Relief for small companies proposed under greenhouse gas trading
EU's greenhouse gas trading scheme on small companies as part of a
plan to make the programme less complex.
The EU's food and drink association (CIAA) has been lobbying the Commission to exempt small and medium sized businesses in the sector from the Emissions Trading Scheme (ETS).
ETS is part of the bloc's plan to reduce greenhouse gas emissions to meet international commitments under the Kyoto Protocol. The "cap-and-trade" scheme, which took effect from January 2005, allows companies to buy and sell carbon dioxide (CO2) emissions rights on specially constructed Internet sites.
The food processing industry is a major energy consumer and discharger of greenhouse gas through its reliance on cooking, refrigeration, freezing and air compressor systems. The increased costs have added to the costs companies must pay to stay in business.
In a guidance document issued this month the European Commission said that the first trading period of the scheme indicated that the rules are too complex, making it hard for companies and other market actors to understand how it works.
Member states have until 30 June to submit their national allocation targets for the second round of the scheme, which runs from 2008 to 2012.
The second trading period under ETS is significant because it coincides with the five-year period in which the EU and member states must meet their targets for limiting or reducing emissions of greenhouse gases under Kyoto.
Member states and companies will come under increasing financial and administrative pressure to reduce CO2 emissions. They will have to buy credits if they want to expand.
In the guidance the Commission says the legislative framework for small installations will remain unchanged during the drawing up of national allocation plans. To ease the burden on small companies the Commission called on member governments to use the legislative flexibility already offered under the current plan.
It is also considering looking at measures to make the situation easier for small installations in its forthcoming review of the ETS. It will consider proposing an amendment to the directive to enable the removal of some small installations in the course of the second trading period, the Commission stated.
The Commission plans to revise the rules for monitoring and reporting of emissions in a bid to ease the administrative burden for small installations.
"In addition, the Commission is paying particular attention to realising the potential for cost savings for the smallest installations in its ongoing review of the ETS monitoring and reporting guidelines," the document stated.
The Commission aims to have the changes in place by the start of the second trading period.
Making ETS less complex is another tack taken by the Commission. The guidance document proposes a set of standardised tables to help companies present important information, such as projected emissions, assumptions regarding fuel prices and the reductions expected from other policies and measures.
In November the EU's food and drink association told FoodProductionDaily.com that the scheme is being applied inconsistently across the bloc, hurts smaller companies and should not be expanded to other types of emissions. The Confederation of Food and Drink Industries in the EU (CIAA) is lobbying for changes to the agreement
Under ETS companies must buy credits on the open market if they fail to reach their yearly allocations or face fines. They could also chose to cut emissions by taking action on cutting their energy use or by investing in anti-pollution equipment.
Earlier this month the EU's food and drink association told FoodProductionDaily.com that the scheme is being applied inconsistently across the bloc, hurts smaller companies and should not be expanded to other types of emissions.
An independent review of the system by analysts McKinsey & Company and Ecofys is due to be published in the first half of this year. The analysts are examining the impact of expanding ETS to other sectors and gases.
In response, the CIAA says a more fairer definition needs to be applied across the bloc of what plants are caught under the ETS.
Under the scheme individual government make the emission allocations for each firm falling under the scheme. Companies must then surrender their allowances equal to their annual allocations at the end to the year.
The CIAA says the scheme requires a harmonised definition of “combustion installation” across the EU, as some countries have used the loose definition to exclude certain sectors of the food and drink industry. This gives competitors in those countries an advantage over other CIAA members in more restrictive states.
Under the current scheme the ETS is mandatory for many industries, including “combustion installations" with a rated thermal input exceeding 20MW.
Under the scheme EU member state governments are required to set an emission cap for all installations covered by the programme. Each plant will then be allocated allowances for the particular commitment period. The number of allowances allocated to each installation for any given period will be set down in a document called the National Allocation Plan.
However in their NAPs, member states have applied two different definitions of the term “combustion installation”.
Due to differences between member states the Commission has allowed two different definitions of "combustion installation" that exceed the 20MW threshold.
One is a medium definition as advocated by the UK and others. This covers boilers and small-scale combined heat and power (CHP) installations that use electricity and steam heat.
The UK definition excludes fryers, dryers and ovens. However the wider definition, as applied by countries like the Netherlands, does not make such a distinction. The difference in application would presumably give companies excluded under the UK scheme a competitive advantage over those included under the Dutch method.
