VIEWS FROM THE ENERGY INTENSIVE INDUSTRIES 2nd European Climate Change Programme (ECCP II) VIEWS FROM THE ENERGY INTENSIVE INDUSTRIES Stakeholder Conference 24 October 2005 By Dr. Jean-Marie Chandelle – CEMBUREAU Chief Executive

WHAT DID WE EXPECT FROM ECCP? A policy that would effectively reduce globally CO2 emissions A policy that would reduce CO2 emissions in a cost effective manner A policy built on fairness and equity between sectors, industries and regions/countries A policy that would not impair the competitiveness of the European manufacturing industry

WHAT DID WE GET? Emission Trading Directive EU ETS Will it effectively reduce emissions? Does it work in a fair and equitable manner? What does it do to our competitiveness?

WILL IT EFFECTIVELY REDUCE CO2 EMISSIONS?

WILL IT WORK IN AN EQUITABLE MANNER? Distortions of trade between sectors, between Member States and between competitors In NAPs I best performers are not rewarded; they are penalised Rationalisation to improve CO2 efficiency across Europe is penalised under NAPs Discrepancies between and/or within different sectors Process CO2 Technological potential to reduce emissions Technically linked activities belonging to different Annex I industries Sensitivity to CO2 prices and affordability Ability to pass through cost CO2 from aviation Electricity prices

DISTRIBUTIONAL EFFECTS OF EU ETS What was expected The overall direct impact of EU ETS was thought to have limited distributional effects on key industry sectors within and outside the scope of ETD

The overall impact of ETS is limited ….. € The overall impact of ETS is limited ….. but there are severe distributional effects on key sectors. Compliance costs (buying allowances) Real costs added to electricity (marginal pricing system) Sectors covered by the ETS: lime, cement, glass, paper,… Sectors not covered by the ETS Non-ferrous metals, chemicals Power sector

DISTRIBUTIONAL EFFECTS OF EU ETS What happened? There are severe distributional effects on key industry sectors within and outside the scope of ETD

The overall impact of ETS is limited ….. Compliance costs (buying allowances) The overall impact of ETS is limited ….. but there are severe distributional effects on key sectors Real costs added to electricity (marginal pricing system) Non accepted costs added to electricity (opportunity costs resulting from ETS + marginal pricing system) Sectors covered by the ETS: lime, cement, glass, paper,… Sectors not covered by the ETS Non-ferrous metals, chemicals Power sector

CAN WE SURVIVE? Plants are being closed down as a result of excessive energy prices Capacity in EU reduced even when demand increase in the EU – CAP on growth Exports are reduced Imports from non carbon constrained economies increase Investment patterns show fear of uncertainty Added costs along the supply chain Increasing raw material prices (biomass)

WHAT TO DO? All options including dropping the EU ETS should be considered as soon as possible Develop another approach: Develop scheme(s) equitable worldwide On a sectoral basis Be flexible in solution and policy Give a chance to negotiated voluntary initiatives We remain committed to reduce CO2 emissions

WHAT TO DO IN THE MEANTIME? Recognise domestic projects Make it easier for JI and CDM to work No cap on conversion of credits in EAUs Prevent windfall profits in energy sector