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Brussels To Play Down ‘Carbon Leakage’ Threat

A draft European Commission proposal, seen by EurActiv, plays down the risk of industries relocating outside Europe if the 27-member bloc were to step up its climate policies.

The expected impact of raising the EU’s CO2 reduction effort on carbon-intensive industries will be evaluated in a Commission paper, scheduled to be presented on 27 May.

The report is expected to make the case for raising the EU’s CO2 reduction target for 2020 from 20% to 30%, arguing that the threat of industries moving abroad is limited (EurActiv 03/05/10).

The move comes as Europe tries to regain the upper hand in international climate talks, which collapsed last year at a UN summit in Copenhagen.

The latest draft, seen by EurActiv, says that as a result of the recession, “the potential of carbon leakage with a 20% target in current circumstances is much lower” than assumed in 2008 when the EU’s climate and energy policies were approved.

“We should not hide that the recession has significantly weakened the price signal [for carbon dioxide],” said Connie Hedegaard, the EU’s climate action commissioner, announcing an 11.6% drop in emissions for 2009 earlier this week.

Limited impact

The Commission adds that raising the target unilaterally to 30% would have a “limited” additional impact on the EU’s energy-intensive industries if preventive measures already foreseen were put in place.

It believes raising the EU’s target to 30% would encourage reluctant countries such as China and India to sign up to a binding international climate treaty.

The Commission estimates that the additional production losses linked to moving to 30% compared to the 20% legislation would be relatively minor – in the range of 1% – for ferrous and non-ferrous metals, chemical products and other energy-intensive sectors.

The draft document argues that the “most obvious” way to avoid a competitive disadvantage for European companies is to maintain the level of free allowances currently foreseen for certain industrial sectors. It sees this as the most viable option to counter calls for carbon tariffs to be introduced at the EU’s borders, arguing that tariffs raise major trade policy issues.

France has been actively campaigning for such border adjustment measures. Paris says they are only intended to restore fair competition conditions with countries such as China, arguing that the money raised could even be spent on supporting low-carbon technologies in the developing world (EurActiv 18/05/10).

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