"Given the disproportionate costs of the ETS for many small installations, CIAA considers it vital to ensure that the necessary harmonisation of the definition of 'combustion installation' does not result in an extension of the ETS scope to additional small sites," the association said. "Therefore, the harmonisation must be consistent with the exclusion of small sites from the ETS."
The CIAA also wants the ETS to exclude more of its smaller members by setting a minimum emmission level of about 25 kt CO2/year.
"Monitoring, reporting and verification requirements cause significant financial and administrative burdens that are often disproportionate to the low level of actual emissions caused by these installations," the CIAA argues. "For example under the UK NAP, 59 per cent of covered installations produce less than 25,000 tonnes CO2/year. Together these installations account for only 2.4 per cent of the total emissions covered by the UK's NAP."
The coverage of low emitters is also out of line with ETS' goal of providing operators with an incentive to reduce emissions, the CIAA stated.
The CIAA also opposes an extension of the ETS to additional activities, installations or gases during the second phase of the scheme.
During the second phase the Commission plans to include additional, smaller sites below the current capacity threshold. Below a rated thermal input of 20 MW, actual direct emissions would typically be less than 5,000 tonnes CO2/year.
Again, the CIAA argues that the cost burden associated with monitoring, reporting and verification under the ETS would be disproportionate to the marginal level of emissions from these sites.
The CIAA also notes that the primary source of greenhouse gas emissions from the food and drink industry is CO2 from combustion processes already covered under the current ETS.
Another problem concerns the national allocation plans, which the CIAA says show great diversity in the methodologies to allocate allowances to installations. Such exclusions such as benchmarking versus grandfathering, the treatment of new entrants, auctioning, plant closure and allowance transfer and voluntary inclusions are applied inconsistently across the bloc.
About 12,000 companies would fall under the emission scheme, which includes other types of plant installations.
On 23 November, in a case brought by the UK against the Commission, the EU Court of First Instance ruled the country should have been allowed to request an increase in air-pollution permits from regulators.
Earlier this year the Commission rejected the UK's request for a 2.7 per cent rise in free carbon-dioxide permits for energy and manufacturing companies
The trading system covers combustion installations including some food industry plants. Companies that exceed their limits must buy permits from businesses that emit less than their allocations or face fines. They could also chose to cut emissions by taking action on cutting their energy use or by investing in anti-pollution equipment.
While the scheme means companies can spend a lot of money in reducing their emissions or by paying for allocations, those that have reduced their emissions can make monetary gains by selling their excess credits to others. The market in trading emission rights is estimated at about €35 billion (US$43bn) per year.
About 12,000 companies falls under the emission trading scheme, which includes other types of plant installations.
In the UK a total of 48 food and drink plants are covered by ETS, but 73 have opted-out of the scheme in the first trading period 2005 from 2007.
The numbers refer only to companies covered by the UK Food & Drink Federation. There are also other non-member food and drink sites not covered by the association.
The opt-out option would not be available in the second phase of the ETS scheme, which runs from 2008 to 2012, Christoph Tamandl, the CIAA's environmental affairs spokesperson, told FoodProductionDaily.com in an interview.
Exact data for the number of food and drink sites covered by ETS is not available for many member states. However he was able to give figures for France, the Czech Republic, Belgium and Finland.
In France 159 food and drink installations are covered by ETS out of 1100 total plants. The sites represent 14 per cent of the total sites covered by ETS in France and 4,76 per cent of total CO2 emissions under the French National Allocation Plan (NAP).
In the Czech Republic 33 food and drink installations are covered. In Belgium 46 food and drink sites are covered and in Finland 10 sites, he said.
The main food and drink sectors covered by the ETS include plants making sugar and starch, vegetable oils, milk and malt. Breweries are also covered. In general, food and drink sites are covered by the ETS if they are operating combustion installations exceeding 20 Megawatt rated thermal input.
He noted that there are no validated estimates concerning the costs of ETS compliance for small sites. The CIAA is gathering exact cost estimates, especially for small sites in its effort to exclude more food and drink sites.
The CIAA is lobbying the Commission to exclude more of its smaller members by setting a minimum emission level of about 25,000 tonnes CO2/year over which the ETS would apply to plants.
"In general, the administrative burden associated with monitoring, reporting and verification falls disproportionately hard on small sites with emissions below 25,000 tonnes CO2/year," he said.
