1. A Regulatory Framework for Energy Intensive Industries within the EU Berlin 30 November 2012 Chris Lenon – Green Tax Group BE

2. A Regulatory Framework for Energy Intensive Industries within the EU The challenge of carbon pricing The lack of a global agreement and price and the impact on EU competitiveness What is the long term vision for Energy Intensive Industries in the EU? Where will we be in 2050? What is the holistic policy framework to achieve this? What is our current policy framework for electricity, energy tax and carbon pricing? Are they joined up?

3. Policy Challenges Carbon and energy taxation policy needs to be focused on the energy and environmental policy objectives while recognising the competitive position of European business globally – Europe is not an island. It also has to consider the impact of energy pricing. Energy intensive businesses have long investment profiles where decisions are based on the expected cost structure over the useful life of the investment. It is not only the price today which is important in these decisions but a series of forecast future prices.

4. Aluminium – An energy intensive sector Aluminium is an energy intensive process but Aluminium as a product is less energy intensive than other products Aluminium is a key input for European business Recycling

5. Aluminium Global aluminium production continues to rise But growth comes in regions with the highest carbon footprint +183 % -3 % -26 % +10 % +155 % 10 % +72 % -7 %+2 % 5 % Production increase 2004 to 2011* Source: CRU

6. CO2 emissions from the primary production have been reduced by 50% and PFCs emissions by 94% since 1990 From a life-cycle perspective, the use (e.g. transportation, building, packaging) and recycling of aluminium contribute to the reduction of GHG emissions Aluminium can be recycled with no intrinsic loss of properties and has high end-of-life recycling rates Recycling saves up to 95% of the energy required for the primary production Aluminium is an energy containing resource (energy bank) Aluminium Part of the solution to a sustainable future

7. Aluminium Keeping the value chain in Europe is crucial (1/2) Major impacts on the short and long-term: – Innovation needs a close supplier / customer dialogue and the vicinity of research and new alloys development; – Facilities benefit from top level technology both in terms of productivity and environmental performance developed in EU; – EU equipment suppliers are World leaders and need close collaboration and proximity with the entire value chain;

8. Aluminium Keeping the value chain in Europe is crucial (2/2) – SMEs avoid purchase of big quantities per alloy/ shape, reduce stocks and reduce financial issues; – Alumina refineries and aluminium smelters are essentially located in economically depressed areas – Many downstream industries (e.g. extruders) are SMEs

9. Aluminium Decline of primary production in EU 27 The end of historical contracts and sharp increase in power costs have already generated a drop of the EU27 Aluminium Primary Production compensated by imports and recycling Since 2009 consumption rose by 1 to 1,5% a year 1 MT of primary output has closed or is curtailed (1/3 of total output) Another 1 MT is under threat This can only be reversed by EU policy making Already closed No immediate threat Under threat (*) Not members (*) Under threat: Contracts expiry, partial curtailment, announced reductions

10. Aluminium Challenges for the downstream industry EU supply of primary metal is already <15% of the metal used in Europe – and declining EU demand for aluminium semis is growing at an average 1,4% per annum overall (last 10 years) (*) semi-fabricated products producers

11. Energy and Carbon Taxes and charges Policy Framework The impact of carbon and energy taxes has to be seen in the context of all taxes, charges and electricity/energy costs – are the EC and member states doing this? European Fiscal policy which moves emissions out of Europe contributes nothing to global goals and hurts Europe. Given the investment timelines in Energy Intensive sectors, a long term competitive framework is necessary. How is European policy being implemented in member states?

12. Energy and Carbon Taxes and charges Carbon Trade exposed sectors need protection until a global carbon price exists – carbon, energy tax and electricity All sectors – including households and buildings – must bear the cost of the transition to a low carbon economy. Industry alone cannot bear these costs. Member states will not achieve emission reduction targets at 2050 from Industry alone. ETS and non ETS emissions must be treated consistently. Different pricing mechanisms need to be justified in policy terms. A long term framework is needed to provide a roadmap for a competitive Europe and long term investment decisions in the transition to a low carbon economy for all players. Building stock has a 50 year + replacement cycle.

13. Energy and Carbon Taxes and charges Electricity Electricity policy is key for Energy Intensive sectors. Decisions this decade will determine the electricity source mix and pricing for the period to 2050 given power plant lives. Currently, renewables cannot meet base load requirements. What are alternative options.

14. Energy and Carbon Taxes and charges Energy Tax Energy tax is an important issue Exemptions do matter and should be consistent across business. Do high rates with exemptions make sense in terms of state aid issues as the mechanism? Fiscal cliffs don’t encourage efficiency, Germany 2MW difference in treatment of power plants. Interactions between carbon pricing, electricity pricing and energy taxes need to be assessed to produce a coherent policy.

15. A Regulatory Framework for Energy Intensive Industries within the EU Need for consistent policies which maintain the competitive position of European business. Is Energy tax policy integrated with energy policy? Energy tax, carbon pricing and energy policies need to be developed together not in silos. Need to decide which form of Energy Intensive Industry Europe needs in a low carbon economy and what are the power sources to support it in the Global economy.

16. A Regulatory Framework for Energy Intensive Industries within the EU Thankyou Chris Lenon chrislenon@green-tax.co.uk 44 7802283527 www.green-tax.co.uk