Shell threatens to halt European investment if forced to pay to pollute

Lobbying against the EU's plans to tighten its emissions trading scheme (ETS) stepped up a gear yesterday when a senior executive at oil giant Royal Dutch Shell told the French Chamber of Commerce that it would stop investing in Europe if it is forced to buy emission credits at auction.

In a clear signal to lawmakers in Brussels, Shell France director Christian Balme said that if the EU presses ahead with plans to auction emissions credits to heavy polluters such as energy generators, oil firms and cement and steel manufacturers from 2013 then it would destroy the company's profits in Europe.

Firms currently receive the vast majority of the emissions credits they require each year for the ETS for free, but under the proposals put forward in January, oil refineries and other heavy industries will have to buy 20 per cent of their emissions credits at auction, rising to 100 per cent by 2020.

Balme argued that if this happens it will be "impossible" for Shell to turn a profit in the region. "I am talking about $250m [£126m] of profits at the moment," he said. "If we extrapolate the price of CO2 by the tonne, we arrive at the same level, which is unacceptable."

He added that the changes would mean there would "be no more investments by Shell in Europe".

A spokesman for Shell refused to be drawn on whether the company would make good on its threat and cut investment in the region if it is forced to pay for carbon credits. However, he confirmed that the company was opposed the proposed changes to the ETS.

"We are in favour of cap-and-trade schemes, but they should not be used as a revenue raising opportunity for governments and as such emissions credits should be allocated for free at the start of each phase," he said, adding that ultimat ely a global scheme would be needed to ensure a level playing field for investment between different regions.

While energy generators have been broadly supportive of the proposals for increased auctioning of emissions credits on the grounds it will impact the entire energy market across Europe, oil firms and other heavy industries have been lobbying hard for EU lawmakers to reconsider the proposals, arguing that if they are forced to pay for credits they will be at a disadvantage to foreign rivals and may be forced to relocate their facilities.

MEPs have are continuing to investigate ways to ensure that European competitiveness is not undermined by the plans, and earlier this year French president Nicolas Sarkozy raised the prospect of a carbon tariff being placed on imports that have benefited from being manufactured in a region where firms do not have to pay to pollute.

Advocates of auctioning credits maintain that unless heavier polluters are forced to pay for each tonne of carbon they emit, the financial incentives for investment in cleaner technologies will remain too small to drive the transition towards a low carbon economy.