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  • Publication of findings from Sandbag’s call for evidence – based on interviews and submissions from a cross section of EU stakeholders.
  • Businesses are clear that changes to the ETS benchmarks are needed for Phase IV to facilitate lower-carbon production and eliminate perverse incentives to pollute.


Key points:

  • We found evidence that implementation of EU climate policy has – and continues to – impede the development and commercialisation of processes and technologies that can reduce emissions in carbon-intensive industries, resulting in competitive distortions that favour polluting forms of product manufacture and technological lock-in.

  • EU officials have for many years been aware of viable CO2 reduction solutions for industrial sectors but excluded those processes from applicable ETS product benchmarks – a practice that stands in breach of Article 10a of the ETS Directive while also depriving low-carbon technology providers of a level of free allowances commensurate with that which is awarded to industry incumbents.

  • A prevailing narrative implies there is a lack of viable technological solutions to tackle CO2 emissions from heavy industry. However, this view is being challenged by new business models that deliver competitive low-carbon products.

15th May – As the European Commission makes preparations for Phase IV of the ETS, Stakeholders have provided Sandbag with information showing that implementation of EU climate policy – and in particular EU ETS product benchmarks – are proving detrimental to efforts to reduce industrial emissions.
This paradox is not a new phenomenon but Sandbag has found that it is far more widespread than previously acknowledged. For years, producers of low-carbon substitutes for commonly used materials have been excluded from applicable ETS product benchmarks on the grounds that their products are manufactured in processes that differ from traditional production methods as defined by benchmarks. That line of reasoning falls foul of the ETS Directive which states that: benchmarks and free allocation should take into account “the most efficient techniques, substitutes, alternative production processes[…]
Access denied
When raised in the past, these issues have been brushed aside as niche examples in an otherwise well-functioning ETS. However, far from being limited to isolated cases, the numerous accounts and evidence presented to Sandbag point to systematic exclusion of viable and readily available low-carbon innovations from relevant benchmarks in a manner which threatens the ability of the ETS to deliver on its objective of reducing emissions. In the case of the cement and iron & steel sectors, this has resulted in best available technologies being offered limited or no credit for the emissions savings they generate.
That approach has played into the hands of those who claim that to yet to be discovered breakthrough technologies – requiring billions of Euros in public funding – are the solution to the problem of industrial emissions. The argument has been strengthened by a prevailing discourse that seeks to relegate competing low carbon products to niche markets.
There are also concerns that ETS product benchmark reduction rates in Phase IV neither reflect the decarbonisation potential of technologies they apply to, nor do they align with the rate of emissions reduction implied by the Paris Agreement, which the EU and Member States are signatories to.
Wilf Lytton, Policy Analyst commented:

“Given the ETS’s objective is to reduce CO2 emissions but industrial emissions have remained unchanged over the course of Phase III, taking a similar approach to policy implementation in Phase IV is not a viable solution.
To avoid further inertia, the EU must now tackle industrial emissions with the same fervour it has employed in decarbonising the power sector. That means supporting business models which can deliver cost-effective emissions reductions at the required rate.”

Untapped potential
Many of the respondents to Sandbag’s call for evidence also wanted to see the policy gap in accounting for product lifecycle emissions addressed. Others felt that EU officials should consider how EU funds and green public procurement criteria can be used more effectively to develop the market for low-carbon products.
Improved regulation and technical norms were also proposed as ways to facilitate access to market for low carbon products.
Notes to editors
Sandbag is a London and Brussels-based not-for-profit think tank conducting research and campaigning for cost-effective climate policies. For more information, visit our website at sandbag.org.uk