The EU states grant a wide range of tax concessions for road transport and energy-intensive industries. Wouldn’t it be better to harmonise these across Europe by reforming the Energy Tax Directive and thus save on these subsidies?
It would indeed be very useful to create a competitive balance in energy taxation at the European level and to establish one rule for the whole EU. Only, the EU has no competence for tax law, not even for energy taxes. It needs the consensus of all 27 member states.
It all depends on what you want to do with it. The first reform proposal did not fail in 2015 because of the energy tax, but rather because of the diesel tax and other excise duties. It is always a question of whether some states do not want to give up individual regulations. And, if necessary, we may also have to accommodate some Eastern European governments in order to persuade them to agree. The first ETD lasted 10 years, the second failed miserably.
Critics say that the free allocation of emission allowances to the energy intensive industries is only maintaining the operation of the existing plants. So do the free emission permits lead to preservation of obsolete technologies?
Yes, it is true that emissions trading is one of the reasons why investment in new plants that produce high emissions is no longer being made. The existing plant park will continue to operate. In the chemical industry, no one is building a new cracker; in the cement industry, no one is building new cement plants; in the steel industry, no one is building new blast furnaces which would then remain standing for 20 to 30 years. Emissions trading, if it is operated with ever decreasing quantities as the concept envisages, means that in 15 or 20 years’ time, such plants will no longer be able to be operated at all.
However, there is also no investment in new processes, because we cannot yet work economically with them. And yet we are well aware of the technologies with which we could work in a climate-neutral way by 2050. But neither the investment costs nor the operating costs are competitive on the world market. But that has nothing to do with free allocations. They only make it possible to produce competitively with today’s plants. If the price of CO2 were now to be driven up so high that the new technologies would pay off, the products would become so expensive that it would no longer be competitive.
If it’s just about the European market, it works with higher CO2 prices, as in electricity production, for example. That’s why, at the price of €25 per tonne of carbon dioxide, we already have much less coal-based electricity generation. That works because there is no world market for electricity.
In the case of energy-intensive industries, on the other hand, the same thing would only lead to production disappearing and taking place elsewhere.
But there’s no proof of that, is there?
Of course we cannot provide clear evidence of this, because we have prevented this with the free allocations. But one thing is already happening: Investment leakage. Additional investment in energy- and emission-intensive industries is no longer taking place in Europe today. Emissions trading is supposed to lead to a reduction in emissions and to the need to buy more and more certificates, which will then cloud the balance sheets. It is therefore foreseeable that this will no longer be economically viable in the long term, and that is why practically no one invests in Europe any more.
We are just starting to build pilot plants for the new carbon-free technologies. The technologies are not yet mature enough for large-scale plants. Moreover, there is by far not enough electricity from renewable sources for them.
Wouldn’t it make sense to charge the full cost of the emission certificates to products from non-EU countries that are produced with high emissions, i.e. to create a border adjustment per carbon, and at the same time to end the free allocation in order to accelerate the investment in new, climate-friendly production?
If border equalisation were really to work, in principle yes, but a solution would then also have to be found for exports to countries outside the EU. That is the greater part of it for us.
If imports of climate-damagingly produced products are kept low by customs, the European market would still grow. Is that not enough for you?
No, a border adjustment tax does not prevent imports, but only wants to make them as expensive as European products. This will only restore competition and prevent imports from increasing. In addition, Chinese producers will be able to demonstrate, for example, that their products were produced CO2-free only with hydropower or nuclear power, and with the argument they will sue at the WTO.
Moreover, we cannot imagine how this border adjustment is supposed to work at all. With steel and cement it can still work, but what about the products that are made with high-emission primary products, such as cars or refrigerators? We can’t imagine how they are going to be compensated for this. Of course, we do not want to abandon the current practice of free allocation, which keeps us competitive, for such an uncertain system.
We cannot imagine how this border adjustment is supposed to work at all. With steel and cement it can still work, but what about the products that are made with high-emission primary products, such as cars or refrigerators
Wouldn’t it be better to spend the subsidies, which have so far only served to maintain the status quo, directly on what is actually needed, i.e. climate-neutral technologies?
Yes, that is what we are talking about with the politicians. The system today only serves to maintain competitiveness. Now we have to look for new instruments. The proposal on contracts-for-difference is interesting. And yes, we want to go in that direction, that is our only perspective. The only alternative is for our production to disappear from Europe over the next two decades.
The system today only serves to maintain competitiveness. Now we have to look for new instruments
Why would that happen? You live well with the current system. The EU protects your interests.
So far we have had a reliable plan up to 2030, when the fourth trading period ends. But this can all be thrown over again now, if the reduction target is raised to 55% overall, then the cuts in the quantities permitted in emissions trading will rise from 2.3% per annum to three or four percent. That will reduce the overall budget. By 2030, we can still cover this by cutting back the fossil fuel industry. But that will be over at some point. Then it will go to the substance of the other industries. After 2030, we expect considerable bottlenecks. Certificates will become more expensive, free allocations will decline, and then comes the point at which we can no longer operate the plants economically. That is the brutal reality.
We wouldn’t want that, of course. We want to continue producing steel, chemicals and other energy-intensive products here in 20 years’ time. But to achieve this, we have to develop a plan that won’t flatten us out before we can change over. In some industries, such as the steel industry, this can be done more quickly; here it is already possible to work with hydrogen. This does not yet exist for the chemical industry, for example the electrically-driven crackers for the basic chemicals. We are still at the very beginning.
After 2030, we expect considerable bottlenecks. Certificates will become more expensive, free allocations will decline, and then comes the point at which we can no longer operate the plants economically. That is the brutal reality