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Carmakers and airlines warn EU’s climate plan imperils innovation

Europe’s most polluting businesses have accused the EU of jeopardising investment and innovation after Brussels unveiled ambitious plans to halve the bloc’s emissions by 2030 in an effort to curb global warming.

Carmakers, airlines and heavy industry all hit out at the proposals, which include a de facto ban on new diesel and petrol cars from 2035, a tax on aviation and maritime fuel, and the decision to phase out from 2026 free pollution credits allocated under the EU’s Emissions Trading System.

The ETS, which sets a price on polluting, has also been extended to the shipping industry for the first time.

Just hours after the EU published its plan, many companies and trade bodies were preparing to lobby their own governments to reject it, signalling a tough battle ahead for the European Commission as it negotiates with member states to pass the road map into law. 

European carmakers in particular were up in arms over tougher emissions targets for cars and trucks over the next decade, including the requirement for all new cars to have zero emissions from 2035. 

Spain’s motor industry, the EU’s second-largest after Germany, said the sector had been singled out for unfavourable treatment, even though other industries between them produced more than two-thirds of the EU’s greenhouse gases. It urged the Spanish government “to consider its position”.

Germany’s carmaker lobby group, the VDA, said the measures were “anti-innovation”, calling them “almost impossible to achieve” for companies including suppliers. However, Europe’s largest carmaker Volkswagen, which is investing €35bn in electric vehicles, welcomed the package.

In the aviation industry, Lufthansa agreed that ambitious climate protection and a carbon price were “both right and necessary” but said it would be disadvantaged against global competitors.

It said the combination of the phase-out of carbon credits, a binding quota for sustainable aviation fuels and, in particular, a kerosene tax would hobble European airlines.

The German carrier said that a financing mechanism should be developed to help pay for sustainable fuels, which were several times more costly than kerosene. “Only then will [the road map] be competitively neutral.”

The head of Iata, the global aviation trade group, was more scathing. Willie Walsh, the former chief executive of airline group IAG, accused Brussels of an “own goal” over plans to tax fossil fuel-based jet fuel.

“Making jet fuel more expensive through taxation scores an ‘own goal’ on competitiveness that does little to accelerate the commercialisation of sustainable fuel,” he said.

The European aviation trade body, A4E, joined the chorus of disapproval, saying the measures would make flying more expensive for passengers. 

Difficult to decarbonise sectors such as cement, steel, fertilisers and aluminium producers also complained about plans to phase out free carbon credits by 2036.

What is the ETS

The Emissions Trading System requires large industrial polluters to buy carbon credits to cover the cost of their emissions. Industries covered by the system are given free allowances. These credits are traded on financial markets.

These sectors, along with electricity production, account for 45 per cent of emissions under the EU ETS, and will be the first to be included in a new regime that will impose carbon taxes on imports from countries that do not have equivalent carbon pricing.

The so-called carbon border adjustment mechanism would help level the playing field against cheaper imports, companies said, but still presented problems.

Cedric de Meeus, vice-president of public affairs at Holcim, one of Europe’s largest cement producers, argued that phasing out carbon credits for the industry had to be done carefully. “You do not want an economic shock that no industrial sector could bear.” 

European metal producers also joined the call for greater protection. 

The European Steel Association said phasing out free carbon allowances would add to industry costs and reduce the financial resources available to invest in decarbonisation technologies in the medium term.

Tata Steel concurred that the new framework would lead to an increase in operating costs. “But we also recognise the measures to support our decarbonisation transition.”

What is the Carbon Border Adjustment Mechanism

A tariff on imported goods based on their carbon content

Aluminium producers had sought exclusion from the carbon border levy pilot phase but failed to secure it. Eurometaux, which represents metal producers in Europe, said that while this aspect was disappointing, it was “pleased” with the exclusion of indirect emissions from the plan.

Indirect emissions, referred to as scope 2, are those associated with the generation of electricity purchased. Aluminium is one of the most energy-intensive materials to produce.

The capture of the shipping industry in the EU plans triggered some dismay, with the extension of the carbon trading system to all intra-EU journeys and 50 per cent of all trips to or from countries outside the bloc.

Guy Platten, secretary-general of the International Chamber of Shipping, lambasted the proposals as a “pure money grab” to support the bloc’s economic recovery from the pandemic.

The response was more balanced from Maersk, the world’s biggest container shipping company.

Simon Bergulf, director of regulatory affairs at Maersk, said the framework was “the right idea”, even if he was nervous that the policies could alienate non-EU countries. 

In stark contrast to other industrial sectors, energy companies were largely positive about the road map spurring renewable energy.

BP chief executive Bernard Looney said it would stimulate consumer demand for low-carbon energy and create big business opportunities.

Utility companies that have shifted to renewable energy were also upbeat. Markus Krebber, chief executive of Germany’s RWE, said it was a “good day” for the environment and for business. “[It] opens new possibilities for accelerating the expansion of renewable energy and getting a move on with the hydrogen economy.”

Some energy company executives cautioned that while they broadly supported the EU aims there could be elements that they would push back against, if they felt they were badly designed or carried unfair costs.

Ignacio Galán, executive chair of Spain’s Iberdrola, who is regarded as a leader in renewable energy, said member states would have to “look at their processes for planning and permitting to ensure projects can be delivered in the necessary timescales”.

Reporting by Peggy Hollinger, Harry Dempsey, Daniel Dombey in Spain, Joe Miller in Frankfurt, Sylvia Pfeifer, Neil Hume, David Sheppard, Peter Campbell, Richard Milne in Norway, Gill Plimmer and Guy Chazan in Berlin

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