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The study, which looked at more than 150 sub-sectors in detail, did find six – cement, steel, aluminium, pulp and paper, basic inorganic chemicals and fertilisers / ammonia – that are a cause for concern in terms of competitiveness. These six industries currently represent 0.2% of employment in the UK and one third of the manufacturing sector’s carbon dioxide emissions - 10% of the UK total. The Carbon Trust is recommending that the European Commission moderates the pace at which allocation of free carbon permits are reduced in those sectors to minimise trade and competitiveness impacts as a medium-term measure while more specific international agreements are developed.
Critics of the EU ETS argue stricter emissions controls will simply encourage industry to move production abroad and create ‘carbon leakage’ where the company emits the same amount of CO2 but outside the jurisdiction of the EU. However, the report suggests ‘leakage’ from the six sub-sectors is likely to represent no more than one per cent of total EU C02 emissions.
A copy of the report can be accessed here.
Michael Grubb, Chief Economist at the Carbon Trust and Chairman of Climate Strategies, said:
“This analysis is a nail in the coffin for the myth that the EU ETS presents a threat to overall business competitiveness. However, it has found that a small group of sub-sectors face costs which could lead to a modest degree of carbon leakage. We believe that some free allocations should continue to be granted to these carbon-intensive facilities for a limited period in order to negate potential competitiveness and trade impacts. However, these concerns should not prevent the EU ETS from expanding, continuing to increase the overall level of auctioning and persisting with deeper emissions cutbacks beyond 2012.”
“Businesses constantly face external impacts on pricing and competitiveness, be it from exchange rate fluctuations or differences in the cost of labour or raw materials. For more than 90% of manufacturing industry, carbon costs will remain trivial compared to these other influences on international competitiveness. And for all, the strategic challenge is not to resist trade effects of carbon pricing but to improve efficiency and decarbonise manufacturing processes to ensure long-term competitive advantage.”
This report is based on research by the European Research network Climate Strategies but presents the Carbon Trust’s own conclusions. A copy of this and previous EU ETS reports can be accessed here.
The Carbon Trust has published a number of publications on the EU ETS:
• 2007 - EU ETS phase II allocation: implications and lessons
• 2006 - Allocation and competitiveness in the EU emissions trading system - options for Phase II and beyond
• 2004 - The European emission trading scheme: implications for industrial competitiveness
Notes to editors
For further information please contact the Carbon Trust Press Office on 020 7544 3100 or carbontrust@fishburn-hedges.co.uk.
The Carbon Trust
• The Carbon Trust is a private company set up by government in response to the threat of climate change, to accelerate the move to a low carbon economy by helping organisations reduce their carbon emissions and developing commercial low carbon technologies. The Carbon Trust works with UK business and the public sector in five complementary areas: Insights, Solutions, Innovations, Enterprises and Investments. Together these help to explain, deliver, develop, create and finance low carbon enterprise.
• The Carbon Trust is funded by the Department for Environment, Food and Rural Affairs (Defra), the Department for Business, Enterprise and Regulatory Reform (BERR), the Scottish Government, the Welsh Assembly Government and Invest Northern Ireland.
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