Emissions trading will compromise competetiveness of cement and steel

The EU Emissions Trading Scheme (EU ETS) may threaten the competitiveness of the UK cement and steel sectors, according to analysis from the Carbon Trust.

While the majority of the 150 sub-sectors studied would be unaffected by the EU ETS, six were identified as a cause for concern. The six - cement, steel, aluminium, paper, inorganic chemicals and fertilisers - account for 10% of the UK’s carbon emissions.

The Carbon Trust is recommending that the European Commission continues to allocate free carbon permits for these sectors while alternative solutions are developed.

Critics suggest that stricter emissions controls will simply push offenders to move production outside the EU. However, the report suggests that ‘carbon leakage’ – where a company emits the same amount of CO2 but outside the EU - from the six sub-sectors would represent no more than 1% of total EU CO2 emissions.

Michael Grubb, chief economist at the Carbon Trust and chairman of climate strategies, said: “A small group of sub-sectors face costs which could lead to a modest degree of carbon leakage. We believe that some free allocations should continue to be granted to these carbon-intensive facilities for a limited period in order to negate potential competitiveness and trade impacts.

“However, these concerns should not prevent the EU ETS from expanding, continuing to increase the overall level of auctioning and persisting with deeper emissions cutbacks beyond 2012.”

“Businesses constantly face external impacts on pricing and competitiveness, be it from exchange rate fluctuations or differences in the cost of labour or raw materials. For more than 90% of manufacturing industry, carbon costs will remain trivial compared to these other influences on international competitiveness.”