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With a new phase introduced this month to the European Union Emissions Trading Scheme (ETS) to tighten the number of permits being allocated, businesses are shaking in their boots. But they need not fear, according to a recent study from the Carbon Trust.
Even with the European Commission expected to announce at the end of this month more emissions cutbacks after 2012 -- to achieve the ambitious target of a 20 per cent reduction in emissions by 2020 -- the Carbon Trust insists businesses won't suffer (too much).
The study looked at 150 industry sub-sectors and found that only six might have concerns over economic competitiveness once more cutbacks come into the picture. The cement, steel, aluminium, pulp and paper, basic inorganic chemicals and fertilisers/ammonia industries represent 0.2 per cent of employment in the UK, but account for one third of the manufacturing sector's CO2 emissions. Cement is the worst culprit -- worldwide it's responsible for five per cent of all CO2 emissions.
To support the industries most affected, the Carbon Trust is recommending that the European Commission moderates the pace that free carbon permits are reduced in those sectors. It's only a medium-term measure, but it will minimise trade and competitiveness impacts while more specific international agreements are cooked up.
The ETS was introduced in January 2005, with about 11,000 industrial plants in 25 EU nations given certain CO2 emissions quotas. Under the agreement, the plants were able to sell their unused allocation on the emissions trading market. The system almost collapsed when the price of carbon crashed in 2006, after it turned out member states had given out too many permits. All these cuts are being implemented to tighten up the system.
As always, there are critics. They argue that regional regulation will just take the problem elsewhere -- the worry is that manufacturers will move production outside of the EU, a practice otherwise known as 'carbon leakage'. But the Carbon Trust insists that leakage from the six sub-sectors is likely to represent no more than one per cent of total EU C02 emissions. Doesn't sound too bad, but we'll have to keep an ear to the ground on this one.
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