The European Economic and Social Committee (EESC) calls on the Commission to reflect in more depth on policy options that help both to reduce greenhouse gases and thus fight climate change and to maintain competitiveness. The goal must be to better protect and promote the EU's resource and energy-intensive industries (REII), otherwise Europe runs the risk of losing jobs to less clean economies and missing its goal of reducing greenhouse gas (GHG) emissions.
Current ETS liable to shift industrial base from Europe to less clean economies
The EU's climate policy will need to undergo a fundamental shift from resource- and energy-intensive industries towards climate neutrality in the coming years.
The current Emissions Trading System (ETS) aiming at encouraging investments falls short, since its worldwide application is not in reach for the time being. If it is only applied in Europe, it brings the risk of carbon leakage and consequently investment leakage, warned Aurel Laurenţiu Plosceanu, rapporteur for the EESC's opinion on the sectoral industrial perspective of reconciling climate and energy policies, adopted on 17 July.
We therefore advise the Commission to look at different options in a more detailed way, including carbon and investment leakage, legal certainty on compliance with WTO rules, their technical feasibility, and their possible acceptance by trade partners.
Furthermore, added co-rapporteur Enrico Gibellieri, future investment by the EU and the Member States should be concentrated on RDI and the deployment of low to zero-carbon technologies for both the REIIs and the necessary electric power generation. Another focus – in agreement with the social partners – must be on education and training of their workforce.
In its opinion, the EESC elaborates on the dilemma presented by climate policy as applied to REIIs, and explores the technical and legal feasibility of border adjustment measures (BAMs) – as defined by the WTO – as a last resort.
Since energy costs in for instance the steel, aluminium and glass industries are around 25% of total costs, the costs of greenhouse gas (GHG) emissions are also high. With the ETS in place, European products will become more expensive and run the risk of being replaced by cheaper products on the international market. The result would be a fall in jobs and growth in Europe in favour of less clean economies and the actual goal of reducing CO2 would be missed. This phenomenon is called carbon leakage, which as a consequence entails investment leakage.
This is why the EESC called for a worldwide ETS in a previous opinion – but that wish has not been fulfilled.
Border adjustment measures as a way to protect REIIs
BAMs would be one way of reconciling climate policy goals with the external competitiveness of REIIs. The principle behind them is that an internal tax on consumption puts local producers at a competitive disadvantage against their external competitors, on both the internal and export markets. In order to avoid this, the authorities in that jurisdiction are allowed to restore the fairness of competition by imposing a tax on imported goods, and refunding the tax on exported goods.
The WTO's legal principle says that such BAMs should not discriminate against external economic players.
In its opinion, the EESC contributes to the reflection on the long-term industrial strategy called for by the Council in March 2019, and discusses a BAM that includes a transparent accounting system for exporters, and where importers only pay for the GHG emissions produced by the raw materials. It sets out the following mechanisms:
- A transparent accounting system keeps track of the GHG emissions incorporated in each industrial item, and passes them along the value chain, as an additional line in invoices;
- Importers, however, pay only for the GHG emissions embodied in the raw materials, not those produced from transforming or shaping them, or from the associated logistics operations.
In order to encourage and reward lower GHG emissions and greater data transparency, the EESC model also proposes an incentive scheme, as follows:
The average GHG emissions intensity of the country of origin is usually used as basis. If, however, a producer can reliably demonstrate its real GHG emissions intensity, then this value will be used for its products.
In order to avoid being penalised by the application of the national average, the most climate-friendly producers will undertake the accounting exercise first. Once these exemplary producers have been taken out of the calculation, the national average will fall, thus incentivising more producers both to provide reliable data and to engage in further reducing their GHG emissions.