Carbon Curbs Haven’t Spurred Production Exodus, EU Study Shows

No businesses in Europe relocated production to regions without greenhouse-gas emission curbs between 2005 and 2012, according to a study for the European Commission on a process known as carbon leakage.

“We found no evidence for any carbon leakage” in the past two trading periods of the European Union’s emissions program, said Ecorys, the Rotterdam, Netherlands-based consultancy that wrote the study published on the EU’s website. “However we think there are indications that this can change in the third period” that started this year, Ecorys said.

The commission, the 28-nation EU’s regulatory arm, is analyzing the impact of its cap-and-trade program on competitiveness before reviewing a list of industries eligible for special protection next year. Under the EU trading system, emission permits are allocated or auctioned to polluters, which must surrender them to cover discharges or pay fines.

The Alliance of Energy Intensive Industries argues that even the region’s most energy-efficient factories will need to buy allowances, placing them at a disadvantage compared with competitors outside the EU, Alain Mathuren, an Alliance spokesman in Brussels, said Oct. 1. The group includes chemical, cement, steel, petroleum and fertilizer lobbies.

EU carbon prices have fallen 76 percent since 2009, when policy makers agreed the list of sectors that need to be protected against relocation. Emission allowances for this year slumped to a record low of 2.46 euros ($3.36) a metric ton in April amid a record surplus of permits aggravated by a recession.

Minor Factor

“In some, but not all, assessed sectors we observe increasing imports and/or decreasing exports,” Ecorys said. “However, the reasons for these developments can mainly be found in global demand developments and input price differences.”

While industry considers carbon costs one reason for relocation of investment, they are a “minor factor” compared with other drivers, according to the study. Investments outside Europe have been driven by demand in emerging countries, which offer incentives to attract new industry, Ecorys said.

In the first two trading periods of the EU’s carbon trading program, emitters got most of their permits for free before Europe moved to auctioning allowances starting this year. Sectors on the carbon leakage list get a bigger proportion of free allowances in 2013-20.

As nations worldwide aim to reach a deal in 2015 on a global climate-protection accord for 2020 and beyond, Europe is debating its emission-reduction goals for 2030 and rules to strengthen the region’s carbon market.

“On top of the main drivers of production location, such as a shift in demand and higher energy prices, high carbon prices –- if only prevalent in Europe -– will make global competition a little bit harder for European industry,” Ecorys said.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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