Opinion of the ECSC consultative Committee on the European climate change programme and emissions trading

(adopted unanimously at the 355th session of 5 April 2001)

(2001/C 170/04)

THE CONSULTATIVE COMMITTEE OF THE EUROPEAN COAL AND STEEL COMMUNITY,

HAVING REGARD TO:

- the Commission's Green Paper on greenhouse gas emissions trading within the European Union(1), and

- the Communication from the Commission to the Council and the European Parliament on EU policies and measures to reduce greenhouse gas emissions: Towards a European climate change programme (ECCP)(2),

- its Declaration on the role of coal in the Europe of the 21st century, adopted on 25 June 1999,

IS OF THE OPINION THAT:

1. Considering that, when applying the precautionary principle, the lack of certainty should not delay the adoption of efficient and proportional measures, with an economically acceptable cost, aiming at preventing the risk of major and irreversible damage to the environment, the Consultative Committee welcomes the Commission's initiative to launch a discussion on a European climate change programme, to study the establishment of a trading system for greenhouse gas emissions and to consult all economic players by means of a Green Paper. In this respect, the Community's processing industry has declared its willingness to contribute in a constructive manner to the limitation of greenhouse gas emissions. However, the Consultative Committee wishes to stress that the fight against greenhouse gas emissions is a worldwide problem requiring a global solution. For the time being, an effort is demanded only from the countries in Annex B of the Kyoto Protocol. The Protocol does not require any effort from the developing countries, even though some of them are already important sources of greenhouse gas emissions.

2. The implementation of the Kyoto Protocol will, however, place a considerable burden on the EU economy. It is therefore regrettable that the governments of some Member States have already started placing burdens on industry in advance of the Protocol's ratification by all signatories and in the absence of harmonisation at Community level.

3. After ratification, the Protocol should be implemented by the EU and its Member States in such a way that its drag on the EU's economy is minimised. The Kyoto "flexible mechanisms" potentially offer economically efficient routes for the achievement of the national GHG reduction commitments, particularly when there are no restrictions on their use.

4. It is clear that policies to achieve the Kyoto commitments have the potential to conflict with other EU policy objectives. The Consultative Committee is particularly concerned about the relationship between the Kyoto process and EU energy policy and the need to maintain and improve EU manufacturing competitiveness.

5. It is thus vital that implementation of the Kyoto Protocol should not compromise the energy policy objectives of security, sustainability and diversification. Moreover, the Commission should support and promote the development of clean coal technology, as this is a way of reducing GHG emissions while at the same time preserving the security of energy supplies by enabling one of the EU's traditional energy resources to continue to be exploited.

6. EU manufacturing industry, including the steel industry, operates in global markets. Certain types of economic instrument, particularly energy taxes, have the potential to undermine manufacturing competitiveness. This will destroy EU jobs, with manufacturing activity migrating to third countries where costs are lower. Many of these countries will not be Kyoto signatories. The taxation of the business use of energy within the EU therefore risks increasing GHG emissions elsewhere in the world.

7. The EU steel industry, being energy-intensive, has always had a strong incentive to improve its energy efficiency. It has accordingly reduced its specific energy consumption by almost half since 1975. Steelmaking processes have been developed and refined over a very long time, resulting in energy efficiency close to the theoretical limit. There is therefore little room for further improvements, which would in any case involve costs bordering on the limits of profitability. Any measures or targets aimed at speeding up the process of continuous improvement are therefore unlikely to have any appreciable effect. Major reductions in process emissions will require step changes in technology, development of which has a 20- to 30-year timescale.

8. The energy and manufacturing sectors should not be expected to shoulder a disproportionate share of the burden of achieving Kyoto compliance. The fastest growing source of GHG emissions is the transport sector. It is absolutely vital that the EU pay greater attention to the need for reduced emissions from this sector. In this context, it is noted that the steel industry has contributed to lower energy consumption in the transport sector through the development of lighter-weight steels, although these steels themselves require more energy to produce.

9. Thus in addressing the global climate change problem, the Commission should look at the full life cycle impacts of energy sources and not concentrate solely on emissions at the point of use. As the EU becomes more dependent on imported energy, full account must be taken of emissions and energy use outside the EU associated with energy supply to the EU.

10. While welcoming inter alia the positive contribution that the voluntary agreement by the European automotive producers (ACEA) can make to reducing energy consumption by motor vehicles, the Consultative Committee nevertheless expressly notes that, through reductions in coal output and/or use, the ECSC industries have already made a major contribution to reducing GHG emissions in the EU.

11. In adopting appropriate measures to encourage improved energy efficiency by the domestic sector, the EU and its Member States should avoid any measures that risk exacerbating fuel poverty.

