EU should insure long term carbon prices to push the climate and energy package through

Some industries are claiming that carbon costs could lead them to move outside the EU, which would harm the internal economy and prevent emission reductions. Eurogypsum – the trade body of gypsum manufacturers – is claiming this, but it’s not clear whether the issue is the absolute cost of carbon or the uncertainty over price.

In an interview with Euractive the president of Eurogypsum said:

I cannot challenge the fact that we have to decrease the energy content in our product. But I can also say that in the thirty years that I have been in the industry, we divided the cost of energy in our products by two. And there is still room for progress. So, it is our job in managing the business. Having an incentive to push us to accelerate is okay.

What I am afraid of is the free market for the CO2 tickets because it is out of control. We do not know. When we make a simulation at a certain level, we have no vision of the carbon price. So that is one of the main issues is that the system that they are going to adopt is a system that will give us no vision of what could happen. Maybe it will cost nothing. Maybe it will cost a big amount. So we may take decisions on something that will never happen? They should be conscious about that…

When you have to choose in between certainty or uncertainty, you avoid the uncertainty.

EUAs trade out to 2012 on derivative markets, but not ten years out like Eurogypsum is thinking, and there are no readily available financial products that can transfer that sort of risk.

Over the next few months, as traders speculate on the extent of the recession and talks in Poznan and Brussels hopefully provide some clarity on Phase III, the EUA price is going to be volatile and those pushing back against the climate and energy package are likely to use this as a lever.

France (as EU Council president) is putting together a big package of concessions for industries in central and eastern Europe in an attempt to push the package through. One that I would throw into the mix is a publicly backed long-term carbon hedge. This would hopefully knock on the head the argument “we’re all environmentalists and we don’t mind paying for carbon, it’s the uncertainty that messes with our business models”.

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