Memorandum submitted by the Confederation
of Paper Industries
EXECUTIVE SUMMARY
1. CPI believes that international emissions
trading is vital to allow the countries of the world to deliver
meaningful greenhouse gas reductions in the most cost-effective
way possible. We support endeavours to bring more countries into
participation in emissions trading schemes with the ultimate aim
of having a single emissions trading currency that is fungible
across the world. Many of the problems with the current EU ETS
are caused by the fact that emissions trading is not by any means
international and companies participating in the EU are at competitive
risk from non-carbon constrained economies.
2. Phase II of EU ETS has been implemented
in a more rigorous manner than in Phase I and the resultant lower
cap should deliver emissions reductions for 2008. However, the
global economic downturn has resulted in lower production in our
sector (and many others) which will in itself result in reduced
CO2 emissions. It will be difficult to quantify the effect of
EU ETS in 2008 as a result.
3. The biggest threat to our industry of
participation in EU ETS is the proposed ending of free allocation
necessitating the requirement to buy all required allowances.
This would put our industry at a significant cost disadvantage
compared with less carbon constrained economies and business in
the EU will simply close and move elsewhere—with no impact
on carbon emissions. The way to address this issue of "carbon
leakage" is to provide restricted free allocation to so-called
carbon leakage sectors as already planned for Phase III of EU
ETS.
4. The use of emissions credits can make
an essential contribution to world emissions reductions by making
these reductions at a lower cost that by domestic action. We think
that the approach outlined in the Climate Change Act of allowing
the Committee on Climate Change to advise on the appropriate balance
of domestic action versus purchase of credits is correct.
THE CONFEDERATION
OF PAPER
INDUSTRIES
5. The Confederation of Paper Industries
Ltd (CPI) works on behalf of the UK's paper industries. It was
launched in January 2000 and brought together four long-established
industry trade associations—the Association of Makers of
Soft Tissue Papers (AMSTP), the British Recovered Paper Association
(BRPA), the Corrugated Packaging Association (CPA) and the Paper
Federation of Great Britain.
6. CPI represents the whole of the paper
chain starting with the recovery of used paper, papermaking, conversion
into finished products and distribution. The paper-making sector,
which includes the manufacture of pulp, paper, board and tissue,
is the most energy-intensive of all the activities in our industry
and "production of pulp and paper" is a listed Annex
1 activity in the EU ETS Directive.
7. CPI, through the Paper Sector Climate
Change Management Company Ltd, advises the papermaking sector
on compliance with the requirements of EU ETS and co-ordinates
verification activity on behalf of the mills. There are 44 paper
mills in EU ETS at present emitting some 3 million tonnes per
annum of CO2 (1% of the traded sector).
8. CPI's website may be found at www.paper.org.uk
RESPONSE TO
SPECIFIC ISSUES
RAISED IN
THE CALL
FOR EVIDENCE
CONTRIBUTION OF
EMISSIONS TRADING
TO DELIVERING
GLOBAL GHG TARGETS
9. CPI believes that international emissions
trading covering all developed and developing nations is vital
to allow the countries of the world to deliver meaningful greenhouse
gas reductions in the most cost-effective way possible. Provided
there is a limited supply of fungible allowances at an appropriate
price then emissions trading can result in real energy or carbon
savings. Trading mechanisms are theoretically efficient and effective
which allows required efficiency improvements or emissions reductions
to be achieved at least cost.
10. We support endeavours to bring more
countries into participation in emissions trading schemes. The
ultimate aim must be to have a single emissions trading currency
that is fungible across the world. This can only work if all schemes
are structured in a broadly similar manner and are monitored and
regulated with a similar degree of robustness. Many of the problems
with the current EU ETS are caused by the fact that emissions
trading is not by any means international and companies participating
in the EU are at competitive risk from non-carbon constrained
economies.
11. Carbon taxes have the advantage of simplicity
and are easy to apply compared with emissions trading schemes
but in our view can be blunt instruments and may not achieve carbon
emissions reductions at least cost. Nevertheless, the attraction
of taxes in terms of simplicity—especially when compared
with the bureaucratic requirements of EU ETS and its overlap with
CCAs—leads us to the conclusion that use of carbon taxes
should not be ruled out as a part of the UK's portfolio of carbon
reduction policies.
THE EU EMISSIONS
TRADING SCHEME
12. It is too early to say with certainty
how successful Phase II has been—2008 is its first year
and we must wait for the results due to be published in May 2009.
