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EU ETS proposals cause paper profitability concerns

Warnings about weakened profitability in the paper industry have come as the European Commission presented its proposed EU CO2 Emission Trading System (EU ETS) revisions.
The Confederation of European Paper Industries (CEPI) said that unnecessary damage to its industry could come from what it called the first direct EU tax as it asked for immediate classification of its industry as energy intensive.

CEPI managing director Teresa Presas said: It is essential that the pulp and paper industry is recognised as an energy intensive industry immediately. The proposal to decide only in 2010 which sectors will still receive partial free allocation of CO2 credits, based on their competitive position in 2020, is much too late.

Concerns were also raised about the validity of large scale emissions credit auctioning, which the CEPI said was unnecessary with no added environmental effect.

It said such auctioning is not needed to ensure a functioning carbon market or price and will not help industry meet targets.

Under this system according to the CEPI, funds raised will be used to finance competitors to EU industries in developing countries, creating an unequal market and harming European competitiveness. It said that its industry emitted 39 million tonnes of CO2 in 2006, about 2% of the emissions in the EU ETS and 1% of EU emissions. At the current carbon prices, almost one billion euros will be taken out of the industry, which is equivalent to its current annual average net income. The CEPI said this will effectively transfer the industrys wealth to EU coffers.

Presas said: The sector cannot pass these extra costs on to final consumers, as it does not set world market prices. Manufacturing costs are already high. The profits and success of European companies is therefore very dependent on their local, European, manufacturing.
Any additional costs from ETS will further weaken the profitability of the EU industry, especially as global competitors do not face these extra costs.

Such pressure became evident recently when M-Real told customers that it would have to raise prices in response to spiralling production costs ( January 24 2008).

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