Energy & Climate Change

Reducing the carbon footprint – towards carbon neutrality in the extraction of metals and minerals

Raw materials are indispensable enablers for carbon-neutral solutions in all sectors of the economy. Given the scale of fast-growing material demand, primary raw materials will continue to provide a large part of the demand. (A Clean Planet for All, European Commission, November 2018)

The mineral raw materials industry is an integral part of any economy and society. Standing at the beginning of most value chains, the sector is a critical supplier of essential materials and products and therefore generates added value and growth through employment, economic growth, development, innovation and generating trade. To continue economic growth and demographic change as a modern society, extraction of commodities will remain essential

In past years, the mineral raw materials industry has radically progressed in productivity and energy efficiency. Additionally, it continues to implement new solutions aiming at further reducing the energy consumption/unit and improving carbon-intensive operations. As the world shifts to a low-carbon future, mining companies explore methods of decarbonisation to efficiently and effectively fulfil the continued increasing demand for resources. Raw Materials will be critical to building a future sustainable society that will rely heavily on new transport infrastructure as well as new green buildings. Alternative energy production will require considerable amounts of raw materials. For example, the infrastructure of the energy sector requires the massive use of metals and minerals, in particular steel for ships, pipelines, mining equipment, power plants, refineries and exploration activities, copper for the electricity grid, generators and electric motors, and aluminium, primarily for the electricity grid, and a host of other metals and minerals including phosphorous, potassium and nitrogen for biomass production

• Euromines Decarbonisation Brochure

 

European Green Deal

To overcome the climate change and environmental degradation challenges, Europe agreed on a new growth strategy that will transform it into a modern, resource-efficient and competitive economy where:

• there are no more net emissions of greenhouse gases by 2050
• economic growth is decoupled from resource use
• no person and no place is left behind

As the recognized representative of the European metals and minerals mining industry covering more than 42 different metals and minerals and employing 350.000 directly and about four times as many indirectly, Euromines welcomes a European Green Deal to put Europe on the right track to a sustainable future and ensure that no one is left behind and is prepared to take all the necessary measures to make Europe the world's first climate neutral continent.

Please click here to read more about European Green Deal

 

The European Climate Law

The European Climate Law will enshrine the EU’s 2030 (55%) and the 2050 (net zero) climate targets into law. Notably, the “European Climate Change Council” as proposed by the European Parliament would enhance the role of science in EU policy making while improving policy consistency, solidarity, and cost efficiency of EU climate policy. The Parliament will vote on adopting the provisional agreement text as its first reading position during the plenary session of 23-24 June 2021.

The Council would then approve the Parliament's first reading position without debate, after which the Regulation would be published in the EU Official Journal and enter into force.

 

Emissions Trading System (phase IV: 2021-2030)

The EU ETS operates in 31 countries and covers 11.000 installations, which account for about 45% of the European emissions. The ETS is designed to reduce covered emissions in a cost-effective way by providing a price signal for carbon to the market.  The revised EU ETS Directive, which will apply for the period 2021-2030, will enable the reduction of GHG emissions through a mix of measures.

Please click here to read more about Emissions Trading System (phase IV: 2021 – 2030)

 

The “Fit for 55 Package”

EU ETS (2021 – 2030) amendment (Directive)

To ensure the EU is having a neutral impact on climate change by 2050, the Commission proposed raising its 2030 target for greenhouse gas emission reductions to at least 55% of 1990 levels. In this context, as part of the Fit for 55 Package expected to be published on July 14^th, the Commission will review the Emissions Trading System (ETS) and propose extending the ETS to new sectors of the economy.

The objectives of the review include:

(1) strengthening the EU ETS and reviewing the Market Stability Reserve, while ensuring continued protection to sectors at risk of carbon leakage and incentivising the uptake of low-carbon technologies.

(2) expanding the scope of the EU ETS to at least intra-EU emissions from maritime transport and deciding whether to include emissions from sectors such as buildings and road transport.

(3) addressing the distributional effects of this transition, by reviewing the low carbon funding mechanisms and solidarity aspects in the distribution of allowances.

The possible policy options to be considered, in line with the above objectives, include the following:

(1) addressing the linear reduction factor to meet the higher 2030 target of at least 55%, a one-off reduction of the cap that would put it closer to the actual emissions level, as well as the interaction with the MSR.

(2) considering the parameters for the operation of the MSR, including the predefined range triggering adjustments to annual auction volumes, as well as the percentage rate applied to the total number of allowances in circulation.

