France wants to include cement importers in the EU ETS after 2020 in a controversial move that could ease carbon leakage concerns but raise the hackles of the bloc’s trading partners.
The suggestion, which is likely to be put forward via a non-paper in the weeks following the December UN climate negotiations, received a mixed reception at a seminar hosted by the Centre for European Policy Studies (CEPS) on Tuesday.
It would involve cement importers being required to surrender the equivalent amount of EU carbon allowances to that which an average EU producer would have to acquire to produce the same quantity of cement.
This would allow an eventual move to full auctioning of carbon allowances for the cement sector, potentially making more free allowances available to give to carbon leakage-exposed manufacturers in other sectors.
The proposal adds political weight to an idea proposed in May by the High Level Working Group on Competitiveness and Growth, a group of member state officials who put the issue of imposing border carbon tariffs back on Europe’s political agenda for the first time since being quietly shelved in 2010.
While some think such tariffs could help make EU climate policy more effective, others say raising the issue risks sparking wider trade conflicts. It would need the support of a majority of EU member states and the bloc’s Parliament to be included as part of post-2020 EU ETS reforms.
“The last time we tried to extend the ETS beyond our borders was with aviation. It ended rather badly, so I’m rather cautious about the prospect of trying to do that again,” said one participant at the CEPS event, which was held under the Chatham House Rule, where the source of shared information is not attributed in an effort to stimulate debate.
REVOLUTIONARY OR PROTECTIONIST?
Another participant dubbed the initiative as potentially “revolutionary”, while others questioned whether it would be shot down by the World Trade Organisation as a protectionist tax by the EU.
A third participant said France believes the measure would be WTO-compatible, citing a recent study by Climate Strategies and said the cement industry was also interested in pursuing the idea.
“Cement is one of only industries interested in pursuing this. It might be particularly suited because it has a short downstream – you can’t export houses whereas for materials such as steel you could still sell cars outside of Europe for instance,” they added.
Cement rarely travels far, but producers in outer EU states face competition from firms in North Africa, Turkey, Ukraine and Russia, all of which lack carbon pricing policies for industry.
Last year France suggested the cement industry could be a pilot sector for imposing tariffs on importers, an idea backed by EU cement producer association Cembureau.
Some experts have argued that the effectiveness of EU climate policy is limited without carbon tariffs because lawmakers are too afraid to impose strict measures at home, fearing they will unfairly hit domestic industries competing in international markets.
Manufacturers face escalating costs under Phase 4 of the EU ETS (2021-2030) as the European Commission has proposed to hold the share of auctionable allowances at 57% of the total, resulting in an increasingly dwindling share of free units available for industry.
The UK and several other member states have signalled their support for a tiered approach to free allocation to better target the available allowances at the most trade-exposed sectors over the Commission’s proposed binary method.
But several industry lobbyists said they are exploring how, amid the post-2020 reform process expected to take more than a year, they can secure a more generous share of the free permits. This could include raiding the auctioning pot, a view supported by Belgium at last month’s Environment Council meet
One participant at the event said “all (industry) sectors in Germany have rejected the tiered approach cos they don’t want to be divided by politics”.
France has back the tiered approach but also wants post-2020 ETS rules to take into account the development of carbon pricing in the rest of the world, which could consequently cut back on carbon leakage protection measures for EU emitters.
By Ben Garside – firstname.lastname@example.org