Free Carbon Permits, Aid Will Protect EU Industry, Envoy Says

Free carbon allowances and state aid to steelmakers and big electricity users will protect European Union companies from competitors without emission caps, the European Commission’s climate envoy said.

The 27-nation EU is looking at the possibility of a law to allow state aid to companies that would kick in once electricity prices reach a certain level, the envoy, Artur Runge-Metzger, said today in an interview in Bonn. Envoys are meeting there for two weeks of climate change talks that began yesterday. The bloc can also give free carbon permits to those companies under current laws, he said.

With the United Nations flagging “stark new warnings” yesterday of rising greenhouse gas emissions, countries including Japan, Russia and Canada are avoiding new binding targets to replace current ones under the Kyoto Protocol, which expires in 2012. That would leave the EU almost isolated among major emitters in accepting internationally binding limits.

While EU law allows for a border tax on goods from countries without carbon limits, it may not be needed for now, Runge-Metzger said. “With the free allowances and the state aid, this would be sufficient to protect European industry.”

The EU held two months of consultations with companies over possible state aid. To prevent businesses from shifting production elsewhere to avoid pollution restrictions, the EU agreed in 2009 to grant 164 manufacturing industries a greater share than other companies of free CO2 permits under its emissions trading system after 2012.

Eurofer, a lobby group for the European steel industry, said last month in a letter to lawmakers that EU action to fight climate change may damage competition and “cost hundreds of thousands of jobs.”

Raising Ambition

“There are possibilities for state aid to those industries when we see increases in electricity prices that could harm their competitiveness internationally,” Runge-Metzger said. He said he didn’t have a timeline for when a proposal on aid will be ready.

The EU has made a unilateral pledge to cut emissions by 20 percent from 1990 levels in 2020, and says it may raise that to 30 percent depending on the actions of other major emitters.

The commission said in March that the most cost-effective scenario for the EU to attain its long-term goal of cutting greenhouse gases from 80 percent to 95 percent in 2050 would be to reduce emissions domestically by 25 percent in 2020. Member countries remain divided on a stricter climate-protection goal

Current pledges from all countries aren’t enough to contain temperature rises since industrialization to 2 degrees Celsius (3.6 degrees Fahrenheit), and the International Energy Agency said on May 31 that emissions from electricity generation climbed to a record in 2010.

EU ‘Farce’

Runge-Metzger said that “the most important thing” that can happen this year is for nations to pass domestic legislation reflecting the emissions reductions they pledged at the last ministerial-level UN climate conference in Cancun in December. Then, at the next meeting in Durban, South Africa in December, delegates will need to examine how to “deal with the gap in the level of ambition,” he said.

Other priorities for the Durban meeting include fleshing out rules on monitoring and verifying emissions cuts, deciding on a governance structure for a so-called Green Fund that will disburse climate aid, and charting the course for future negotiations, including potentially setting deadlines for the completion of a binding deal, Runge-Metzger said.

“There needs to be a perspective on where we are moving towards,” Runge-Metzger said. The notion of the EU alone taking on new binding targets under the existing Kyoto Protocol Treaty is a “farce,” he said. “We don’t think this is a viable option for a successful outcome in Durban. It’s one of our conditions. We need others to move forward with us.”

To contact the reporter on this story: Alex Morales in Bonn at amorales2@bloomberg.net.

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net.

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