policy discussion paper

8/13/2019 Policy Discussion Paper

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Analysis on how burden sharing agreements withenergy-intensive industries may be designed and

integrated into policy proposals

Felipe Andres Toro

Task: To ensure that the competiveness of energy intensive industries is not jeopardized by

high energy costs, we will analyze how burden sharing agreements with energy- intensive

industries may be designed and integrated into the policy proposals.

Karlsruhe, the 28th of June 2013


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1 Introduction

Nevertheless, energy-intensive industries in the European Union have express concern on

how their competitiveness against oversees industries is being affected by high energy

prices and electricity taxes which transmits to higher production costs which in end effect

would be transmitted to the consumer if no measures are to be applied.

Indices of real energy end use prices

Energy prices and taxes, quarterly statistics first quarter2013

Several factors are to be account responsible for the growth of energy prices and electricity

costs and they will be covered in the next chapter. Measures that had been applied by

governments such as in the UK or Germany are also to be covered in this paper for the sake

of policy illustration.

The goal of these policies is to assure the competitiveness of energy-intensive industries and

share the burden or exempt the industries from taxes in order to create a more profitable

production and increase competition at international levels.

PENDING


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4 Environmental taxes with influence on high energy pricing

Energy Intensive Industries have a crucial role to play in the transition to a low carboneconomy. Policies aimed at reducing carbon emissions are going to impact upon the bills

faced by industrial consumers. This will have the greatest effect on those industries that usethe most electricity, leading to a risk that investment is lost (Department of Energy andClimate Change UK, 2013)

Programs such as the EU ETS aim to combat climate change by creating a tool for reducinggreenhouse emissions cost-effectively. In sight this program is an international system fortrading such gases allowances within power stations, industrial plants and airlines.(European Commission, 2013). Issues participating in this trading system are such as thefact that, companies included in the ETS are faced with additional costs compared to thoseengaged in similar activities outside the EU (ECORYS, 2009). This creates an imparity wheninternational competitiveness is taken as a subject between worldwide industries offering thesame product or service.

Taxes such as the EU ETS have showed direct effects on energy prices for energy intensiveindustries. A study presented by McKinsey and Ecofys (2006) described the effects of the in2005 implemented European Union Emission Trading Scheme on the internationalcompetiveness of energy intensive industries sectors. It was found that considering the priceof 20 per ton of CO2, five industry branches (steel and aluminum production, papermanufacturing, cement and refineries) where directly influences and had as a consequencean increment of the production costs. It was noted through this study that the strong influenceof prices affecting the industrial international competiveness should be somehow redirectedto end consumers.

EU ETS applied to price sensible markets worseness as in comparison with non-pricesensible markets. Such sensible markets are the case in which they are entirely dominatedby pricing for example where products are only offered by one supplier and they tend to beeasily substituted by non domestic products.

Other problem referring to restructuring the EU ETS, not mentioned in this paper so far

http://www.cepi.org/node/15640

Other examples of environmental taxes for the case of UK are:1. Climate Change Levy2. Aggregates Levy

3. Landfill Tax4. EU Emissions Trading System (EU ETS)5. Carbon Reduction Commitment Energy Efficiency Scheme6. Carbon Price Support

As stated before in Chapter 2, industries tend to outsource their production to countrieswhere environmental regulations are not as tight or free of them to improve competitivenessbecause of the high energy costs that come together with these regulations. This outsourcingof manufacturing production is known as carbon leakage and is one of the reasons whygovernments try to spend more time and money in creating measures to support the industryan preventing the leakages of domestic industries.
http://www.cepi.org/node/15640http://www.cepi.org/node/15640http://www.cepi.org/node/15640


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5 Measures applied to improve international competitiveness

The basic principles of environmental law provide rules on the design of measures forenvironmental protection. The polluter-pays-principle is of particular importance to any kindof measure as it requires that the burden of costs for pollution elimination is borne by thepolluter. (Beyond 2020, D3.1 Report)

Policies to improve competitiveness

1. Improving labour productivity2. Improving competition in product markets3. Improving the level of investment4. Creating a stable macro-economic environment

(Economisonline.co.uk, 2013)

Total support for energy intensive industries (EIIs) in Germany 2010-2013

In millions of euros 2010 2011 2012 2013

Ecotax (kosteuer) 5,74 4,73 5,11 d/k

CHP bonus allocation 40 4 20 d/k

Special compensation rule,section 40 ff. of the GermanRenewable Energies Act(EEG)

1,125 2,08 2,3152,500-3,200

Certificate allocation 1,643 1,408 1,408 d/k


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Comparing the support from the german state and the UK the following table gives an insighton the difference that apply now a day in energy intensive industries from both countries.

