate if they had to pay for them. The Commission has now prepared a list of sectors at risk of relocating on the assumption of a €30 price per allowance. However, the market price today is only €5 and some say that many of the sectors listed could actually afford paying the current market price or even more for allowances without putting jobs at risk in the EU.
We discussed the situation with Mr Eickhout.
What is wrong with the Commission proposal?
Sectors that are not at all exposed to the risk of carbon leakage are now receiving free allowances.
The Commission’s methodology to identify sectors eligible for the allocation of free allowances is based on a carbon price of €30 per allowance. This price is far too high and puts sectors on the list that do not belong there.
Meanwhile in an impact assessment that was not made public, the Commission uses a price of 16.5. Under this scenario, more sectors will have to buy allowances, member states will earn about €5 billion and several CO2-intensive sectors will have an incentive to innovate.
Is there a risk that some energy-intensive sectors, if removed from this list, might relocate their businesses to other regions?
No. A recent study, which was carried out for the Commission, even questions whether carbon leakage exists at all.
Moreover, the aforementioned impact assessment also concludes that some sectors can be safely removed from the list. The list should only contain the sectors that face unfair competition, whereas it currently the list contains 96% of all industries participating in ETS (Emissions Trading System).
How could the EU make companies pay for CO2 emissions while still preserving the jobs in the Union?
First of all, the revenues can be used to lower labour taxes, which will make it attractive for companies to hire more people. Secondly, companies will have to innovate to reduce their emissions, which in turn will create green jobs.