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EU mulls state aid to ease costs of cutting CO2


| Sourced From Guardian UK |

BRUSSELS, Nov 26 (Reuters) – The European Union is considering state aid to help companies deal with the risk of electricity prices rising as the EU clamps down on carbon emissions, a document seen by Reuters on Wednesday showed.

The measures are aimed at easing a stand-off with member states including Germany and Poland that fear big employers will simply move operations overseas to less regulated countries, rather than face the cost of cutting carbon at home.

The EU is now reviewing its flagship Emissions Trading Scheme (ETS), which caps how much CO2 industries may emit and makes them pay for permits to pollute.

“Aid could be reasoned to be necessary…where the costs of ETS burden companies to an extent that they would leave the EU,” the document said.

A wide range of industries that are currently excluded will be forced to buy permits for all their emissions at auctions from 2013 when the ETS enters its third phase.

Poland is fighting hard to keep its power sector out of the system as it is over 90 percent dependent on highly-polluting coal and would face heavy costs. Germany and Italy are worried about the burden for manufacturers.

NO DEAL

Negotiations this week between EU nations and the European parliament revolve around trying to find a final stance on protecting industry ahead of a meeting of EU leaders on Dec 11-12, overshadowed by the growing economic crisis.

No agreement on state aid was reached in talks late on Tuesday night, sources in the negotiations said.

But negotiators came as close as possible to agreeing a cap of 50 percent on how many carbon offsets companies can use from developing countries to reach their targets, the sources added.

A preliminary Commission report in September named primary aluminium and hot rolled steel and slabs as some of the industries that could be handed free permits to pollute in an attempt to minimise the risk of a flight of industry overseas.

State aid could only be given to industries that have had carbon costs passed on to them by power producers, following an assessment by the European Commission, the document said.

“The aid granted must be proportional and must maintain an incentive to improve energy efficiency or switch to cleaner electricity,” it added.

EU climate talks are becoming increasingly tense as the December deadline approaches and negotiators work hard to prevent a deadlock over Poland’s demands for exemption for its power sector.

Such a move might create an imbalance with neighbours like Germany, said analyst Cecile Kerebel at French think-tank Ifri.

“How can you have a liberalised European energy market and then have one country, Poland, exempt from the auctioning process?” she said. “This could create a lot of legal issues.”

(Reporting by Pete Harrison, editing by Dale Hudson)

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