(3) extending the EU ETS to maritime emissions, potentially emissions from buildings and road transport or all fossil fuels combustion and waste incineration, as well as the interactions with the existing regulatory and non-regulatory framework applicable to these sectors.

(4) improving support for low-carbon and carbon removal investment and innovation such as carbon contracts for difference (through existing initiatives such as the Innovation Fund).

(5) the use of auction revenues to contribute to specific distributional and innovation challenges related to the transition to climate neutrality and its impacts (including the Innovation Fund and the Modernisation Fund).

(6) the consideration of carbon leakage provisions, such as free allocation rules and updating emission benchmarks, and coherence with a potential carbon border adjustment mechanism.

Euromines position and recommendations:

Any amendment brought the Emission Trading System in the light of the proposed increased climate ambition for 2030 should be based on a stable, consistent, coherent, socio-economically feasible policy framework, allowing the implementation of the most efficient measures to reduce greenhouse gas emissions while ensuring that long-time goals and the international competitiveness of the industry are not endangered.

Contribution to the 55% GHG reduction ambition target: All European economic and social sectors should contribute, proportionately to their individual reduction potential. Even though until now the EU ETS sectors have contributed proportionately much more to the overall EU reduction target than non-ETS sectors, for a sustainable transition towards the 55% GHG reduction target, the entire European economy and society will need to contribute to deliver on the increased climate ambition.

Mix of policy options: Although decarbonization plans and investments have already been rolled out, the mining industry needs time to implement decarbonation projects. Long term investments cycles are also very important while the timeframe is very short. Research and innovation projects as well as trial periods are still necessary for the breakthrough technologies. Strengthen the ETS cap through a one-off reduction would not be efficient, however, strengthening the cap through the increase of the linear.

The carbon leakage protection measures currently in force should remain the main instrument protecting the competitiveness of the energy intensive industries and encouraging innovation: The mineral raw materials industry is highly electro-intensive, exposed to a significant risk of direct and indirect carbon leakage. Sufficient free allocation according to needs must continue to be provided to the industry and the indirect costs reimbursement also needs be taken into consideration as electrification will be the key to achieving a low-carbon economy.

Benchmark relevant allocation: benchmark values should be calculated using the current methodology and reflect actual performances registered by the sectors.

Extension of ETS Directive scope: As the extension of the current ETS system would generate additional burdens we believe that two separate systems are preferred.

List of reference documents:

Euromines ETS phase IV Position Paper

ETS - Euromines Position Process Emissions

ETS - Industry Position Process Emissions

Euromines position on Free Allocation Changes

Amendment of the EU Emissions Trading System (ETS) - Euromines Position

EU-ETS State Aid Guidelines published – Risk of decreasing the European mineral raw materials sector’s competitiveness

Euromines Position on Indirect Costs

 

The Carbon Border Adjustment Mechanism

Commission Directive and Communication/Decision

The Carbon Border Adjustment Mechanism (CBAM) is an important element of the comprehensive suite of climate and environmental policies advanced under the Green Deal and the Fit for 55 Package. CBAM is a policy safeguard against emissions leakage, that is, the relocation of emitting activities from the European Union (EU) to third countries due to the impact of EU climate policy ambition on production and investment decisions.

As of now, the exact design parameters of a future EU CBAM are still uncertain, however, several information has already been leaked as follows:

List of sectors: Together with the consultant (RAMBOLL), the European Commission has assessed steel, cement, electricity, fertilizers, and polymers. The final decision on sectors has not been made yet but this is the Commission’s current thinking. The list of sectors will be extended over time most probably after 2030. The sectors will be covered at product level (trade) not at NACE code level.

Emissions: In the first phase the legal act will mostly concentrate on direct emissions; the indirect emissions (reimbursement of indirect costs) have not been discussed yet. 

Export rebates will not be included in the proposal: The Commission services have not yet come to a joint agreement on how to approach export rebates in a WTO compatible manner. Thus, the proposal will not include the possibility of an export rebate.

Overlap between ETS (Free allowances/indirect costs) and CBAM: unclear now. Several options are currently discussed amongst which decreasing the number of free allowances for those sectors covered by CBAM up to 0% by 2030. On this topic the Member States and European Parliament will probably go into more discussions.