Under the UK NAP 59 per cent of all covered sites, including the food and drink sector, produce less than 25,000 tonnes CO2 a year and together account for 2.4 per cent of total emissions.
Under the whole EU ETS, sites below 25 kt represent 55 per cent of installations included today, but only 2.5 per cent of total EU CO2 emissions, he said.
"Given the high share of small sites in the food and drink sector, it could thus be estimated that at least 55 per cent to 60 per cent of sites currently covered by the ETS would be excluded from the scope if an exclusion of sites below 25 kt would be introduced," he said. "Their contribution to total CO2 emissions would be insignificant."
The lobbying effort is being made as the European Commission has opened an independent review of the system led by analysts McKinsey & Company and Ecofys. The analysts are examining the impact of expanding the ETS to other sectors and gases, and the actual impact of the programme on competitiveness. They are expected to submit their report by June 2006.
In response, the CIAA says a more fairer definition needs to be applied across the bloc of what plants are caught under the ETS.
Under the scheme individual government make the emission allocations for each firm falling under the scheme. Companies must then surrender their allowances equal to their annual allocations at the end to the year.
The CIAA says the scheme requires a harmonised definition of “combustion installation” across the EU, as some countries have used the loose definition to exclude certain sectors of the food and drink industry. This gives competitors in those countries an advantage over other CIAA members in more restrictive states.
Under the current scheme the ETS is mandatory for many industries, including “combustion installations" with a rated thermal input exceeding 20MW.
Under the scheme EU member state governments are required to set an emission cap for all installations covered by the programme. Each plant will then be allocated allowances for the particular commitment period. The number of allowances allocated to each installation for any given period will be set down in a document called the National Allocation Plan.
However in their NAPs, member states have applied two different definitions of the term “combustion installation”. Due to differences between member states the Commission has allowed two different definitions of "combustion installation" that exceed the 20MW threshold.
One is a medium definition as advocated by the UK and others. This hich covers boilers and small-scale combined heat and power (CHP) installations that use electricity and steam heat.
The UK definition excludes fryers, dryers and ovens. However the wider definition, as applied by countries like the Netherlands, does not make such a distinction. The difference in application would presumably give companies excluded under the UK scheme a competitive advantage over those included under the Dutch method.
"Given the disproportionate costs of the ETS for many small installations, CIAA considers it vital to ensure that the necessary harmonisation of the definition of 'combustion installation' does not result in an extension of the ETS scope to additional small sites," the association said. "Therefore, the harmonisation must be consistent with the exclusion of small sites from the ETS."
The coverage of low emitters is also out of line with ETS' goal of providing operators with an incentive to reduce emissions, the CIAA stated.
"While ETS compliance causes considerable fixed costs for small installations, their emission reduction potential is usually too low to realise compensatory volumes of sales in allowances," the CIAA stated.
Until such a rule is introduced, the CIAA supports a simplification of the monitoring and reporting guidelines for low emitters. For small installations, the current guidelines are too complicated and costly and constitute the heaviest compliance burden, the association stated.
The CIAA also wants the programme to move towards a further harmonisation of allocation methodologies used by the various countries, including rules on new entrants, site closure and allowance transfer, the sharing of free allowances, base years and the general allocation method.
The CIAA also opposes an extension of the ETS to additional activities, installations or gases during the second phase of the scheme.
The first phase of the scheme runs from 2005 to 2007, and the second phase from 2008 to 2012.
During the second phase the Commission plans to include additional, smaller sites below the current capacity threshold. Below a rated thermal input of 20 MW, actual direct emissions would typically be less than 5,000 tonnes CO2/year.
Again, the CIAA argues that the cost burden associated with monitoring, reporting and verification under the ETS would be disproportionate to the marginal level of emissions from these sites.
The CIAA also notes that the primary source of greenhouse gas emissions from the food and drink industry is CO2 from combustion processes already covered under the current ETS.
The CIAA does not support the introduction of an auctioning method for share allocation during the second phase. If auctioning were to be used, the CIAA calls for a harmonised approach throughout the EU.
All of the EU's 25-member countries ratified the Kyoto Protocol on 31 May 2002. In 1996 the EU adopted a target of a maximum 2°C rise in average global temperature.
Trading in EU allowances may exceed $5 billion this year, according to the Amsterdam-based European Climate Exchange.
