European Petrochemicals Industry - Carbon Credit Auctioning to Decrease the Profitability
European Petrochemicals Industry - Carbon Credit Auctioning to Decrease the Profitability
Summary
The proposed draft amendment of the phase-3 European Union (EU) Emission Trading Scheme (ETS) has called for radical changes in the method of carbon credits distribution in the region. The draft amendment which was submitted by the European Commission in March 2011 has suggested the inclusion of the petrochemicals industry in the ETS preview from 2013 onwards. EU ETS was implemented in the year 2005 with an objective of decreasing carbon dioxide (CO2) emissions by 20% until 2020. Under the scheme, a cap on CO2 emissions was imposed on more than 11,500 industrial units across the EU. In the first phase, companies were provided with carbon allowances (Carbon Credits) freely as a right to emit CO2. At the end of each year, companies must surrender the amount of allowances equivalent to their CO2 emissions limit. Companies emitting lesser CO2 can trade their emission rights with those who have crossed their CO2 emission limit.
The draft amendment also suggested auctioning of allowances through centralized European agency instead of providing it freely by member governments. There are many concerns among petrochemicals producers in Europe who are already struggling from declining profit margins and severe competition. The petrochemicals industry supports the EU initiative to curb carbon emissions but it is not in favor of the auctioning system. Producers have apprehensions that the auctioning of carbon credits will decrease the profitability and will force producers to relocate the manufacturing facilities to other regions with less or no carbon emission restrictions.
Scope
Reasons to buy
Summary
The proposed draft amendment of the phase-3 European Union (EU) Emission Trading Scheme (ETS) has called for radical changes in the method of carbon credits distribution in the region. The draft amendment which was submitted by the European Commission in March 2011 has suggested the inclusion of the petrochemicals industry in the ETS preview from 2013 onwards. EU ETS was implemented in the year 2005 with an objective of decreasing carbon dioxide (CO2) emissions by 20% until 2020. Under the scheme, a cap on CO2 emissions was imposed on more than 11,500 industrial units across the EU. In the first phase, companies were provided with carbon allowances (Carbon Credits) freely as a right to emit CO2. At the end of each year, companies must surrender the amount of allowances equivalent to their CO2 emissions limit. Companies emitting lesser CO2 can trade their emission rights with those who have crossed their CO2 emission limit.
The draft amendment also suggested auctioning of allowances through centralized European agency instead of providing it freely by member governments. There are many concerns among petrochemicals producers in Europe who are already struggling from declining profit margins and severe competition. The petrochemicals industry supports the EU initiative to curb carbon emissions but it is not in favor of the auctioning system. Producers have apprehensions that the auctioning of carbon credits will decrease the profitability and will force producers to relocate the manufacturing facilities to other regions with less or no carbon emission restrictions.
Scope
- Analyses the likely impact of inclusion of petrochemcials sector in the EU-ETS
Reasons to buy
- Understand the Energy Trading Scheme (ETS) in Europe
- Formulate strategies based on the current trends in the industry
Contents
1 TABLE OF CONTENTS1.1 List of Tables
1.2 List of Figures
2 SUMMARY
3 INCLUSION OF PETROCHEMCIALS SECTOR IN THE EU-ETS WILL PUT PRESSURE ON PROFIT MARGINS FOR THE PRODUCERS
3.1 Energy Trading Scheme - A Policy Initiative to Reduce CO2 Emissions
3.1.1 ETS is Implemented in Three Phases to Balance the Disparity in Annual CO2 Emission
3.1.2 Free and Over Allocation of Carbon Credits in the First Phase Led to Inefficiency
3.2 Profitability of Petrochemicals Sector will Hamper as Auction of Carbon Credits will Add Extra Cost
3.3 Reduction in Allocation will Increase the Operational Cost of Petrochemical Producers
3.4 Competition from the Middle East and Declining Demand in the Region will Force Carbon Leakage in the Petrochemicals Industry
3.5 Petrochemicals Industry in Europe is Protesting Against 100% Auction
3.6 Conclusion
4 APPENDIX
4.1 Methodology
4.1.1 Coverage
4.1.2 Secondary Research
4.1.3 Primary Research
4.1.4 Expert Panel Validation
4.2 Contact Us
4.3 Disclaimer 5
LIST OF TABLES
Table 1: European CO2 Emissions Objective, Million Tons, 2008-2020 3
LIST OF FIGURES
Figure 1: European CO2 Emissions Objective, Million Tons, 2008-2020
Figure 2: Ethylene Industry Europe, Loss of Cash Margin with Carbon Prices, %, 2011 3 Skip to top