New Carbon Leakage Regulation places higher demands on companies

27. April 2021

Our legal register team has important information for all manufacturing companies that are subject to emissions trading:

In order to eliminate competitive disadvantages in the context of national fuel emissions trading, the federal cabinet passed the BEHG Carbon Leakage Ordinance (BECV) on March 31, 2021. Approval from the Bundestag and the EU Commission is still pending.

Carbon leakage generally refers to the shifting of CO2 emissions to third countries. The reason for this can be the competitive situation to which a company is subject. If the price of CO2 rises and the company cannot pass on the resulting higher product prices to customers due to competition, there is a risk that the company will relocate production abroad, where emissions trading does not apply. This undermines the actual goal of reducing greenhouse gases in Germany and the EU.

The BECV is based on the EU ETS (European emissions trading), but sets higher requirements for companies that want to receive a compensation payment for the higher costs from emissions trading. The relief is more restrictive and combines two demands. Only companies and independent parts of companies that can be assigned to a sector or sub-sector at risk of carbon leakage have the opportunity to receive aid. The applicant companies must (from 2023) prove that they meet a minimum emission intensity in order to receive a degree of compensation of – depending on the sector – 65 to 95%. A deductible of 150 tons of CO2 is planned, which cannot be relieved. The EU fuel benchmark adds other factors that lead to a reduction in the level of relief. For example, the use of natural gas leads to greater relief than the use of coal.

Only fuel consumption that occurs during the manufacture of products that can be assigned to a sector at risk of carbon leakage is eligible for aid. If fuel consumption also occurs in other sectors or areas of the company, this will not be taken into account in the context of the relief.

Companies eligible for aid must also provide consideration. The introduction or operation of an energy management system according to ISO 50001 or an environmental management system according to EMAS is mandatory for companies that have more than 10 GWh of annual energy consumption. For organizations with lower consumption, the requirements are not as high. In addition, a certain proportion of the relief amount must be reinvested in climate protection and efficiency measures.

Our legal register team expects the BECV to come into force in the middle of the year. If your company is affected by the regulation, we will be happy to advise you – among other things on the introduction and improvement of your energy and environmental management system according to EMAS or ISO 50001.

Image source: Photo by veeterzy on Unsplash