Carbon Trust: EU's emissions trading will not damage UK refining industry's competitiveness

By OGJ editors
HOUSTON, July 16 -- The European Union's emissions trading scheme (EU ETS) will not damage the competitiveness of UK refining and fuel industries' competitiveness, said a report by the Carbon Trust.

The scheme is slated to commence Jan. 1, 2005, as one of the policies being introduced across Europe to tackle emissions of carbon dioxide and other greenhouse gases.

"Our overall conclusion is that the EU ETS is unlikely to reduce the profitability of most industrial sectors, providing that it is implemented in roughly equivalent ways across different EU countries, and that the price rises are not so large as to make non-EU imports profitable on a large scale," the report said.

The UK government established the Carbon Trust as an independent company to work with UK businesses and the public to cut carbon emissions.

Michael Grubb, Carbon Trust policy director, said that industry across Europe, including the UK, had concerns that costs associated with the EU ETS could cause businesses to lose out to global competition.

The Engineering Employers Federation has said that the scheme could lead to rises in wholesale electricity prices of 80% by 2010, and the Chemical Industries Association has said the scheme could contribute to higher manufacturing costs. Both the EEF and CIA are based in London.

The Carbon Trust study examined how the EU ETS would affect five different UK sector: electricity, cement manufacturing, paper (newsprint), steel manufacturing, and aluminum (smelting).

The analysis used economic modeling to calculate price rises across a range of carbon price scenarios representing phases of the EU ETS development over time.

"Despite being the second largest emitter after the electricity sector, this study shows that the UK refining and fuels industries have little to fear from the EU ETS, and that some companies may even benefit. This is largely driven by the fact that these sectors consume very little electricity from the grid," Grubb said.

He concluded that the study provides "grounds for cautious optimism about the competitiveness implications of the EU ETS." The study found that three of the five sectors have the potential to maintain or increase profits. Aluminum smelting was found to be clearly disadvantaged if exposed to electricity price rises and the impact on steel could be positive or negative.

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