Letters to Policy Makers

Letter to Commission: Contesting the legality continuing granting free allowances to industries

WWF, CAN Europe, Greenpeace, Carbon Market Watch and Sandbag filed a request for an internal review with the European Commission, contesting the legality of its recent decision to continue granting free carbon emission allowances to industries under the EU Emissions Trading Scheme (ETS).

The allowances, for use between 2015 and 2019, are worth €39 billion [1]. Over 99% of industry sector allowances are allocated for free.

The Commission decision keeps a list of industries granted free allowances unchanged up to 2019, because of supposed continued competition from foreign industries which do not have to comply with the ETS. On 29 October 2014, the Commission formally released this so-called carbon leakage list of industries that would receive nearly four billion free allowances up to 2019.

NGOs question the legality of the decision on the grounds that the Commission ignored recommendations from its own impact assessment which would lead to the exclusion of some sectors from the carbon leakage list. The Commissions failed to explain why it ignored its impact assessment, as required by EU law. The impact assessment assumes an average carbon price of €16.50 between 2015 and 2019. But the Commission's carbon leakage list assumes a much higher price of €30 [2]. The current price is around €6-7€ for a tonne of CO2. The higher the assumed carbon price, the more industries are exposed to competition and the more free allowances they receive.

The NGOs call on the Commission to annul its decision and adopt a new decision based on an average carbon price of €16.50 between 2015 and 2019. The Commission has up to ten weeks to respond to the request for review. Depending on the response, the NGOs could take the case to the European Court of Justice.

Next year, the Commission is expected to review the ETS directive for the period after 2020. The review is expected to include an update of the rules on free allowances for the EU's industrial sectors.

Greenpeace EU climate policy director Joris den Blanken said: "It's ironic that the Commission is seeking to unlock a giant stimulus package for the European economy, while throwing away billions in potential income from a bolstered carbon market. With the stroke of a pen, it has arbitrarily inflated the carbon price to suit the heavy industries which have grown accustomed to windfall profits from the carbon market. This irresponsible behaviour has denied governments billions in revenues to help rebuild the EU economy."

WWF EPO climate policy officer Sam Van den plas said: "This unjustified transfer of wealth from EU member state budgets to energy intensive industries yet again damages the credibility of the ETS as a pollution pricing mechanism. How can the EU Commission expect an international carbon market to develop on the basis of such an untargeted approach to carbon leakage as in the case of the EU?"

Download  pdf NGO request for Commission internal review of emission allowances for industries (Dec 2014) (454 KB)

Notes:

[1] Estimate based on an average carbon price assumption of €10.
[2] Potential industry exposure to competition is calculated on the basis of a projected ETS carbon price.

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