Emissions trading directive affects the forest industry’s competitiveness

Efforts to reform the rules of EU emissions trading for 2021-2030 are currently underway. The emissions trading directive will be revised in 2015-2017. However, several rules and factors will be reviewed and updated after the directive is finalised. Emissions trading affects the forest industry’s competitiveness in many ways.

The EU has defined certain sectors as carbon leakage sectors and these get free emissions allowances in accordance with the free allocation rules. A sector is a carbon leakage sector if it meets the directive’s criteria, which are related to the sector’s carbon intensity as well as imports and exports to third countries.

The EU’s emissions trading scheme results in direct costs for the forest industry in the form of emissions allowance price and in indirect costs in the form of increased electricity price. Furthermore, the growing price of emissions allowances encourages the increased use of timber for energy production and thus increases pressure on the forest industry’s raw material costs. This weakens the competitiveness of companies engaged in global competition, as the higher costs cannot be transferred to product prices. Emissions trading also results in extra bureaucracy that companies outside the EU do not have to deal with.

For the export industry involved in global competition, the most critical aspects of the emissions trading reform are the free allocation rules, the carbon leakage list, and compensation for the indirect costs resulting from emissions trading scheme.

The forest industry does not think that emissions trading rules should be further weakened or complicated. The carbon leakage threat that industry faces must be prevented until a global climate agreement that ensures fair competitive conditions worldwide in implemented.

From the perspective of competitiveness and employment, the following viewpoints must be taken into consideration in the emissions trading reforms:

• Emissions trading must not result in extra direct or indirect costs for sectors susceptible to carbon leakage
• Free allocation rules must not be made stricter
• The carbon leakage list and its criteria must be kept in line with the Commission’s proposals (2015) as far as possible and most importantly, a tiered approach proposal or similar system must not be adopted
• Sectors susceptible to carbon leakage must be guaranteed full amount of emissions allowances without reducing factors such as the cross-sectoral correction factor (CSCF)
• Emissions trading compensation must be adopted in EU member states
• The impact of emissions trading scheme on raw material prices, such a timber, must be minimised
• More innovation subsidies are needed but not at the expense of preventing carbon leakage
• The price of  the emissions allowance must not be manipulated through cancellation of emissions allowances or through transfer into the reserve (such as market stability reserve)

Additional information

Tuomas Tikka

Senior Adviser, Energy

+358 45 131 6683