Dealing in Hot Air: The Pitfalls of Europe's New Emissions Trading System
The next stage in the world's CO2 emissions-trading scheme will begin in two years. Everyone agrees that the rulebook is complicated and that the costs for industry will be enormous. But nobody knows if the system will really help the environment -- or merely create a burdensome bureaucracy.
Peter Scur used to spend a lot of time outdoors, converting old quarries into fertile habitats and making sure that bats remained undisturbed while making their nests in limestone caverns. It was the sort of effort one might expect from the environmental officer at a cement company.
Overburdened by paperwork these days, Scur doesn't have much time left for such activities.
Scur, a tall man with strong hands, is sitting in his office at a plant belonging to the German unit of Mexican cement-maker Cemex in Rüdersdorf, 30 kilometers (19 miles) east of Berlin, poring over files marked "CO2," or carbon dioxide.
"We are being literally inundated with laws," he says. Scur has no choice but to address the new regulations.
Now that he is the company's so-called carbon manager, Scur has to be prepared for a new era that is about to begin, not only for Cemex and the cement sector, but also for the rest of German industry.
CO2 a Cost Factor for First Time
When the third stage of the European emissions trading program starts in 2013, it will actually cost companies real money when their plants emit large amounts of carbon dioxide. The invisible greenhouse gas, which flows out of chimneys by the ton, will become a cost factor for the first time. Businesses are beginning to prepare for the new reality, and it's high time that they did, following the establishment of key parameters shortly before Christmas by the EU executive, the European Commission.
It set upper limits of how much CO2 a company will be permitted to emit at no charge in connection with the production of a product. In addition, the entire range of industrial goods was concentrated into 53 products, like roof tiles, steel beams and aluminum sheets, and an emissions limit was defined for each product. The limits are based on the average emissions levels for the most efficient 10 percent of industrial plants in Europe.
In the case of cement, for example, a plant can emit precisely 766 grams of CO2 for each kilogram produced. Companies that exceed the CO2 emissions limits will be required to buy pollution certificates in the future. Other emissions limits are 1,328 grams for steel production, 1,514 grams for aluminum and 144 grams for roof tiles. It's a relatively straightforward system, at first glance, but the devil is in the details:
- German brickworks, for example, complain that they will never be able to remain within the limits for roof tiles. The benchmark was set by the Spaniards, not because of their superior technology but thanks to the mild climate in southern Europe. Because roof tiles are not exposed to hard frosts in Spain, they can be fired at lower temperatures, resulting in lower emissions.
- German steelmakers like Saarstahl or Salzgitter have built special power plants in recent years, in which they generate electricity from so-called furnace gas, a waste product in steel production. They are currently not required to purchase additional CO2 rights for the resulting emissions, because the investment is considered to be environmentally commendable, given that at least some of the furnace gas was simply burned off in the past. Now this exemption has been eliminated, thereby removing the incentive to utilize the gas instead of burning it off.
- The paper industry produces about 3,000 products, from soft tissues to hard cardboard. The European Commission's list of 53 products to which emissions limits apply contains only seven categories, which makes it assigning products to categories extremely difficult. Producers whose products cannot be assigned to a category must resort to so-called fallback options. In that case, the heat or fuel requirements are used as the basis, which often means that a company will end up having to purchase significantly more CO2 rights.
- The European Union decision includes only one limit value that can be applied to all the products made by tile manufacturers, and it only applies to a special manufacturing process. This single limit value must be applied across the board, both to manufacturers of mass-produced tiles and to producers of special tiles for pool edges, for example, the production of which consumes an especially large amount of energy.
The lobbyists spent months making the rounds in Brussels and Berlin, proposing changes, additions and exceptions to the 76-page draft document, wrestling over every single value. It was a fierce competition that led to one overriding outcome: It made emissions trading even more complicated and contradictory, and ultimately more unfair.
The blame can be assigned to neither government officials nor industry associations. The problem lies in the system. The closer we come to the next stage, a few fundamental questions are being posed more seriously: Is emissions trading, the way it is being structured today, even feasible? Can it truly be an instrument that achieves its goal in an efficient way, namely to effectively reduce CO2 emissions and slow down climate change? Or is a bureaucratic monster being created here?
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