(CN) - EU member states can subsidize industries for electricity costs that are on the rise because of stringent new greenhouse gas emissions legislation, the European Commission said Tuesday.
Changes to the EU's Emissions Trading Scheme (ETS) will mean higher electricity bills for companies when the stricter cap on greenhouse gases goes into effect in 2013.
To stay profitable, many electro-intensive industries - like steel and aluminum - will have to relocate their operations to other countries with looser regulations, but the commission wants to avoid that outcome.
"If production shifts from the EU to third countries with less environmental regulation, this could undermine our objective of a global reduction of greenhouse gas emissions," Joaquin Almunia, the commission's vice president in charge of competition policy, said in a statement.
"There may be such a risk in some sectors, given the expected impact of the ETS on electricity costs as from 2013," Almunia added. "The rules adopted today allow Member States to address this issue while maintaining incentives to decarbonize production and consumption and minimizing any distortions of competition."
Commission surveys purportedly indicate that changes to the policy put certain industries at risk for carbon leakage, which involves the increase in global greenhouse gas emissions when EU companies move production outside the euro zone because they cannot pass their increased costs on to consumers.
"The new rules ... aim to mitigate the impact of indirect CO2 costs for the most vulnerable industries, thereby preventing carbon leakage which would undermine the effectiveness of the EU ETS," according to the commission. "At the same time, the rules have been designed to preserve the price signals created by the EU ETS in order to promote a cost-effective decarbonization of the economy. They are also designed to minimize competition distortions in the internal market by avoiding subsidy races within the EU at a time of economic uncertainty and budgetary discipline."
Under the new rules, individual EU state governments can subsidize industries up to 85 percent of the increases from 2013 to 2015, gradually falling to 75 percent by 2020. Eligible industries include producers of aluminum, copper, fertilizers, steel, paper, cotton, chemicals and some plastics.
The EU's sweeping climate change legislation seeks to reduce carbon dioxide emissions 20 percent from 1990 levels by 2020, and increase renewable energy consumption by the same share. The commission statement said that it is committed to increasing both numbers to a legally binding 30 percent, with eventual CO2 reductions of 85 to 90 percent by 2050.
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