KfW/ZEW CO2 Barometer - German Companies Not Fit for EU Emissions Trading

The second KfW/ZEW CO2 Barometer indicates that German firms’ occupation with the opportunities and risks of the EU Emissions Trading System (EU ETS) is insufficient. Two thirds of them have not yet analysed the potential costs they will face as of 2013. Emission certificates will then not be distributed cost-free, but will be put up for auction.

"The results of this year’s KfW/ZEW CO2 Barometer show that companies need to start internal preparations for the next phase of EU Emissions Trading and should modify their business strategies accordingly," said Dr. Norbert Irsch, Chief Economist at KfW Bankengruppe. "To achieve this, it is absolutely necessary that the government creates planning reliability and formulates the parameters for the distribution of emission certificates from 2013 as soon as possible." This year’s Barometer focuses not only on the preparation for the next trading period, but also on firms’ "carbon management," i.e., companies’ informational basis and organisation of emissions trading.

Even though emissions trading was introduced as early as 2005, a majority of firms has not sufficiently developed internal structures and processes necessary for an efficient carbon management. Therefore, they often lack crucial information. For instance, two thirds of firms have not systematically examined ways to reduce CO2 emissions in their production processes.

Since the beginning of emissions trading, 63 percent of firms have established CO2 reduction measures. One fifth of these encountered funding problems and was thus not or only minimally able to realise the intended reduction measure. 57 percent of survey participants are currently planning to take a reduction measure within the next two years. Investments in energy efficiency technologies are on the rise. At the same time, CO2 reduction is gaining importance as the main driver of investments or optimisation measures.

Only half of the companies traded with emission allowances in 2009. Main reasons for this are the allocation of sufficient cost-free certificates and companies’ concerns that their trading with emission certificates could be considered a "speculative transaction".Another central result of the CO2 Barometer is that companies with low emissions will have to shoulder a heavier burden due to costs stemming from EU Emissions Trading than companies emitting larger annual amounts of CO2 (more than 25,000 tons per year).

"Low emission companies will face unproportionally high costs for controlling their own emissions, the reporting associated with it and the verification of data. The identification of potential reduction measures and gathering market information also cause costs. Integrating climate protection in business processes is thus not a reality in most low emission companies," said PD Dr. Andreas Löschel, head of the department "Environmental and Resource Economics, Environmental Management" at the Centre for European Economic Research (ZEW), Mannheim. "This finding of the current KfW/ZEW CO2 Barometer shows that the EU Emission Trading’s intended effect of a cost-effective prevention of green house gas emissions is not able to unfold just yet."

The KfW/ZEW CO2 Barometer, developed jointly by KfW Bankengruppe and ZEW, is the only data base on German companies registered in Emissions Trading, their CO2 strategies and expectations for the carbon market. The KfW/ZEW CO2 Barometer surveys all firms obligated to participate in emissions trading in Germany. The 121 firms which answered (response rate of 14 percent) run 426 of the 1,686 German facilities registered in emissions trading (25 percent) and represent 175 million tons of the 428 million tons of CO2 emissions (41 percent). The KfW/ZEW CO2 Barometer is thus based on the most comprehensive data base on emissions trading in Germany. In addition to the companies, answers from 182 international emissions trading experts have been incorporated in the study.

For further information please contact

Prof. Dr. Andreas Löschel, Phone: +49 (0)621/1235-200, E-mail: loeschel@zew.de