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The new emissions trading scheme as outlined by the European Commission will create unprecedented additional costs for Finnish. The enormity of these costs is alarming.
According to the Pellervo Economic Research Institute PTT, the costs for energy-intensive industry would increase by 1 to 2 billion euros in 2020 if these companies were forced to purchase all their emissions rights through auctions. The additional costs for industry for the entire 2013-2020 emissions trading period would total 4.9 to 9.9 billion euros.
This would eliminate the operating profit of these sectors either in part or in total while destroying the operating conditions for many industrial sectors in Finland.
- The figures for Finland are alarming. The EU should make a clear policy decision already at this week’s summit meeting that energy-intensive industry active in foreign competition is kept outside the auctioning of emissions rights. Emissions rights that cost money can only be introduced when plants outside Europe are made liable to the same level of obligations. Industry considers it important that a global climate agreement is reached in Copenhagen in December 2009, emphasises Tellervo Kylä-Harakka-Ruonala, Director of the Confederation of Finnish Industries EK.
EK commissioned PTT to calculate what impact the European Commission’s proposal in January regarding changes to the emissions trading directive would have on Finland’s energy-intensive industry.
According to the proposal, the auctioning of emissions rights would be expanded in phases after 2013. In 2020 there would be no more unpaid emissions rights, so companies would be forced to purchase all their rights through auctions.
Competitiveness under threat
According to PTT’s calculations the biggest loser would be the forest industry. When all emissions rights are auctioned, its costs would increase by 450 to 950 million euros a year depending on the price of the emissions rights. For the technology industry the increase in one year would be 290 to 580 million euros, for the chemical industry 210 to 390 million euros and for the construction product industry 80 to 140 million euros.
PTT calculates that these kinds of additional costs would eliminate the operating profit of these sectors either in part or in total. For example, based on the figures for operating profit in 2006, some parts of the construction product industry would become clearly unprofitable. Absorbing these negative results would be paid for ultimately by eliminating jobs.
Emissions trading creates additional costs for industry in three ways: purchasing emissions rights; increased electricity prices; and increased prices for bio-based raw materials, such as roundwood and recycled paper. The costs of the new emissions trading system will be in addition to the costs already created for industry by the present system, especially in terms of increased electricity prices.
- The EU really has to relinquish the European Commission’s timetable, according to which the decisions affecting energy-intensive industry would be made only in 2010-2011. This timetable would lead to tremendous uncertainty and dissipate the investments made by industry. The sectors to be kept outside the auctioning of emissions rights should be defined without delay so that the overall situation is clear in good time before the Copenhagen climate summit, Kylä-Harakka-Ruonala adds.
Background variables of PTT’s calculations:
1) The price of emissions rights is expected to increase during the 2013-2020 emissions trading period from the current 20 euros/CO2 tonne to 30-50 euros/CO2 tonne.
2) A price increase in emissions rights from 20 euros/tonne to 30 euros/tonne would increase the market price of electricity by an estimated 7.50 euros per megawatt hour (€/MWh). If emissions rights cost 50 euros/tonne, the price of electricity would be an estimated 72.50 euros/MWh.
3) In addition the increase in the price of emissions rights would increase the price of roundwood for the forest industry by an estimated 20 percent compared to the present situation.
Pasi Holm, Managing Director, PTT,
tel. +358 (0)50 374 7462
Tellervo Kylä-Harakka-Ruonala, Director,
EK, tel. +358 9 4202 2540, +358 40 505 6574