However, EEF believes proposals to reform the Emissions Trading Scheme (ETS) and increase the contribution of Renewables must be subject to careful scrutiny to ensure they are realistic and do not damage competitiveness and cause ‘carbon leakage’.
In particular, EEF had been concerned that reform of the ETS would lead to the imposition of damaging costs (1) on energy intensive sectors such as steel which have already reduced their emissions significantly (2) and have limited capacity for further reductions.
Commenting, EEF Chairman, Martin Temple, said:
“Our concern has always been that if a badly-designed ETS forced European companies to incur extra costs this would damage our competitiveness and increase emissions by forcing companies to relocate elsewhere. We are relieved that the Commission has recognised this danger and kept the door open for 100% free allocation of carbon permits for some sectors.”
However, EEF still has some concerns about the draft as it is not clear that the steel industry will receive enough allowances to meet its needs. While EEF understands the necessity of making the total cap progressively tighter, the Commission must ensure that, at sectoral level, allocations reflect the technological abilities of each sector to reduce its emissions. Furthermore, the steel sector is also disappointed that the draft does not recognise the competitive disadvantage that ETS has imposed on electricity-intensive companies.
EEF believes that renewable energy has an important contribution to make to a balanced and secure supply of energy in the future. In order to meet what is an extremely challenging target (3), EEF believes that a realistic strategy is now needed as a matter of urgency to avoid the risk of undermining the credibility of the proposal.
Renewable energy can be very costly, so EEF welcomes the announcement that the target can be met by sourcing it from wherever in the EU it is most economic to produce. UK government must follow suit by placing value for money at the heart of its strategy to meet the target and seek to ensure maximum opportunity for UK business in areas where it has a competitive advantage, wind and marine renewables for example (4).
Martin Temple added:
“Renewables have a vital role to play as a part of a competitive and balanced energy supply but the proposed target will require an unprecedented expansion of capacity in short space of time. Currently the target is challenging to the point of being unrealistic and if we are to have any hope of meeting it government must develop a cost-effective strategy as a matter of urgency.”
ENDS
Notes to Editors
1. The cost of buying CO2 allowances at today’s price is equivalent to an increase in steel production costs of over 10%. The cost of allowances post-2012 is expected to be much higher. In today’s competitive environment, if foreign producers are not subject to the same costs, EU companies will rapidly lose market share for that portion of their output for which they are obliged to purchase allowances.
2. The European steel industry has already reduced its CO2 emissions by 60% between 1970 and 2005. Since 1990 (the base year for the Kyoto agreement) the reduction has been 21%. The sector is rapidly reaching the point where, with today’s available technologies, further significant reductions are impossible.
3. A 15% target will require the UK to increase renewable energy by nearly eight-fold from about 2% in 2008 to 15% in 2020.
4. EEF and Deloitte will shortly be launching a report on the business opportunities from a Low Carbon Economy.
5. EEF, the manufacturers’ organisation is the representative voice of manufacturing in the UK with a federation of 11 regional Associations and ECIA, the Engineering Construction Industry Association and UK Steel. The EEF has a growing membership of almost 6,000 companies of all sizes, employing some 900,000 people from every sector of engineering, manufacturing, engineering construction and technology-based industries.