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Carbon leakage: a blank cheque to industry

cheque blank_cutOn 24 September the European Parliament’s Environment committee, voted down an objection to the European Commission’s new carbon leakage list, 34 to 30. The objection was lodged by Green MEP Bas Eickhout and argued that the proposed €30 per tonne carbon price, used in determining which sectors are placed on the list, was grossly inflated.  The result of the vote means that EU taxpayers will lose around €5 billion in revenues over the next 5 years.  

Carbon leakage is the situation in which, as a result of stringent climate policies, companies move their production abroad to countries with less ambitious climate measures. Under the EU’s emission trading system (EU ETS), European industries receive compensation to offset this risk. Companies that are deemed to be at risk of carbon leakage are placed on the carbon leakage list in which case they receive 100% free allocation of pollution permits.

In the past, this has resulted in an over allocation of free emission allowances, essentially over subsidising companies for their pollution and leading to billions of euros in windfall profits according to certain studies. While to date no evidence exists to support the claim of carbon leakage, more than 97% of industry’s emissions currently receive free allocation of pollution permits.

In the run up to this vote the European Commission’s impact assessment (IA) was leaked and commented on extensively. The assessment claimed that a €30 carbon price did not reflect market expectations until 2020 and recommended the use of a lower carbon price. The Commission’s experts found that using a carbon price of €10 or €16.5 would be more in line with analysts’ forecasts.  This would have removed several energy intensive sectors from the list including cement and would have cut the number of free allowances to industry by up to two-thirds.

The vote result was disappointing as the biggest polluters will continue to be subsidised for their pollution while these public resources could have been better spent for clean and competitive industries in Europe.  While the vote did not pass, the objection received wide cross-party support from 30 members of the committee and succeeded in raising awareness on the issue within the parliament.

With all eyes focusing on any future global treaty, results like this while appeasing short term interests do not send a convincing signal of European climate integrity to the rest of the world.

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Read our Carbon Leakage rebuttal here


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