Factor UK GermanyAmount ofcompensation

210m over 3 years, 70m pa 8bn euros annual average

Time period 2013-2015 Not time limited

Sectors

15 of European Commissionssectors at risk from carbonleakage, based on tradeintensity and cost impacts.

Wide range of industrial sectors undersection 40 special compensation: noapparent sector limit.

Level Company

Company and process level: forexample, about 1,000 firms in certain

processes, such as metal fabrication,are exempt from electricity tax.

Number ofcompaniesbenefitting

Figure not available

97,000 cos benefit from the "generaldischarge".

23,000 cos compensated for peakpower.

1,000 firms 100% exempt fromelectricity tax.

Energy intensity Company carbon costs (CPFand ETS) in 2020 = at least 5%GVA

Electricity consumption of more than10 GWh per delivery point (subject to

10% cost share); and electricity costsof more than 15% of GVA added.

Companies >100 GWh electricity andelectricity costs > 20% GVA exemptedfrom cost sharing.

Maximumcompensation pereligible installation

Linked to UK marginalemissions factor: gas emissionsat 0.411tCO2/MWh

Information not available

Exemption fromenergy taxation ofmineralogicalprocesses

None

Exemption for mineralogicaltransformation processes (applies toceramics, cement, lime, glass), forexample, 5.50 / MWh on gas.


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7 Bibliography

European Alliance of Energy Intensive Industries opposes EU unilateral move to -30%http://www.alueurope.eu/pdf/posi_paper/Download7.pdf

Energy prices and taxes, quarterly statistics first quarter2013

http://www.oecd-ilibrary.org/energy/energy-prices-and-taxes_16096835

Department for Business, Innovations and Skills UKEnergy-intensive industries: compensation for indirect costs of energy and climate changepolicieshttps://www.gov.uk/energy-intensive-industries-compensation-for-carbon-leakage

Energy Intensive Industrieshttp://www.publications.parliament.uk/pa/cm201213/cmselect/cmenvaud/writev/669/eii03.htm

Department for Business, Innovations and Skills UKParticipating in the EU ETShttps://www.gov.uk/participating-in-the-eu-ets

Definition of environmental tax publishedhttps://www.gov.uk/government/news/definition-of-environmental-tax-published

Erneuerbare-Energien-Gesetz (EEG) 2012

http://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/

The EU Emissions Trading System (EU ETS)

http://ec.europa.eu/clima/policies/ets/index_en.htm

Policies to improve competitivenesshttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.html
http://www.alueurope.eu/pdf/posi_paper/Download7.pdfhttp://www.oecd-ilibrary.org/energy/energy-prices-and-taxes_16096835https://www.gov.uk/energy-intensive-industries-compensation-for-carbon-leakagehttp://www.publications.parliament.uk/pa/cm201213/cmselect/cmenvaud/writev/669/eii03.htmhttps://www.gov.uk/participating-in-the-eu-etshttps://www.gov.uk/government/news/definition-of-environmental-tax-publishedhttp://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/http://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/http://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/http://ec.europa.eu/clima/policies/ets/index_en.htmhttp://ec.europa.eu/clima/policies/ets/index_en.htmhttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.htmlhttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.htmlhttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.htmlhttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.htmlhttp://www.economicsonline.co.uk/Global_economics/Policies_to_improve_competitiveness.htmlhttp://ec.europa.eu/clima/policies/ets/index_en.htmhttp://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/http://www.bmu.de/service/publikationen/downloads/details/artikel/erneuerbare-energien-gesetz-eeg-2012/https://www.gov.uk/government/news/definition-of-environmental-tax-publishedhttps://www.gov.uk/participating-in-the-eu-etshttp://www.publications.parliament.uk/pa/cm201213/cmselect/cmenvaud/writev/669/eii03.htmhttps://www.gov.uk/energy-intensive-industries-compensation-for-carbon-leakagehttp://www.oecd-ilibrary.org/energy/energy-prices-and-taxes_16096835http://www.alueurope.eu/pdf/posi_paper/Download7.pdf

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