Commission rules out free carbon quotas

The European Commission has no intention of giving out free quotas for carbon dioxide (CO2) emissions without specific conditions as part of plans to overhaul the EU’s emissions trading scheme (ETS), according to a Commission official.

The official was responding to statements by Günter Verheugen, the industry commissioner, that energy-intensive industries should be given free allocations of emissions rights to maintain their competitiveness against producers from countries which do not impose measures to combat climate change.

The official said: "We are looking at several options but free allocations without conditionality is not one of them. If it’s free, it will be in a context. It won’t be the case that one sector goes free."

Verheugen told a conference in Brussels on Tuesday (27 November) that there would have to be "free allowances" to emit CO2 for energy-intensive industries. He said that unless these industries received special treatment to compensate for the additional costs they incurred through the ETS, production would relocate to countries outside the EU which had lower or no environment protections in place. This would lead to greater environmental damage, he said.

The Commission is currently preparing a proposal for an overhaul of the ETS, to be published on 23 January. To tackle criticism that the current scheme has given free allocations to heavy CO2-emitting industries such as power firms, the Commission is considering auctioning the emissions rights.

While Verheugen is in favour of free allocations for certain industries, some of his colleagues, including Stavros Dimas, the environment commissioner, Andris Piebalgs, the energy commissioner, and Neelie Kroes, the competition commissioner, believe that all emissions rights should be auctioned.

Business and industry groups are lobbying the Commission for such concessions. Ernest-Antoine Seillière, president of employers association BusinessEurope, wrote to José Manuel Barroso, the Commission president, this week warning that a general system of auctioning for allocation of ETS allowances would "most increase direct and indirect costs for manufacturing". Companies trying to compete internationally would have no way to pass on these costs which could amount to their yearly net earnings, the letter says.

BusinessEurope calls for "technological benchmarking" as a tool for free allocation and favours international sectoral approaches, under which industry sectors would reach agreements on reducing CO2 emissions and increasing energy efficiency. It also warns that measures like border taxes on imports of products from countries with no environmental restrictions should only be considered if they are compatible with World Trade Organization rules and would not lead to retaliatory measures from trading partners.

The Alliance of Energy Intensive Industries, which includes industries such as cement, glassmaking, paper, iron and steel, has also urged the Commission to propose free emission allowances linked to performance indicators rather than auctioning.

The European Commission has no intention of giving out free quotas for carbon dioxide (CO2) emissions without specific conditions as part of plans to overhaul the EU’s emissions trading scheme (ETS), according to a Commission official.