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Financial Times: Industry warns EU on emissions plan (Letter from Jeroen van der Veer)

By Peggy Hollinger in Paris
Published: January 20 2008 19:02 | Last updated: January 20 2008 19:02

Europe’s plans to cut greenhouse gas emissions, due to be unveiled as part of a radical green agenda this week, risk working against the environment and could destroy the competitive position of European industry, according to the region’s leading industrialists.

The warning comes in a letter to Gunter Verheugen, European Union commissioner for enterprise and industry, from Jeroen van der Veer, chief executive of Royal Dutch Shell and chairman of the energy and ­climate change working group of the European Roundtable of Industrialists. ERT is a group of about 50 of Europe’s biggest industrial companies representing sales of about €1,600bn ($2,300bn, £1,200bn).

The letter warns against the EU’s plans to introduce an auction system for carbon certificates to replace the current free allocation of permits on a country-by-country basis.

The ERT says the plan could both encourage undesirable protectionist measures, such as import taxes on goods from countries without similar schemes, and severely damage the competitiveness of European industry by imposing costs that cannot be passed on to consumers. This, in turn, could threaten investment in carbon capture and other environmental initiatives.

Mr Van der Veer said that while the ERT supported a carbon trading scheme, industrialists believed Brussels was moving too quickly. Draft versions of the proposed scheme also revealed a fundamental flaw.

“We are concerned that we might have a system that if you look at Europe in isolation could work, but the reality is that Europe is not isolated. We may destroy capacity here and import those goods from somewhere else and those imports might be even worse [in terms of carbon emissions].” The ERT was in favour of a more gradual shift to an auction system, he said.

The ERT’s concerns are shared by politicians and the wider business community as Brussels prepares to unveil on Tuesday the most extensive overhaul yet of the EU’s green agenda. Member states will on Wednesday receive binding targets on renewable energy usage, along with details on cutting greenhouse gas emissions and boosting biofuels.

Independent studies have shown that European industry could be severely penalised by the proposal to auction the majority of carbon certificates.

The Breugel Institute, a Brussels-based think-tank, warned in a report last year of a “real risk that business will resort to regulatory arbitrage, which will entail a shift in where emissions take place but no reduction in global emissions”.

Europe’s relatively high exposure to carbon-intensive industries would put its goods at a disadvantage to those produced in the US and China, which do not price carbon, the institute said.

Brussels has said that it will review the trading system in 2011, but many fear this pledge only creates uncertainty.

Mr Van der Veer warned that companies would be reluctant to invest in environmental initiatives, such as carbon capture, as a result. The likelihood of highly volatile carbon permit prices would further deter such investment, he said. “It is very difficult for a company to invest in energy conservation if the prices go up and down like a yo-yo. We need to invent a system with a certain amount of predictability on CO2 prices. That will be a bigger incentive to invest in energy ­conservation.”

Copyright The Financial Times Limited 2008

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