WTO and 3rd country discussions: Norway and Iceland will be exempted and treated the same as EU producers as they are part of the EU ETS. As a principle, linked systems with the same carbon price will be exempted.  Only Norway, Liechtenstein and Iceland will be exempted for now.  This is referred to as the “whitelist”. On Switzerland and UK, it’s not clear yet (UK yet to come with their precise ETS scheme details).  For least developed countries but they are concerned that this could also cause resource shuffling

Use of revenues: There are 3 possible sources (ETS revenues, digital tax and CBAM). CBAM is just one of them and the lowest money generator. A digital tax will need unanimity.

Downstream impacts: The Commission is doing one study as part of the impact assessment which will assess the impact of CBAM on downstream sectors.

 

European Parliament Resolution

The European Parliament adopted its Resolution on towards a WTO-compatible EU carbon border adjustment mechanism on 10 March 2021.

The Resolution sets out the Parliament's position on the upcoming proposal for a carbon border adjustment mechanism as follows:

(1) supports a WTO-compliant carbon border adjustment mechanism to incentivise European industries and EU trade partners to decarbonize their industries, while noting that the CBAM should be exclusively designed to further climate objectives and not be misused as a tool to enhance protectionism.

(2) notes that a CBAM should cover all imports of products covered by the EU Emissions Trading System (EU ETS), and following an impact assessment, should (as a starting point) cover the power sector and energy-intensive industrial sectors like cement, steel, aluminium, oil refinery, paper, glass, chemicals and fertilisers by 2023.

(3) stresses that the design of a CBAM should be aligned with the revision of the EU ETS to ensure their complementarity and coherence, and to avoid overlap.

(4) underlines that the CBAM would need to charge the carbon content of imports in a way that mirrors the carbon costs paid by EU producers in order to avoid carbon leakage and remaining compliant with WTO rules.

(5) highlights overall that the CBAM needs to be part of a broader package of measures aimed at achieving the objectives within the European Green Deal.

Two Committees are Associated Committees and drafted the following opinions.

The opinion of the ECON Committee sets out the following key points:

(1) underlines the main aim of the carbon border adjustment mechanism (CBAM) should be to support the EU’s green objectives by fighting carbon leakage.

(2) notes the increased decarbonisation ambitions of the EU, including the Parliament's call of a 2030 climate target of at least 60%, and welcomes the intention of the Commission and Council to implement a WTO-compatible carbon border adjustment mechanism which would ensure that the price of imports reflects their carbon content.

(3) finds that the mechanism should ensure a single carbon price, both for domestic producers and importers, in order to comply with the WTO principle of non-discrimination and that the mechanism should be based on the EU ETS to best mirror the carbon cost paid by EU producers.

(4) calls on the Commission to propose a CBAM with the broadest sectoral scope possible, as it considers that the mechanism should apply to any import (from raw materials to intermediate or end products) with basic materials covered by the EU ETS embedded in it, in order to avoid distortions between products in the internal market.

(5) stresses that a feasible design be introduced that objectively measures the carbon content of each import based on its basic material composition, while allowing the possibility for producers to prove their products have a lower carbon content then the default value.

(6) proposes that the implementation of the CBAM should lead to the progressive phasing out of the free allocation of allowances, since the mechanism ensures that EU producers and importers would have to deal with the same carbon costs in the EU market.

(7) stresses that importers from third countries should not pay twice for the carbon content embodied in its products.

(8) Calls for the inclusion of CBAM revenues into the EU budget.

(9) Believes that the points presented above would ensure that the proposed CBAM is compatible with World Trade Organization rules and calls for the establishment of a monitoring mechanism and review process in which Parliament is involved.

The opinion of the INTA Committee sets out the following key points:

(1) welcomes the increased decarbonisation ambitions of the EU, including the Parliament's call of a 2030 climate target of at least 60% and urges the Commission to ensure full carbon-leakage protection in all its policies, while considering the competitiveness of European industry and small and medium-sized enterprises (SMEs).

(2) supports a market-based EU carbon border adjustment mechanism (CBAM) on condition that it is compatible with EU free trade agreements and WTO rules.

(3) Notes that the CBAM design should be based on the General Agreement on Tariffs and Trade (GATT) and to only designed with an environmental rationale.

