Position on the European Commission’s proposal to amend the Indirect Compensation Guidelines

BACI expressed the following position to the Ministry of Finance, the Ministry of Environment and Water, the Ministry of Economy and industry and the Ministry of Energy on the Proposal of the European Commission to amend the Guidelines for Indirect Compensation. On 2 March, the European Commission is set to publish another Communication on the rising energy prices. The Communication will cover well-known ground such as the need to increase renewables, biogas and hydrogen, speed up the permitting processes for these, exploring more gas storage opportunities, ensure affordability for citizens etc. The Communication will also refer to state aid, however, and will suggest a possible amendment of the Indirect Compensation State Aid Guidelines under EU ETS

The European Commission is suggesting indeed an extension of the sectors eligible for indirect compensation. The extension is based on a lowering of the indirect emission intensity threshold from 1 kg CO2/EUR to 0.5 kg CO2/EUR and, as this is one of the parameters for the determination of the Indirect Carbon Leakage Indicator (ICLI) (in addition to trade intensity), the ICLI is also changed from 0.2 to 0.1. However, the Commission does NOT change the trade intensity criterion which remains at 20%. As a consequence, all sectors in the extended list have an indirect emission intensity which complies with the new indirect emission intensity threshold but is significantly lower than the one of the cement sector (which is at 1.330 kg CO2/EUR). However, they have a trade intensity far above 20% (cement is at 10%). Even if the sector exceeds the revised ICLI of 0.1 (we are at an ICLI of 0.135), the additional application of trade intensity disqualifies the cement sector. It is described in Annex 3 of the Commission’s Impact Assessment on the Indirect Compensation Guidelines with a calculation of ICLI for all sectors that were assessed.

As we understand the Commission is currently consulting Member States, we would like to present the position of the cement industry on the topic:

  • rising energy prices are impacting all energy intensive industries; in the cement sector, production had to be reduced as a consequence;
  • the Commission states in its Explanatory note that a change in the trade intensity criterion is not warranted at this stage as the exposure to international trade is determined more over the long term; this is not a valid argument for the cement sector where a continuous surge in imports over the past seven years has put a strain on the competitiveness of the European cement industry;
  • the cement sector has a high indirect emission intensity of 1.330 kg CO2/EUR which far exceeds that of the sectors that are now suggested to be added to the list;
  • the fact that the cement sector is not eligible for indirect compensation under the extended list notwithstanding an ICLI above the 0.1 revised threshold demonstrates that a disproportionate weight is being given to the trade intensity compared to indirect emission intensity;
  • this disproportionate focus on trade intensity has already been corrected for the determination of direct emissions carbon leakage in EU ETS (where the threshold is a mix of direct emission intensity and trade intensity), and more recently, in the Climate, Energy and Environment State Aid Guidelines (CEEAG) where a combined threshold was set for trade intensity and electro-intensity and an additional separate equal threshold of 5% for both indicators (for a significant risk of relocation) and sufficiently close thresholds of 4% trade intensity and 5% electro-intensity to qualify under a “risk of relocation”;
  • in this context, it is contradictory that the cement sector qualifies under the category “significant risk of relocation” for the CEEAG and would not be eligible for indirect compensation;

For all these reasons, we would like Bulgaria to support extension of the sectors eligible for indirect compensation and suggest to EC to base the revision of the Guidelines on a lower Indirect Carbon Leakage Indicator (ICLI) to 0.1 without a separate additional application of a trade intensity threshold. If the revision of the trade intensity criterion is needed, than we’d propose the use of 5% trade intensity in full alignment with the CEEAG.

We would like to emphasize that although the criteria apply to the European cement sector as a whole, the trade intensity for the Bulgarian Cement sector exceeds significantly 20% in 2021 (which is the highest among all EU countries for the cement sector), reflecting the fact of constantly increasing imports.