Emissions a headache for industry

Energy producers, their export profits already battered by the crown’s strength, are dismayed by the potential for losses of nearly 50 million Kč ($2.8 million) a year when the European Commission’s carbon credits program comes into effect in 2013.

Politicians and heads of both private and state-owned enterprises met last week at the International Industrial Fair in Brno, south Moravia, to discuss business growth and the domestic economy. Spokesmen for the Confederation of Industry showed their greatest discomfort in debate over the EU proposal on carbon credits and the dire impact the Czech currency has had on exporters’ profits.

At the crux of the debate was the European Commission’s plan for power producers, beginning in 2013, to purchase their carbon emissions rights (credits) through auction rather than through the current system, which distributes them as grants.

“In the current Czech industrial and business conditions, our companies could lose almost 50 million Kč on this matter,” said Josef Rozbořil, a board member of the Confederation of Industry and vice president of the Paper Industry Association. He added that the greatest impact will be on companies in the chemistry, steel, cement and metallurgy fields.

The concept of carbon crediting was developed under the Kyoto Protocol in response to concerns about the effects of industrial pollution on global climate change. The protocol entered into force Feb. 16, 2005, under the International Framework Convention on Climate Change with the goal of cutting the amount of greenhouse gas emissions from factories. As of this May, 182 countries have ratified the protocol, 36 of them from the European Union and the Balkans. Brazil, China and India belong to the 137 developing countries that ratified the protocol without emissions limits. The United States remains the only industrial country that has not ratified the treaty. Because the four largest polluters in the world — the United States, Russia, China and India — are not limiting their emissions, other countries have questioned the effectiveness of the treaty and the point of signing it at all.

“Europe, which wants to be the leader in decreasing carbon pollution, constitutes only 10 percent to 15 percent of world emissions. This ends up being so minor, one wonders where is the meaning of it all,” said Tomáš Bartovský, spokesman for Industry and Trade Ministry.The European Union Emissions Trading Scheme (EU ETS), the largest multinational emissions trading mechanism in the world, monitors the amount of emissions produced by each member state. In 2006, the European Commission (EC) published a report on the emissions-trading directive that found member states have more than one competent authority to implement ETS.

In most countries, regional or local authorities issue greenhouse gas permits and monitor emissions.By 2020, the EC intends to reduce greenhouse gases 20 percent from 1990 levels through proposals and suggestions in its emission package. One way to achieve this has been a suggested change in credit trading.The current system of granting and trading credits will end in 2013, after which companies will buy them through auctions. The shift means significant added costs to companies, which may move production to countries not under EU directives, industry leaders say, both damaging EU economies and failing to reduce emissions.

“This affects not only the Czech Republic, but all countries. There is the danger that energy producers will move outside EU borders and globally there will be no reduction of carbon dioxide,” Jaroslav Míl, president of the Confederation of Industry, told the Czech News Agency.

The government advocates a slower approach to adopting the auction process that would ease companies into the added costs.“The objective is to enforce gradual entry into the credit auctions. To start with 10 percent purchase of credits, then 30, then 50 percent until we start buying them entirely,” explains Bartovský, who added that representatives from the Confederation of Industry are panicking a bit early since the free credit system does not expire for another five years.Member states are currently granted a certain amount of polluting credits, representing tons of CO2, which they can emit under the Emissions Trading Scheme.

The amount depends on the percentage of alternative energy sources a country uses and its key industrial sectors. Countries that do not exhaust their credits can trade them among each other. One credit is equal to one ton of CO2. Bartovský said the Czech Republic is not even getting a fair deal under the current system of credit grants.“The Czech Republic alone is allowed to emit 82 million tons of carbon a year and was promised 90 million tons. Before we start dealing with the new emissions package from the EC, we will attempt to gain those 8 tons we are missing,” said Bartovský.A study by the Confederation of Chemical Industry on factories with the highest amount of pollution found the potential for losses to be in the millions of crowns under credit auctioning. Under the system that would gradually increase the number of credits on auction, Czech companies could spend an additional 5.4 billion Kč initially each year, up to 11.4 billion Kč when credits on auction reach 50 percent. That number would twice exceed the profits of chemical companies.

“Consequently this means that enterprises significant to the Czech market will lose their competitiveness, or worse, some of them will be destined for extinction,” the study concluded.The EC that is currently working on proposals for Parliament will give its resolution for European credit auctioning next year, during the Czech Republic’s EU presidency.

“This will not influence anything. What might pass under the European Commission might not under Parliament. There is still a long way to go,” said Bartovský.