Plans to tighten up the rationing of greenhouse gas emissions will contribute to the loss of some heavy industries from the European Union, according to official documents. Europe’s aluminium producers are among those unlikely to be able to absorb increased costs resulting from proposals contained in a draft European Commission directive to widen the scope of the bloc’s emissions trading scheme (ETS) and reduce the permits it allocates, officials acknowledge.

Steel, cement and chemical makers would need to raise prices by between 5 per cent and 48 per cent to cover costs, according to internal papers obtained by the Financial Times and Financial Times Deutschland. Changes to the ETS follow a proposal to reduce sulphur, nitrogen and dust emissions from heavy industry, which business leaders this week warned could lead to plant closures.

Commissioners are divided over whether to offer some sectors special protection. One option would be to hand out free emissions permits. Another would be to include imports from countries without binding reduction targets in the ETS. They will review the situation in 2011. The changes come into effect in 2013 and are aimed at closing loopholes that allowed power generators to make billions of euros in windfall profits from the over-allocation of free emissions permits under the ETS’s first phase, from 2005-2007.

The commission has cut national allocations of permits by 6.5 per cent for 2008-2012 compared with 2005, as it attempts to meet an EU target to slash
emissions by a fifth between 1990 and 2020. The 10,800 installations covered by the scheme account for 41 per cent of the bloc’s carbon emissions.
The directive would include carbon dioxide emissions from petrochemicals, ammonia and aluminium; emissions of nitrous oxide from the production of nitric, adipic and glyoxalic acids; and perfluorocarbon, a potent greenhouse gas produced by some aluminium manufacturers. But the internal documents estimate job losses in the affected industries would be offset by gains in those boosted by a shift to a low-carbon economy. Gross domestic product would fall 0.1 per cent.

The commission wants to set an EU-wide emissions cap from 2013 - currently member states set their own, which are approved by Brussels - and eliminate free emissions allocations for the energy sector and refineries. "Overall, it is estimated that at least two-thirds of the total quantity of allowances will be auctioned in 2013," the document says. Today’s level is less than 10 per cent.

Fast-growing former East European countries with below-average incomes wouldreceive disproportionate amounts of permits to allow them to catch up economically. The auction proceeds would go towards reforestation projects, investment in renewable technology, helping poor countries adapt to climate
change and compensating poorer householders for rising electricity costs. The commission has turned a deaf ear to much national lobbying. A UK request to include transport in the ETS has been rebuffed. But there could yet be changes before publication of the draft directive. EU states and the European parliament will then have to agree the directive before it becomes law.