Europe's heavy industries are worried that the European Commission's post-2020 European Union Emissions Trading System (ETS) reform proposal will increase costs for them. The proposal aims to reduce their allocation of free CO2 allowances by 25% while potentially tripling the market price of additional units they will need to purchase.
Experts were asked about the impact of the proposal on heavy industries' participation in the EU ETS and its effect on the carbon market. Here are some of their responses:
Emil Dimantchev highlights that the industry sector has already received enough free allowances to cover compliance needs until 2030. He expects companies to become more forward-looking as their surplus allowances diminish, leading to a gradual shift in behaviour and a rise in European carbon prices.
Michiel Cornelissen expresses concerns about the proposal undermining the competitiveness of EU industries. He argues that compensation should be provided to sectors facing international competition to offset the carbon costs that their non-EU competitors do not have. Without such compensation, energy-intensive industries may struggle to produce and invest in Europe.
Yann Andreassen predicts reduced long positions and increased short positions in the carbon market due to the proposed reform. He expects some industries to hold onto their surplus allowances to use when they face shortages, while others may secure future short positions in advance to benefit from lower carbon prices. EU industrials will need to adopt a more active and long-term carbon trading strategy.
Louis Redshaw emphasizes that companies will increasingly view carbon as a financial risk rather than an irritation. As companies become short of carbon allowances, they will manage carbon risk in the same way they hedge fuels, leading to increased demand and prices in the carbon market.
Damien Morris points out that Europe's carbon market is oversupplied, and the proposed reform does not adequately align with Europe's long-term climate goals. He argues that stricter criteria should be implemented to ensure enough allowances are available for leakage-exposed best performers, and additional allowances could be directed towards innovation funding and new entrants.
While concerns are raised about the impact on heavy industries, the proposed reforms aim to strike a balance between reducing emissions and maintaining competitiveness. The outcome will depend on negotiations and the integration of industry perspectives into the reform process.
