New survey: EU ETS experience supports US cap-and-trade plans
- 17 September 2009
New survey shows 'minimal' impact of EU ETS on business competitiveness so far - and some gains
The German Marshall Fund of the United States has published a new survey into the effects of the EU's climate legislation on business competitiveness, authored by The Climate Group. Discussions in the US around the introduction of a cap-and-trade system to cut GHG emissions have reignited debates about the potential effects of such measures on industrial competitiveness and job security.
The study - The Effects of EU Climate Legislation on Business Competitiveness: a Survey and Analysis- presents qualitative new evidence that indicates that, so far, impacts on business competitiveness have been minimal, with some gains. However, concerns exist over the longer term if the EU were to remain the only trading bloc covered by cap-and-trade legislation.
The analysis was based on interviews with a cross-section of nine leading companies, including both firms with installations directly covered by the European Emissions Trading System (EU ETS) and others that expect indirect effects through electricity or other input prices.
The survey sought to understand whether (and if so, how) a market-set price for carbon has influenced the companies' cost base, profitability, short- and medium- term strategies, and ability to compete with comparable firms operating without a constraint on their emissions.
- The EU ETS has not resulted in significant costs to business to date, especially when compared to the impact of other factors such as energy price fluctuations and the economic downturn. In the words of one respondent: "All other effects are being swamped by the credit crunch".
- So far there has been no major impact on companies' competitiveness:They have not relocated their operations, reduced their workforce, or lost market share as a result of carbon pricing; although the energy-intensive aluminium company cited extra indirect costs.
- Companies have realised energy efficiency gains by improving their monitoring and reporting of emissions and factoring the cost of carbon into all new product and business decisions. By putting a market price on carbon emissions, cap-and-trade has moved the climate debate into the boardroom. "It has been a positive for our business," said one engineering firm representative.
- While faring well so far relative to their non-EU competitors, some heavy industrial emitters fear possible competitive impacts in the third phase of the EU ETS, beginning in 2013. Some of the more energy-intensive companies believe that, if the emergence of similar climate policies in their main competitor countries fail to materialise and the reduction in free allocation of emission allowances in Phase III will affect their competitiveness and could lead to a shift in emissions from regions covered by carbon constraints to regions without such regulations. Still, the major emitters in our survey, including the aluminium smelter, stated their overall support for the EU ETS.
Mark Kenber, International Policy Director of The Climate Group says: "The survey's findings counter concern - particularly in the US - that climate policies can lead to significant costs to business and a corresponding loss of market share to companies in countries with laxer environmental laws. Companies with operations in Europe have made some adjustments since the introduction of the EU ETS and EU climate policies, but concerns about loss of competitiveness have to date either not materialised or have been alleviated through policy design."
Named respondents in the survey included Centrica, Johnson & Johnson, Lafarge, Tesco, as well as a global glass manufacturer; a global engineering firm; a global steel manufacturer; a global aluminum firm; and a global financial services firm. All but one are part of Fortune Magazine's Global 500 ranking of the world's biggest companies for 2009 and taken together, the nine companies account for around 5 per cent of total verified emissions covered under the EU ETS.