Environmental Levy Firms Attack French Pollution-Tax Plan

The French government is calling for a minimum price to be placed on each ton of emissions produced by E.U. companies. That's riled German firms, which say the emissions-trading market, not the government, should set prices.
German energy and steel firms are notorious polluters.

German industrial companies are up in arms about French calls to impose a minimum price on carbon emissions certificates to incentivize businesses to focus on energy efficiency.

In particular, German steel makers complain that the proposals make a mockery of the idea that the market can set the price of the certificates.

Hans Jürgen Kerkhoff, president of the German Steel Federation, told Handelsblatt that the whole point of emissions trading certificates was that the market can set the price of the certificates.

Besides, he added, significant price increases are to be expected in the coming years. "To avoid billions in costs and ensure that the steel industry remains competitive internationally, an economically and technically feasible allocation is crucial," Mr. Kerkhoff explained.

The right to emit a tonne of carbon dioxide under the EU emissions trading scheme currently costs about €5 ($5.70). At its peak, several years ago, it hit €30.

The French themselves would hardly be affected by their proposal, because most of their energy supply is based on nuclear energy, which generates no carbon dioxide emissions.

The low price has many causes. Companies hoarded certificates during lean times, when their output fell, which means they do not have to buy any certificates now. The rapid expansion of renewable energy is forcing fossil-fuel power plants out of the market, reducing the demand for certificates and causing prices to drop.

But the French government now wants a minimum price for certificates, arguing that it is the best way to incentivize companies to become more energy efficient. At the moment, the price of certificates is so low, they do not act as a penalty for emissions.

The government also argues that a minimum price would remove volatility from the market and make investments more predictable. It suggests a minimum price of €10 and a gradual increase to €30 by 2030.

The German steel industry's concerns are rooted in the ongoing debate over the reform of emissions trading that the European Commission, the E.U.'s executive arm, is working on. The Commission envisions that the allocation of free emissions certificates for industries that compete internationally will become significantly more restrictive. The benchmarks that are used to allocate certificates would be tightened considerably.

However, companies complain the the roughly 60 benchmarks – individually tailored to certain production processes and products – are already designed to be unachievable by the most modern and efficient plants in Europe today. According to the Commission's plan, the benchmarks will be tightened annually by applying a "universal reduction factor." In addition, the total number of certificates would not be reduced by 1.7 percent a year, as it is today, but by 2.2 percent instead.

From the standpoint of industry, the E.U. plans are an explosive mix. They could substantially increase the additional costs associated with climate protection – and further reduce the competitiveness of affected sectors.

The French themselves would hardly be affected by their proposal, because most of their energy supply is based on nuclear energy, which generates no carbon dioxide emissions.

Germany, however, which is phasing out nuclear energy and still relies on coal and gas, would be more directly effected.

There is some support in Germany for France’s proposals.

Ottmar Edenhofer, chief economist at the Potsdam Institute for Climate Impact Research, told Handelsblatt that emissions trading holds a key role in European climate policy, but is not working as it should.

Falling prices are only part of the problem. On the one hand, he said, prices deteriorated. Anything E.U. member states do seems to reduce the price of the certificates, but not emissions. Mr. Edenhofer suggests that "a minimum price could avert these effects." A "plausible scenario," he explained, would be "an increase in 2020 to a minimum price of €25 per ton of carbon dioxide and a strong increase in the price after 2030." Mr. Edenhofer is convinced that an agreement on a European minimum price would serve as a "signal for comprehensive decarbonization in Europe."

The German government’s Association for Emission Trading and Climate Protection, or BVEK, which seeks to promote emissions reduction, also offers cautious support for the idea of a minimum price, but said it has to be accompanied by other measures. Chairman Jürgen Hacker told Handelsblatt it is not an ideal solution, but could be used "to show the industry the instruments of torture."


Klaus Stratmann is the deputy bureau chief of Handelsblatt in Berlin and covers the energy market. To contact the author: [email protected]