presentation: eu climate policy and economic competitiveness · 2010-11-27 · overview of...
TRANSCRIPT
EU climate policy & economic competitiveness
Thomas Legge, Program Officer, German Marshall Fund of the United States
Peterson InstituteMarch 4, 2009
Overview of presentation
•
Context: uneven climate policy in an interlinked world
•
Climate policy in the European Union
•
Competitiveness concerns in Europe
•
Responses in the EU Climate & Energy Package
•
Assessment of these measures
Challenge: heterogeneous climate policy in an interconnected world
• CO2
is a transboundary
pollutant
• Emissions trading is a logical response
• Leakage: flight of industrial activity to regions with fewer carbon controls
Relevance of the EU experience
• A functioning Emissions Trading Scheme• An absolute cap on emissions from almost 50 percent of the economy• A carbon price• A varied and large economy• Similar debates about competitiveness
Negotiation
European Commission
EU CouncilEuropean Parliament
Policymaking in the European Union
Proposal
“Co-decision”
procedure
Legislation
A timeline of EU climate regulation
•2°C
Carbon tax
proposed
Emissions trading system
proposed
1992
2001
2005 - 2007
20202050
2008 - 2012
EU ETS Phase I
2005-2007
EU ETS Phase I
2008-2012
EU climate & energy package
Medium-
term target
Long-term target
EU political debate: competitiveness cost of unilateral action
Cement industry: “At current CO2
prices of 25 per tonne, approximately 80 percent of clinker production will be offshored
if no
free allowances are allocated”
Alliance for Energy-Intensive IndustriesThe EU ETS could lead to “an enormous risk of de-
industrialisation”
in Europe due to higher power prices
Empirical evidence for leakage is limited…
International Energy Agency:Climate policy would only negatively impact the
competitiveness of a few manufacturing industries and is likely to have a fairly limited effect on output and
employment levels
Neuhoff
et al. (2008):
Detailed analysis for Germany and the UK shows that
only 1 percent to 2 percent of GDP is associated with activities
that face significant cost increases from carbon pricing
…but it may be a real problem on the margins
The EU climate & energy package, Dec 2008
20 percent reduction in GHG
emissions
20 percent share of renewable
energy
20 percent reduction in
energy consumption
+ commitment to reduce GHG emissions by 30 percent if there is a global deal in Copenhagen
Carbon capture & storage
Auto standards
Fuel emissions
EU Climate & Energy Packagecompetitiveness measures
• Economic efficiency through emissions trading• Selective coverage• Multi-annual compliance periods • Force majeure provisions
•
Allocation for free (“grandfathering”) in transition phase
• Phase I & II: 90 percent allocated for free• Phase III: 100 percent auctioning for power sector: 10-15 percent rise in electricity prices expected
• Other sectors: 70 percent auctioning by 2020
• 100 percent auctioning by 2027 • But exemptions foreseen…
EU Climate & Energy Packagecompetitiveness measures (contd.)
Free allocation for certain energy-intensive sectors if “they are at significant risk of carbon leakage”
• Applies only to entities using best available technologies• Likely to benefit aluminum, hot-rolled steel and slabs, clinker
EU Climate & Energy Packagecompetitiveness measures (cont.)
Criteria for exemptions• If EU ETS increases production costs by >5 percent of gross value added, and• If total value of sector’s exports and imports divided by the total value of its turnover and imports exceeds 10 percent
• Or: if EU ETS increases production costs by >30 percent of gross value added
• Or: if total value of exports and imports divided by the total value of its turnover and imports exceeds 30 percent
EU Climate & Energy Packagecompetitiveness measures (contd.)
• EU solidarity fund• 10 percent of permits reserved for transition countries
• “Carbon equalization system”
proposed:
• additional free allocations • inclusion of carbon-intensive imports from third countries in the EU ETS• exclusion of EU exporters of carbon-intensive products
EU Climate & Energy Packagecompetitiveness measures (contd.)
EU ETS carbon prices, 2006-7
€35
€30
€25
€20
€15
€10
€5
€0
Risks: price volatility
€35
€30
€25
€20
€15
€10
€5
€0
Risks: price volatility
Risks: inefficient outcomes
• Continued use of carbon-intensive processes & technologies• Windfall profits• Uncoordinated national responses
Other approaches
• Border tax adjustments• Price floors/caps
Conclusion
• Leakage is a concern for a limited part of the economy• It is difficult to prove causality between climate policy and leakage• The EU addresses leakage through allocation• Measures to address leakage have implications• A global climate deal could neutralize the leakage problem
Thank you for your attention!
Thomas Legge, Program Officer, German Marshall Fund of the United States
1744 R Street, NWWashington, DC 20009T: (+1) 202 683 2627F: (+1) 202 265 1662
http://www.gmfus.org/climate/index.cfm