OREANDA-NEWS. August 30, 2012. The current CO2 Barometer published by KfW/ZEW shows that surveyed companies ascribe far less importance than widely assumed to the financial burden of the European Emissions Trading System (EU ETS) in their decisions on location. Although German enterprises subject to emissions trading are increasingly investing outside of Europe as well, they primarily do so to attain proximity to local sales markets.

"The direct costs of climate policy regulations currently have hardly any impact on production and investment decisions since the CO2 prices are low and a large number of free certificates were allocated. Emissions trading has thus far not driven enterprises out of Europe. However, in future this topic will again become more important in light of expected price increases and planned auctioning of certificates," said Prof Dr Andreas Loschel, Head of "Environmental and Resource Economics, Environmental Management" at ZEW.

Thus far 71% of surveyed companies have made investments or changes in the production process that have led to a reduction of their CO2 emissions. However, these measures were actually aimed at reducing energy and resource costs and tapping into general efficiency potentials, while only 9% of the companies implemented measures with the explicit aim of reducing CO2 emissions. This is due in particular to the current historically low price level of emission rights. According to the experts surveyed, certificate prices are not set to pass the EUR 20 mark again until the end of the third trading period in 2020.

"Based on current perspectives, reduction incentives stemming from emissions trading are totally inadequate in the short to medium term. The EU Commission's proposed postponement of already planned certificate auctions would not change this. What is needed is an appropriate and sustainable additional reduction of the permissible emissions ceiling. Otherwise there is the risk that the emissions trading instrument in the EU will remain essentially ineffective for the foreseeable future," said Dr Norbert Irsch, Chief Economist of KfW Bankengruppe.

In order to reduce the energy intensity of their production processes, 16% of surveyed companies have undertaken their own research and development efforts to develop technologies for reducing their CO2 emissions, and 40% of enterprises have procured new reduction technologies on the market. In this way the KfW/ZEW CO2 Barometer underlines the central role of mechanical engineering and plant construction in developing and spreading "green innovations".

Despite the drop in CO2 price expectations for the third trading period, 66% of companies still plan on implementing reduction measures starting 2013, one sixth (17%) of these with the explicit aim of CO2 reduction. At the same time, about 30% of companies planning capacity expansions in the next five years also want to reduce their CO2 emissions - despite the currently low price level of emission rights. This is due primarily to increasing energy prices. Emissions trading in practice currently plays only a secondary role.