Climate protection through benchmarking

Last January, the European Commission published its proposal for a new climate change package for the post Kyoto period, after 2012. It is high time now to improve the package in order to still be able to keep the agreed cap of CO2 allowances. The benchmarking approach is supported by the chemical industry as it is a cost effective tool to reduce CO2 emissions. It ensures certainty and awards a fair return on investment. Currently, there is a growing consensus in favour of benchmarking but the negotiations are still ongoing.

I) What is the current state of climate change negotiations?

The whole climate change package is made up of several proposals. One of these is causing serious concerns among chemical industries. It deals with the review of the Emissions Trading Scheme, the ETS. This system is designed to price CO2 emissions, mainly by establishing an auctioning tool in order to reduce green- house gases by at least 20% by 2020.

Huge political pressure has, then, been put on the European stakeholders so as to be in a position to definitively vote this package before 2009. As a result of that pressure, there are non transparent negotiations to reach an agreement between the Commission, the European Parliament and the Council of Ministers before there would be the first vote in a plenary.

At the beginning of the new ETS period, 80% of CO2 allocations would be free of charge, and in 2020, there would be allocations depending only on purchases via the auctioning system. The strategy is to increase the price of the emitted ton of CO2 so as to force the implementation of low carbon techniques.

EU chemical industries fully support such an aim of reducing CO2 emissions. But, they do not support the current strategy, mainly based on auctioning. They consider it as a non sustainable system since it does not take into consideration the need for European industry to preserve its competitiveness in order to remain a solution provider for the management of climate change issues.

II) Why the current provisions of ETS must be further improved

• The time pressure does not exist as shown by some politicians and other stakeholders. Currently, the management of climate change issues is led by the Kyoto ETS which is valid until 2012. That is not an excuse for remaining inactive, but that is not a reason to do non comprehensive work, neglecting the aim of having a truly sustainable, new ETS system. Joining the United Nations Copenhagen meeting in 2009 with a proposal that would put a unilateral burden on EU industries whereas they are mostly exposed to international competition is not a valid option. In that case, it is better to wait until more comprehensive tools have been designed with proper data.
  
  
• We must find proper ways of having competitive low carbon economies for the benefit of all. Without competitive chemical industries, European consumers will not be able to find proper ways to reduce CO2 emissions and their energy consumption via better insulation, more efficient cars. We should not forget how heavily transport and housing contribute to the dissemination of greenhouse gases...
  
  As such, carbon is not an enemy, since, when proportionate, it is a vital part of our daily lives. The problem occurs when CO2 is released and we must find competitive way of dealing with this issue. Part of this competitiveness is the necessity of having same binding rules on CO2 emissions as our international competitors.
  
  
• We must give the right climate change management example to the world: it is of no use if we are alone with our own new rules, since it would be a way of damaging our own capacities. The security of supply issues should not be neglected when you consider that energy intensive industries have a lot of downstream users with little capacity to pass on to final consumers unilateral increases in costs. The right example is to show that new binding rules have economic, ecological and social benefits together.
  
  
• International agreements on GHG reductions must follow the same criteria, enforced in all regions in the same way. Of course, CO2 emissions do not respect boarders. But we must go beyond this naïve thought. International agreements are a way to maintain an acceptable level of competitiveness, provided that everybody respects the rules. Otherwise, there is an unfair competition and, no matter how beautiful the international agreement is, losers are the ones that respect rules. Competitiveness, including sustainability, is thus the golden rule: it is a matter of survival.
  
  
• The auctioning system planned by the current draft is not the right answer to an efficient climate change management. The possibility of auctioning CO2 emissions is a non competitive way of involving speculation in the ETS. The aim of ETS should not be to create new flows of money for States or speculators but efficient ways of tackling CO2 issues.
  
  It is very interesting to note that many supporters of the auctioning system are in fact from the financial area, including companies that want to expand the current CO2 market with little regard to the importance of firstly investing in green technologies. The great freedom granted to States to use the money released from auctioning is an additional concern and drives us to think that the ETS is paving the way to an additional hidden tax with little relation to climate change management.
  
  
• Bechnmarking is a much more energy efficient tool. Homogenous emitters are benchmarked, rated by an independent auditor. From that rating, a performance reference of CO2 emissions per unit of production is derived. If a company wants to compete without additional costs, without then paying CO2 rights, it has to manufacture its products according to processes meeting this performance reference.
  
  
• Benchmarking works like a sport qualification process: it is a minimum you have to perform to be authorized to compete with others. If you perform better, then you deserve more rewards and you get a better position on the starting blocks. In the ETS case, this better performance would be attributed to technology leaders in the shape of free allowances. On the contrary, if you do not reach the minimum, then you are excluded from the usual competition and you have to make more efforts. In the sport example, you have to run more qualification races, in the industry example, you have to pay extra CO2 allowances. In both cases, if you are a good competitor, you are not obliged to make as much efforts as the others, whereas in the auctioning case you have to make the same level of efforts no matter how good you are.
  
  

Links:

• Benchmark FAQ
• How does a benchmark work
• A performance benchmark approach (pdf)

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