(4) calls for thorough impact assessments and for the utmost transparency by mid-2021 and engagement with the EU’s trading partners to build coalitions and avoid any possible retaliations, while stressing that the impact assessment should cover:

(a) the effects of CBAM on sustainable innovation and changes in trade flows;

(b) assessment of the added value of CBAM compared to alternative options;

(c) possible pilot sectors for early implementation of the measure;

(d) the possible impact on EU industry that could result from a mechanism centred solely on basic materials;

(e) analysis on if the power sector should be included in the specific case of imports of high-carbon electricity;

(f) the possible effects on EU companies, especially SMEs, in terms of global competition;

(g) an analysis of a combination of key variables and their relationship to existing carbon leakage measures;

(h) special consideration for least developed and developing countries to make sure that a CBAM does not have a negative effect on development.

(5) notes that the impact assessment must carefully consider how the CBAM would
 interact with existing carbon leakage measures under the EU Emissions Trading System (ETS).

(6) stresses that the mechanism should incentivise industry in the EU and abroad to produce clean and competitive products, and avoid carbon leakage, without endangering trade opportunities.

(7) calls for the CBAM revenues to be used to support global and European climate action and to be reinvested into the EU budget in this regard.

(8) calls on the Commission to actively engage with trade partners’ governments to ensure a continued dialogue on this initiative, while also noting that trade policy should be used to promote a positive environmental agenda and to avoid major differences in the levels of environmental ambition.

Euromines position and recommendations

The future carbon border adjustment mechanism should be designed in such a way as to address the risk of carbon leakage while fully complying with World Trade Organization rules, maintaining the competitiveness of the European industry, and rewarding contributions to a low-carbon Europe.

An integrated impact assessment evaluating all potential policy instruments in force and the effectiveness of a new one such as the CBAM is crucial.

The EU Emissions Trading System should remain the main market instrument for Europe’s industries to cost-effectively reduce their emissions.

The new Carbon Border Adjustment Mechanism must be WTO compliant. The WTO compliance should be ensured for all potential long-term border regulatory framework options complementing free allocation and indirect costs compensation. From the documents made available so far, itis not clear whether this mechanism will be introduced as a tax regime or in the form of customs duties. Therefore, more details on this matter should be made available.

The new Carbon Border Adjustment Mechanism must not put at risk the position of EU exporters.

List of reference documents

Euromines Position on the European Carbon Border Adjustment Mechanism

Border Carbon Adjustments in the EU: A Policy Proposal

Update on developments in the international jurisdictions on the Border Carbon Adjustments

 

The Energy Taxation Directive

Energy Taxation Directive (ETD), implemented in 2003, sets minimum levels of taxation of energy products and electricity. It only covers electricity and products used as motor fuel or heating fuel (i.e. to operate engines or to produce heat). Above the minima, Member States are free to set their national rates as they see fit. The ETD currently uses a volume-based taxation system, i.e. the tax is expressed per litre of fuel used (€/litre).

The ETD also defines what exemptions and reductions to the Member States’ standard rates are allowed and under which conditions. Some exemptions are mandatory (such as the exemption on kerosene for commercial flights), others are optional exemptions.

In September 2019, the European Commission published an evaluation of the current ETD, pointing to the directive’s overall outdatedness, regulatory burden, and incoherence with overall EU goals, in particular the European Green Deal.

The Council expressed in December 2019 their support for an update to the ETD, inviting the Commission “to give particular consideration to the scope of the directive, minimum rates and specific tax reductions and exemptions.” In addition the Council called on the Commission to update provisions “in order to ensure that they are practicable and provide greater certainty and clarity in its implementation” The Council also highlighted the importance of fully assessing its proposals in terms of their “economic, social and environmental costs and benefits and their implications for competitiveness, connectivity, employment and sustainable economic growth, particularly for sectors most exposed to international competition.”

Considering the Council’s request, the European Commission will put forward a proposal for a revision of the ETD in June 2021 to bring it in line with the EU’s Green Deal ambitions, as part of the so-called ‘Fit for 55’ package.

Euromines position and recommendations

Overall, the goal of a revised ETD should be to support the Single Market, EU competitiveness and the energy transition. The tax revenue raising potential of the ETD should not be a goal in itself.

Euromines supports the Commission’s intention to restructure and update energy taxation in Europe. An effective and operational ETD is needed to take account of the new energy mix, strengthen EU business competitiveness, and meet the EU’s climate ambitions.

To avoid legal uncertainty for businesses, it is important that the ETD is clear on new types of fuels (e.g. hydrogen, biofuels, etc), and how these should be taxed as there are currently widely varying interpretations across different countries. As a general principle, taxation should encourage the deployment of the most efficient and less pollutant energy carriers.

