From the TUC

Carbon leakage – time to talk and invest

29 Jul 2010, by in Economics, Environment

Is the CBI right to attack Chris Huhne’s support for a tougher EU limit on carbon emissions, in today’s FT? He and his French and German counterparts argued through those pages recently that the EU should up its game from 20% to 30% by 2020, so not to lose competitive edge to low carbon industries in China and Japan. Industry seems divided on this issue – some sectors are certainly at risk, as our study shows. It must be time for Government to meet all sides of industry.

27 EU companies publicly backed Huhne in the pages of the FT. But none were in energy intensive manufacturing – only Johnson Matthew seemed to be in manufacturing in a big way. Today, Lambert says companies could not cope with the additional cost of climate policies. Yet today, the FT also claims that CBI members are unhappy with its leader’s comments!

There has been an excess of “special pleading” by EU manufacturers. Too many want exemptions from paying for their CO2 emissions allowances. In December 2009, the European Commission confirmed that as many as 164 sectors were list as “vulnerable to carbon leakage”. This involves measures of their trade and carbon intensity. These sectors currently account for  three-quarters of industrial emissions. The commission is working through a complex product benchmarking system to see who get what for free. But the results of two independent studies, including one at the LSE, find  the commission is being way too generous. Were the EU to focus more on the real big issue – carbon intensity – rather than trade itself, it could recoup up to 7 billion euros annually in unnecessary free allocations to firms.

By selling the allowances and then doing the right thing: invest this public revenue – yes, Minister – in research, low carbon technology and skills programmes, crucial to the low carbon transition.

This is the kind of policy response the TUC wants to see emerging from its joint study with the EIUG, where we focus on the issue of energy intensity, not trade. There is hard evidence of vulnerability in some six or seven core industries. But the more companies and their unions are engaged in key debates on skills, investment in low carbon technology, or the shape of climate policy, the more likely they are to stick rather than shift production abroad. This is the essential message from the study. The Government’s Forum for a Just Transition is the right place to discuss these highly contentious, but resolvable, issues rather than the pages of the FT.