The allocations in Phase II were much tighter than in Phase I,
correctly so as Phase I was clearly over-allocated by many Member
States (although not by the UK). This reduction in overall cap
will mean that emissions must come down. Indications are that
there will be a surplus of allowances in 2008 and this may well
be a result of the current global downturn: our sector—and
this will apply to other sectors as well—has seen production
cutbacks which will result in fewer emissions. The allocation
for Phase II was based upon a certain growth rate for each sector
and we will not see that growth rate in 2008 or 2009, although
we hope 2010 will bring some degree of recovery. CO2 emissions
for our sector will certainly have reduced compared with 2007
although the effect of emissions trading policies on this reduction
will be hard to quantify.
13. UK paper mills have responded to EU
ETS—and also to the incentives given by participation in
our sector's Climate Change Agreement with Government—by
increasing their energy efficiency over the past few years. In
addition, we are seeing a strategic investment in biomass fuels
in the industry. Three of our larger mills have replaced, or are
replacing, fossil fuel-consuming boiler plant with biomass fuelled
equipment. This investment will, in small part, be funded by the
sale of surplus ETS allowances but more importantly will set these
mills up as important contributors to the low-carbon economy of
the future.
14. The biggest threat to our industry of
participation in EU ETS is the proposed ending of free allocation
necessitating the requirement to buy all required allowances.
This will put our industry at a significant (perhaps £100
million per annum) cost disadvantage compared with less carbon
constrained economies and business in the EU will simply close
and move elsewhere—with no impact on carbon emissions.
15. The way to address this issue of "carbon
leakage" is that of providing restricted free allocation
to so-called carbon leakage sectors as planned for Phase III of
EU ETS. We believe that the methodology proposed will allow the
pulp and paper industry to qualify as a carbon leakage sector
and we will therefore get a degree of free allocation. It is important
to note that even with a notional "100%" free allocation
one has to remember that the "100%" is based upon an
overall emissions cap (21% lower than 2005 by 2020) and the allocations
within this cap will be based upon benchmarks derived from the
average of the best-performing 10% of installations in a sector.
Therefore, even to emit on the 21% reduction trajectory some 95%
of installations in a sector will get fewer allowances than they
need.
16. The auctioning of allowances should
not be seen as a source of unrestricted tax revenue for Governments.
We believe that a significant proportion of auctioning revenue
should be hypothecated for further emissions reduction initiatives
to make such revenue raising reasonable. In the paper sector,
a barrier to investment in low-carbon combustion technologies
such as biomass CHP is the sheer cost involved. It should be noted
that the saving in fossil fuel emissions and the subsequent income
from selling emissions allowances (at 30 Euros per tonne) would
typically only cover 2-3% of the investment costs per annum—with
current allowance prices of less than 10 Euros the contribution
is much smaller. The high capital cost means that only the larger
paper companies can contemplate taking such actions. Provision
of environmental subsidies in such cases could help the spread
of such investments to smaller companies.
DEVELOPMENT OF
A GLOBAL
CARBON MARKET
17. We do not have sufficient expertise
to comment on the development of emissions trading markets in
other countries. However, on the issue of Kyoto mechanisms such
as CDM, it seems clear that any credits created by such mechanisms
must be verified in a rigorous manner to establish that the emissions
savings associated with such credits have actually occurred.
UK CARBON BUDGETS
18. We understand the tension between the
idea that it does not matter where global carbon savings are made
(and hence unrestricted use of emissions credits should be allowed)
and the necessity for countries to take domestic action to reduce
their own emissions (and hence impose some sort of limit on the
amount of emissions credits that may be used). The use of emissions
credits can make an essential contribution to world emissions
reductions by making these reductions at a lower cost that by
domestic action. We think that the approach outlined in the Climate
Change Act of allowing the Committee on Climate Change to advise
on the appropriate balance of domestic action versus purchase
of credits is correct.
19. It seems that some of the Kyoto mechanism
credits available now may not qualify with the requirement to
prove their additionality as they would have progressed in any
event. There also seems to be an issue concerning HFC credits.
It is important that the UN regulations are seen to be fair and
not able to be subverted, especially if such credits are to be
used to meet the UK Carbon budgets or for compliance with EU ETS
obligations.
20. It is important that the public understands
the issues around carbon offsetting. Although only recognised
credits may be used to meet UK carbon budgets there is a huge
market developing in offering various other forms of offsets to
the public. Definition of these offsets should be standardised
and criteria established to determine their true validity. The
publication last year of the BSI PAS 2050 on carbon footprinting,
the consultation on carbon accounting and the latest DECC consultation
on the definition of "carbon neutrality" are welcome
steps towards this goal.
March 2009
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