Euromines supports the European Commission’s intention to move away from volume-based taxation as the current system can lead to a potentially higher tax burden on greener energy carriers. However, when moving the ETD’s tax base towards energy content or CO2, or a combination of both, it is essential that the Commission takes into account all the (energy) costs EU businesses are faced with, guarantees the overall competitiveness of the EU, as well as the strict avoidance of double taxation.

A fiscal reform towards greater energy taxation can and should result in greater investment in the energy transition as well as a lower tax burden in other areas, such as lower taxes on labour income and capital which are seen as the most harmful taxes to economic growth.

 

Energy Renewables and Energy Efficiency Directives

Renewable Energy Directive (Amendment): The Commission's internal Regulatory Scrutiny Board issued a negative opinion on the Commission's draft proposal to amend the Renewable energy Directive. The document (dated 19 April 2021) highlights the following shortcomings in the Commission's proposal that led to the negative opinion by the RSB:

(1) several proposed measures are not properly justified to demonstrate their rationale, EU added value, and proportionality, and it is not clear which proposed measures are essential to achieving the objectives of the proposal.

(2) the modeling of different levels of ambition do not include necessary analysis of impacts of the specific measures.

(3) the analysis comparing the policy options is not considered to be clear, in particular, the analysis on the options for bioenergy and the impacts on Member States.

(4) who would be impact and to what extent is not clearly outlined, and the impact assessment lacks the views of different stakeholders.

The RSB opinion includes several specific points for improvement, including the following key recommendations.

(1) the scope of the initiative needs to be better defined, particularly in its alignment with the increased greenhouse gas emission reduction targets for 2030. The impact of other Fit for 55 package initiatives on the scope and policy choices of this proposal should also be better outlined.

(2) some proposed measures need more thorough justification as to why EU regulatory intervention is necessary over more market-based measures, including the energy system integration and sustainability criteria components of the proposal.

(3) clarifications are needed to indicate which measures are crucial to achieving the objectives of the policy objectives of the initiative, and particularly those that impact sectors which will also be covered by other initiatives in the Fit for 55 package.

(4) the EU added value and subsidiarity of some measures, particularly  as concerns heating and cooling, need to be better clarified. 

(5) the analysis on impact of bioenergy measures is too narrow, and need to go into more detail on the effects of increased demand for renewable energy sources on the bioenergy sector. A more thorough analysis is also needed to ensure that the proposed measures on sustainability criteria for biomass and the increased use of bioenergy do not conflict with the 'do no harm' principle of the European Green Deal.

(6) the impacts of the proposed measures on the Member States should be more thoroughly analysed, and the comparison of policy options should always be considered against the baseline (no action taken) in the impact assessment.

(7) stakeholder views, including minority and/or dissenting viewpoints should be better included throughout the impact assessment.

(8) improvements are also recommended to the cost/benefit analysis of the preferred policy options and include, and quantify when possible, the expected increase in administrative burden.

(9) the methodology (including methods, key assumptions, baseline scenarios, etc) should be harmonised across the impact assessments of all initiatives included in the Fit for 55 package.

Energy Efficiency Directive (Amendment): The expected review of the Energy Efficiency Directive would be conducted in the context of an increase in the EU's 2030 emissions reduction target.

As part of the European Green Deal, the Commission will come forward with an impact assessed plan to raise the 2030 emissions reduction target to at least 50% and towards 55% compared with 1990 levels in a responsible way.

As the EED was subject to a limited revision in 2018, the present evaluation will also assess the effectiveness of the legal framework in its entirety, while also assessing what is necessary to update for alignment with the European Green Deal objectives as a whole, and the raised 2030 climate targets in particular.

An import aspect will also be to determine if the current legal framework is enough to address existing regulatory and non-regulatory barriers, and market failures, preventing further energy efficiency in the energy system.

In addition, the ambition gap in achieving the 2030 energy efficiency targets, based on an assessment of the Member States' national energy and climate plans (NECPs) will also be taken into account.

Concerning the objectives of the initiative, the Roadmap emphasises the overall objective as ensuring energy efficiency targets sufficiently contributes to the achievement of an increased climate ambition for reducing GHG emissions by 2030. In addition, the revision would include several aspects of the European Green Deal concerning energy efficiency as legal measures.

List of reference documents

Euromines Position with regards to the Energy Efficiency Directive

Providing Metals and Minerals for Carbon Neutrality

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