The Effect of EU Climate Legislation on Business Competitiveness

8/8/2019 The Effect of EU Climate Legislation on Business Competitiveness

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CLIMATE & ENERGY PAPER SERIES 09

The effecTs of eU climaTe legislaTionon BUsiness compeTiTiveness:A SuRvEY ANd ANALYSIS

mark kenBer

Policy Director, he °Climate Group

oliver haUgen

Policy Manager, he °Climate Group

madeleine coBB

Policy Manager, he °Climate Group



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he E ects o EU Climate Legislationon Business Competitiveness:

A Survey and Analysis

Climate & Energy Paper Series

September 009

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he E ects o EU Climate Legislation on Business Competitiveness:A Survey and an Analysis

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• So far there has been no major impact oncompanies’ competitivess: they have notrelocated their operations, reduced theirworkforce, or lost market share as a result ofcarbon pricing. , w EU E S

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Executive Summary



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• Company decision-making has taken carbon pricing on board, but climate legislation hasnot led to fundamental shifts in strategy.EU E S, k

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• Companies have improved their monitoringand reporting of emissions and realizedenergy efficiency gains.A ,

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• While they have fared well so far relativeto their non-EU competitors, some heavyindustrial emitters fear possible competitiveimpacts in the third phase of the EU ETSbeginning in 2013.S

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Project context: Creating an evidence base

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Survey subject: European businesses undercurrent emissions reduction legislation

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Introduction and Objectives1

Concernsabout thecompetitivenessof U.S. businessesunder such a

system echomany of thoseexpressed inEurope just a few

years ago.




Like the EU ETS,the cap-and-

trade programis predicated onthe distributionof a number of

free emissionallowances to

emitters in thefirst years of

implementation.

State of current legislationin the United States

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Background2




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Recentmacroeconomicanalysis of thecosts associatedwith constraining carbon emissionshas generally

shown them tobe small.

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Evidence so far in the UnitedStates and Europe

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1. Companies have found it difficult to quantify effects on their bottom line in the first phaseof the EU ETS, or found no effect at all.

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• The allocation of free emissions allowances in EU E S ( w

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• The relatively low price of carbon.

• The difficulty inherent in disaggregating

• The current economic downturn that has ,

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Survey Findings3




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Companiesare having adifficult timedisaggregating potential carbon- related costincreases fromthose attributableto other factors,

such as theincrease in energy prices or changesin the operating environment.

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. The impact of the EU ETS is largely in linewith prior expectations.

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3. Although costs for some firms are increasing,there is scant evidence of effects oncompetitiveness—but concerns about thefuture persist, especially as the number of free allowances decreases and CO2 costs arereflected in electricity prices.

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EU climatelegislation “has

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4. Companies have not relocated theiroperations during Phase I of the EU ETS.

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“At first, wethought EU ETSwould die quietly after 2–3 years—but it didn’t.”

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6. But companies are quick at internalizing theEU ETS into their strategic planning.

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7. Short-, medium-, and long-term effects onstrategic planning vary.

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“All investmentdecisionsnow have acarbon accountassociatedwith them.”

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10. Carbon pricing has prompted somecompanies to green their product mix.

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11. Getting smarter: better monitoring andcost assessment.

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1 . Policy measures have helped to mitigatecompetitiveness impacts.

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“We hope that theEU will maintainthe link betweendemonstrableenergy efficiency

gains andthe allocationof rights.”

13. Assumptions, concerns and hopes for the nextphase: free allowances…

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“We know [theEU ETS] will last.We know it must.

And we think thatthe United States

will implementa comparable

system that willalso be there for

the long haul.”

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Conclusions4




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• In spite a few rough edges, companies findmuch to be commended under the four year-old EU ETS.O

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• The prospect of a new cap-and-trade regime for greenhouse gas emissions in the UnitedStates seems daunting, but the experience ofthe EU ETS shows that it is feasibleeven if it requires some mitigating measures at theoutset, such as free allocation of allowances.W

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19

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References5




S , N , S P , V B k , A B w , CC , S C k , D C , S C k k,S D z, N E , S -L G , L H ,G H , D I , B J , N P , HR , R S j , M S k, C ,

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Effects on decision-making

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Effects on costs

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Effects on competitiveness

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Effects on strategic planning

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Question to Electricity/Power Utilities:

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Appendix: Interview QuestionsA



O f f i c e sWashington • Berlin • Bratislava • Paris

Brussels • Belgrade • Ankara • Bucharest

www.gm u .org

The Effect of EU Climate Legislation on Business Competitiveness

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