12. The application of the Kyoto "flexible mechanisms" should not be restricted to emissions trading. Joint implementation (JI) and the clean development mechanism (CDM) appear to be particularly well suited to promoting the worldwide application of modern energy-use technology, in which Europe leads. The application of JI and CDM ensures the enhancement of energy efficiency in those countries where it will be possible at the lowest cost. They thus provide the means to achieve global emissions reductions while minimising costs. The Consultative Committee therefore urges the Commission to take a lead in negotiating a global framework for the implementation of JI and CDM. It is also essential that the rules on emissions trading should be compatible with those for JI and CDM.

13. The Consultative Committee regrets that the Green Paper appears dismissive of the role that "sinks" (such as forests, growth in agriculture and the deep oceans) can play in the absorption of CO2, and calls for a more rigorous scientific evaluation of their impact.

14. Emissions trading systems should remain the responsibility of the Member States. In principle, emissions trading at national level should not be harnessed to existing climate policy measures, but should create more cost-effective alternatives which are less of a burden on the economy. In those Member States which are already carrying out measures resulting in a de-facto allocation of emission rights (e.g. via energy-saving obligations) the early implementation of trading systems can make a significant contribution to minimising the negative effects on competitiveness. Emission rights which have to be paid for, and which have the same effect on the companies concerned as a CO2 tax, for example - or an even more serious effect - are not what is required. How emissions trading, as only one possible instrument, should be used depends largely on whether emission rights are allocated fairly, in particular on whether due account is taken of adjustments already made, and on the climate policy approach already adopted by the Member State in question, taking into account its specific economic and social structures. If, against this background, Member States recommend the introduction of an emissions trading system, the Consultative Committee has the following observations to make on the design of such a system:

14.1. The EU's compliance with commitments entered into as a result of the Kyoto Protocol has been delegated to the Member States, which are themselves evolving a range of differing measures. For example, each Member State has adopted a different GHG reduction target, and is free to decide autonomously on the best balance of instruments to be adopted for achieving its target. It would therefore be extremely difficult to develop a single EU emissions trading scheme.

14.2. The Commission should instead ensure that national emissions trading schemes are compatible with each other, to make intra-EU trading possible. This should apply, in particular, to the methodology adopted for the calculation of permits and targets. Without such compatibility it would be difficult to calculate the relative value of permits within each scheme. Common rules should also be adopted, and care should be taken that the fixing of targets does not create a distortion of competition.

14.3. For the sake of greater transparency, a bourse should be established to enable trading to take place between national schemes, recognising that the differing targets adopted by each Member State would be likely to result in national emissions permits developing different relative values.

14.4. The Commission should develop, in full consultation with industry and employee organisations, guidelines within the context of the State aid rules to ensure that the allocation of permits within national trading schemes does not distort competition.

14.5. The framework set up in the EU to ensure that national systems are compatible should be sufficiently flexible to give companies the right to participate in trading schemes, where appropriate. The participation of companies should be purely voluntary.

14.6. The Consultative Committee does not consider the integrated pollution prevention and control or large combustion plant Directives as being suitable means of determining sectoral eligibility for a trading scheme. In principle, emissions trading should be open to any sector which chooses to join.

14.7. Auctioning permits is unacceptable, as this would simply impose another irrecoverable cost burden on EU manufacturing, with no environmental benefit. Targets must take account of both the degree of energy efficiency already achieved and the scope for future improvements. (In countries/sectors where negotiated energy efficiency agreements apply, the allocation of permits should relate to the agreed targets.)

14.8. The issue of the initial allocation of permits is crucial in order to minimise distortion of competition, and several systems are available. It needs to be recognised that, whichever allocation method is used, it will never be totally fair, otherwise there would be no reason for trading. However, the initial allocation system should avoid any severe economic dislocation or the strangling of investment to industry, and provide sufficient liquidity to the permit market.

14.9. Targets and the emissions trading system should not be so defined as to inhibit the expansion of EU manufacturing in terms of either volume or increased added value.

14.10. Any maximum values for CO2 emissions must take into account the additional energy consumption caused by regulatory requirements to reduce other emissions.

14.11. The banking of emission rights for use in later years should be possible.

15. EU trading must, where appropriate, be made compatible with a comprehensive, international emissions trading system and the other flexible Kyoto instruments and be able to include as wide a range of third countries as possible without serious complications or delays. This will include the need for a common global system for measurement, monitoring, reporting and verification. The fact that some EU Member States are proceeding with Kyoto implementation in advance of other signatories will make it more difficult to achieve such compatibility.

(1) COM(2000) 87 final.

(2) COM(2000) 88 final.