Food processing was one of 164 sectors and sub-sectors given a higher share of free GHG allowances from 2013 to 2020 following a draft decision from the European Commission. Under the revised EU Emissions Trading System (EU ETS) plants in these industries will receive a larger share of the free allowances than other sectors as a way to avoid what has been called ‘carbon leakage’.
Carbon leakage
Carbon leakage refers to the risk that companies in sectors subject to strong international competition might relocate outside Europe to countries with less strict rules on GHGs. Energy intensive industries were deemed most at risk of carbon leakage.
The Confederation of the Food and Drink Industries of the EU (CIAA) told FoodProductionDaily.com: “While the (food processing) sector, when viewed in aggregate, is not energy-intensive, some sub-sectors are energy-intensive at levels comparable to other industrial sectors and are exposed to full international competition as they operate in international markets. The main exposed sectors are commodities such as sugar, starch, vegetable oils, malt, dried yeast and milk powder.”
Under the proposal, which is due to be adopted by the end of the year, industrial sectors at risk of carbon leakage will be eligible to receive 100% of the benchmarked allowances for free. This compares to other sectors which will be entitled to 80% of benchmarked allowances for free in 2013 decreasing annually to 30% in 2020.
The listed sectors are still “subject to the stringent GHG reduction requirements under the EU ETS, like other covered sectors”, added the CIAA.
Benchmarks
However, there is some industry concern after it was announced that the actual number of free allowances up for grabs will be decided according to benchmarks. These will be set based on the average performance of the top 10 per cent most GHG-efficient facilities in any given industry.
“The benchmarks will therefore create additional incentives for ETS installations to reduce emissions and improve energy efficiency,” said the European Commission. “Given the stringency of the benchmarks, only the most efficient installations have a chance of receiving all of their allowances for free.”
Industry concern
The European sugar manufacturers association CEFS hailed the draft ruling but said the setting of the benchmarks will be as critical in determining how much help the measure could finally lend to the sector.
“This decision was a crucial one for the European sugar industry as we are an energy-intensive sector,” said CEFS deputy director general Oscar Ruiz de Imana.
“The effects of not being included on the list would most likely have been felt in either companies leaving Europe or reducing production in their European facilities, with this gap being filled by competitors outside the region.
“But the EC draft decision is not a magic solution and the setting of the benchmarks will be vital. So the real effect is still to be seen.”
The Commission said the list of sectors could be revamped if the risk of carbon leakage is seen as reduced in the wake of December’s international climate change summit in Copenhagen. The list will apply until 2014, but sectors can be added to the list during this period. A new list will be drawn up for the period 2015-2019.