EU carbon trading to have "marginal impact" on competitiveness

A study conducted by the Carbon Trust concluded that the emissions trading scheme (ETS) will not lead to deterioration in competitiveness amongst European firms, even if more demanding emissions caps are imposed from 2012.

Cement, steel, aluminium, pulp and paper, basic inorganic chemical producers and fertiliser and ammonia manufacturers were the only sectors where the study found a cause for concern over international competitiveness.

It advised that the European Commission moderates the pace at which free allocation of carbon credits are withdrawn in order to minimise the impact on competitiveness. This will also buy time for international agreements to be reached that will ensure operators outside the EU have to comply with similarly tough carbon reduction targets.

Michael Grubb, chief economist at the Carbon Trust and chairman of climate strategies, said that the research represented the "nail in the coffin" of the argument that the ETS will seriously damage European competitiveness – resulting in a raft of industries moving to regions with less demanding environmental legislation.

"Businesses constantly face external impacts on pricing and competitiveness, be it from exchange rate fluctuations or differences in the cost of labour or raw materials," he argued. "For more than 90 per cent of manufacturing industry, carbon costs will remain trivial compared to these other influences on international competitiveness. And for all, the strategic challenge is not to resist trade effects of carbon pricing but to improve efficiency and decarbonise manufacturing processes to ensure long-term competitive advantage."