Industry to continue receiving free ETS permits

The European Commission has published its draft proposal for which European industries are at risk of ‘carbon leakage’ and should therefore continue receiving free allowances to emit CO2 in the European Union’s emissions trading scheme (ETS) for the 2015-19 period.

‘Carbon leakage’ refers to industries moving away from Europe to other areas of the world where they would face less stringent climate change regulation. 175 industry sectors out of the 245 assessed were deemed to be at risk of this phenomenon, using the same criteria as during the 2008-13 ETS period. The sectors will receive a higher share of greenhouse gas emission allowances free of charge than other sectors.

The sectors include steel, cement, fertilisers, chemicals, ceramics, rubber tyres, aluminium, electronics and agricultural machinery.
The proposal must still be approved by a committee of member state representatives. This is expected to take place on Wednesday. The European Parliament will then have three months to either accept or reject the proposed list.

Companies on the list will receive a free allocation equal to what the cleanest plants would need each year, encouraging companies to upgrade their facilities. Sectors not on the list will see their free allocations steadily reduced over the next five years, down to 30% of what the cleanest plants require in 2020.

In recent years the ETS has been plagued with problems, most significantly the depressed price of carbon at around $5 a tonne, one-seventh of where it was expected to be in 2014. The industry has blamed the slumped price on the economic downturn, but environmental campaigners say it is also the fault of an over-generous allocation of free allowances, which has caused a glut of excess permits to build up in the system.

The Commission has proposed to set aside a certain number of permits in the next trading period in order to raise the price.

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