EU maps industry benchmarks for CO2 permit supply

Wed Oct 6, 2010 4:32pm BST

* EU draft maps out industry carbon emission benchmarks

* Some sectors oppose benchmark calculations

By Pete Harrison and Nina Chestney

BRUSSELS, Oct 6 (Reuters) - European Union benchmarks for cutting carbon emissions from manufacturing have now been drafted, leading to industry complaints the plan will harm steel, cement and fertiliser producers.

The EU aims to cut carbon dioxide emissions to 20 percent below 1990 levels over the next decade. Its main tool for doing that is its Emissions Trading System (ETS), which forces companies to buy permits called EU Allowances for each tonne of carbon they emit.

Carbon output is capped, and year by year that level is ratcheted down. The complex process of "benchmarking" defines how many permits manufacturers will get for free during 2013-2020.

Industry sources say the draft rules take insufficient account of how steel installations recycle waste gases as an additional source of energy, while the cement and fertiliser industries also object to how their benchmarks are calculated.

The draft is still subject to changes and further debate among EU experts before it goes through.

The ETS is expected to force a 21 percent cut in emissions from the industries it covers by 2020, many of which have complained the costs will hurt their competitiveness and force them to relocate factories to less-regulated regions overseas.

To prevent that happening, some sectors will be given free permits under a revised system from 2013. To avoid handing free permits to the biggest polluters, the EU has created a system known as "benchmarking", now the subject of heated debate among technical experts in Brussels with billions of euros at stake.

Benchmarks are set as the average emissions of the most efficient 10 percent of installations in any sector. Only the factories that stay within the benchmarks will receive all their allowances for free.

Less efficient factories will receive only some of their allowances for free, according to a sliding scale.

The benchmark for non-alloy aluminium was set at 1.514 tonnes of CO2 per tonne of product produced, lime was at 0.954 tonnes and grey cement clinker was 0.716 tonnes, according to a draft document seen by Reuters on Wednesday

Industry group BusinessEurope said the Commission's proposal was too restrictive in its definition of new investments and it based it calculations on a period in which Europe had its worst recession in 80 years when industrial emissions were lower than usual.

"The Commission methodology takes in the crisis years, and we don't think that is a fair approach," said BusinessEurope's Folker Franz.

Deutsche Bank analyst Mark C. Lewis said the benchmarks would make industrial companies cautious about selling surplus EUAs in the second phase of the EU ETS (2008-2012).

(Reporting by Pete Harrison; editing by Keiron Henderson)

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