EU ministers approve free carbon allowances for mineral sectors to 2030

By IM Staff
Published: Friday, 12 April 2019

The European Union will issue carbon allowances for free until 2030 under its Emissions Trading Scheme, to prevent employers moving operations - and paid employment for EU citizens - outside the region.

By Keith Nuthall

The European Union’s Council of Ministers has accepted a proposal that producers and processors of industrial minerals should be allocated free carbon allowances under the EU emissions trading system (ETS) until 2030.

The decision, which supports a proposal from the European Commission (EC), has been made because of concerns that mineral production could move outside the EU if the industry were forced to buy such allocations, which is what is generally required.

The list of sectors qualifying for free emission allowances covers quarrying and mining of minerals; kaolinic clay production; and salt extraction.

It also includes the manufacture of all non-metallic mineral products, with the regulation specifically mentioning the manufacture of inorganic chemicals, fertilizers, nitrogen compounds, glass, refractory products, cement, lime and plaster, as well as ceramic tiles, flags and sanitary fixtures, clay bricks, tiles and other construction products.

It also covers the manufacture of vitrifiable enamels and glazes, engobes (slips such as are used to decorate pottery) and similar preparations for ceramics, enameling and glass.

The ETS is the cap-and-trade system that was established by the EU and imposes a maximum level of greenhouse gas emissions that can be released annually by industries covered by the scheme. These include industrial minerals miners, processors and manufacturers.

All companies are allocated allowances, or tradable permits, which give them permission to emit greenhouse gases up to their limit or cap - one tonne of carbon dioxide, or the equivalent amount of two more powerful greenhouse gases, nitrous oxide and perfluorocarbons, according to an EC report on the proposal.

Under ETS rules, most companies are increasingly having to purchase these allowances, rather than receiving them for free, which is what happened when the system was launched in 2005. The allowances are bought at the European Energy Exchange (EEX) in Leipzig, Germany, or at ICE Futures Europe (ICE), in London.

But there is concern that, for some sectors that emit a lot of greenhouse gases, the cost of purchasing these allowances could become so prohibitive that some companies might move their operations outside the ETS zone and into jurisdictions which do not apply such charges. The ETS zone covers the EU plus Norway, Iceland and Liechtenstein.

If companies moved outside the zone, their greenhouse gases would still be released and the EU would lose employment and general taxation – a process called "carbon leakage."

So the EU has decided to grant free allowances to these sectors, which also include steel production, textiles, oil and gas, and some food manufacturing.

This move was also prompted by concerns about the customers of EU industrial mineral companies. "Allocation reduces the costs for European industries that can arise if they cannot pass on such costs through the supply chain," the EC report said.

High-emitting sectors already have free allocations of carbon allowances until 2020. Ministers have now agreed that they will be granted free allocations for 2021-30, with amounts to be determined according to their past emissions.

The amounts to be allocated will now be assessed using carbon data submitted by industries via their national governments.

The EC report said that 6.3 billion allowances were available for qualifying industries between 2021 and 2030. While the value of these allowances depends on market prices when sold, the report said that the sum "could be in the order of €100 billion [$113 billion]."

The mineral sector could command a large proportion of these allowances, with the EC report saying that the manufacture of cement alone accounts for about 19% of ETS industrial emissions.

The minutes for the Council meeting (general affairs) that took the decision on April 9, said: "The carbon leakage list has economic significance because free allowances have a substantial financial value."

These free allowances will now be distributed unless the European Parliament objects, but no objection is expected.


More like this