Carbon dioxide emissions: penalisation of the ceramics industry

Subject: Carbon dioxide emissions: penalisation of the ceramics industry

EU rules concerning industrial carbon dioxide (CO2) emissions are becoming more stringent. The main effect is that, from 1 January, some energy-intensive sectors that are exposed to competition from countries with little environmental awareness, such as certain African and Asian countries, will not be able to receive any support. The Commission has decided to reduce the number of sectors to which such aid can be granted, to counter the ‘dirty competition’, but it has excluded ceramics. These rules were devised before the COVID-19 epidemic.

The ceramics industry is energy-intensive but, in Italy, is also very efficient. The penalisation of ceramics is akin to a tax that does not provide any benefits for the environment. The ceramic tiles sector is an industry which is among the most exposed to international trade; moreover, there are growing numbers of imports into Europe from countries with no legislation on emissions, such as Turkey and North African countries.

Can the Commission say:

1. whether it has assessed the effects of decisions concerning the closure of companies, or their relocation outside Europe;

2. whether it has considered the option of postponing the decision to autumn 2021, also in view of the pandemic and the economic crisis; and

3. whether it is aware of the competition from non-EU countries that do not have any environmental standards?

Answer given by Executive Vice-President Vestager on behalf of the European Commission (16 December 2020)

When designing the instruments necessary to achieve the Green Deal objectives, the Commission pays careful attention to economic, environmental and social impacts, to leave no one behind.

In this context, the Emissions Trading System (ETS) State aid guidelines play a key role with the specific purpose of enabling Member States to prevent carbon leakage for sectors genuinely at risk of relocation outside Europe due to indirect ETS costs.

During their revision, the Commission extensively assessed such risks for each relevant sector and decided on the list of sectors eligible for compensation based on objective quantitative and qualitative data. The Commission recognises that some sectors may be exposed to relocation risk due to broader international competition pressures.

However, if that risk does not depend on indirect ETS costs, their compensation would not materially contribute to reduce the risk of carbon leakage due to indirect ETS costs, which is the purpose of these Guidelines. The Commission has other tools at its disposal, including trade defence instruments, and is working on a proposal for a Carbon Border Adjustment Mechanism to counteract additional risks of carbon leakage.

As regards the quantitative parameters to assess the risk of carbon leakage due to indirect ETS costs, the Commission carefully assessed each sector’s trade intensity and indirect emission intensity. The indirect emission intensity of the ceramics sector (0.548 kgCO2/EUR) does not meet the necessary threshold of 1 kgCO2/EUR, indicating that the impact of indirect ETS costs on the competitiveness of the sector is limited.

This quantitative analysis was complemented by a qualitative assessment of each sector concerned, which the Commission carried out with the support of an external independent consultant. As regards the ceramics sector, the independent consultant concluded that the sector is at low-medium risk of relocation due to indirect ETS costs: demand is increasing, as the EU is a net exporter and the import penetration is limited.

In addition, profit margins are only marginally affected by indirect ETS costs and there is a low potential for further decrease in electricity consumption at this stage.

As the current guidelines expire on 31 December 2020, new ETS State aid guidelines needed to be put in place by the beginning of Phase IV of the EU ETS, to ensure legal certainty and enable Member States to grant aid to eligible sectors.

The ETS State aid guidelines have a different objective than tackling the severe impact of the COVID-19 crisis on the European economy.The Commission has taken important steps to ensure that the EU has adequate tools to address this major challenge, with other instruments, i.a. the Temporary Framework, which has been amended several times to meet the changing needs of the COVID-19 crisis.