The European Union (EU) wants to become the global leader in fighting climate change and has made its Emission Trading Scheme (ETS) a cornerstone of this objective. The ETS has managed to significantly reduce emissions in Europe, especially in the power sector. However, the risk of carbon leakage is looming around the corner, whereby emitting installations will move outside Europe due to higher production costs, lack of regulatory stability and increasing international competition. Further tightening the EU ETS without supporting European industry to adopt cost-competitive, low-carbon alternatives might have the reverse effect. Emissions could decrease in Europe, yet increase worldwide.
The effectiveness of the EU ETS in creating price signals for the required investments in low-carbon technologies is threatened by the fact that it only covers European installations, whereas the markets in which European industries compete have become increasingly global and interconnected. This leads to carbon leakage, which already is a reality for many sectors.
For example, over the past 15 years, 10 of the 26 primary aluminium plants that existed in Europe have been shut down. This production has been replaced almost exclusively by production and overcapacity in China (see thereto also EMBER’s recent analysis), with a carbon footprint that is three times higher than the average footprint of European production.
Simply exporting our emissions to other regions of the world does not help us to tackle climate change, and this problem will be exacerbated as the EU ETS price continues to increase. The mooted Carbon Borden Adjustment Mechanism is an attempt to solve this problem, but the wider discussions surrounding this measure have already revealed that it, unfortunately, could never actually work as intended[1].
If the EU wants to succeed in its climate ambitions, a new approach to the EU ETS, and more broadly, to climate policy) is paramount. Instead of focusing solely on increasing the cost of carbon, we need to focus on decreasing the cost of low-carbon alternatives. This way, carbon leakage can be reversed. Given that many low-carbon technologies involve additional costs compared to their conventional counterparts, public funding has a crucial role to play in bridging the investment gap. This would enable European industries to decarbonise their processes without compromising their global competitiveness, with a substantial positive impact on global emissions.
Our approach to reducing CO2 emissions could borrow from the science-based approach that is already applied to reducing other emissions, in the context of the Industrial Emissions Directive (IED). Science-based Best Available Techniques (BAT) are an integral part of the IED, indicating the suitability of specific technologies for reducing industrial emission levels. Contrary to the EU ETS, the BAT conclusions are based on achievable and economically viable techniques based on robust data, whereas the regular reviews ensure that the BATs remain up to date with the latest technological developments.
At the same time, we must focus on channeling investments towards the most efficient, low-carbon technologies that are actually available to us today and represent no-regrets solutions up to 2050. In this regard, high-efficiency cogeneration (HE-CHP) can and should play a crucial role in both decarbonising the European economy, and in the carbon-neutral world of tomorrow, being the optimal, feasible, resource-efficiency technology, maximizing primary energy savings. Through simultaneous generation of heat and electricity in the most efficient, i.e. sustainable, way currently available, HE-CHP is the best available system-integration tool. Equally importantly, cogeneration is ready for renewables fuels!
To ensure European industry continues to lead on both climate action and competitiveness through innovative solutions, the EU ETS revision should adequately recognize the full emission reduction benefits of HE CHP over less efficient and more carbon intensive alternatives.
Contribution by Nick Keramidas
EU & Regulatory Affairs Director at MYTILINEOS S.A.
[1] A comprehensive impact assessment of any type of CBAM as a carbon leakage measure, i.e. its potential to effectively reduce global CO2 emissions, also compared to existing CL measures, is absolutely imperative.