EU to compensate exporting industries for carbon levy

By Kate Abnett

BRUSSELS (Reuters) -European industries that sell their goods abroad will receive compensation for the CO2 emissions costs they pay in Europe, the European Commission said on Wednesday, in a bid to avoid firms relocating to dodge Europe's ambitious climate policies.

The Commission confirmed the plans alongside proposing a new EU 2040 climate target, which will require far bigger investments from heavy industries to clean up their production in the next decade.

By the end of the year, the Commission will propose a scheme that uses revenues raised by the European Union's carbon border tariff to support companies exporting goods to foreign markets where, unlike in Europe, their competitors don't pay CO2 costs.

"We're doing this specifically for those companies at the risk of losing out because they are exporting," EU climate commissioner Wopke Hoekstra told reporters.

Hoekstra said the system was expected to offer 70 million euros ($82 million) in compensation next year. The EU expects its carbon border tariff to generate 2.1 billion euros in revenue by 2030.

Aluminium and steel producers have called for such compensation, because they will gradually lose the free carbon permits they currently receive from the EU, as the bloc phases in its carbon border levy next year.

The loss of free CO2 permits will force European firms to buy more permits from the EU carbon market - an extra cost that industries have warned will hurt their ability to compete in foreign markets where other firms don't pay for their emissions.

The compensation companies receive will be linked to the loss of their free CO2 permits, the Commission said.

The Commission is still working on the design of the scheme, which it will propose later this year alongside measures to attempt to prevent foreign companies from circumventing the EU carbon border levy.

"We want to make absolutely sure that this system is not going to be manipulated or exploited by actors from outside of the European Union," Hoekstra said.

($1 = 0.8503 euros)

(Reporting by Kate AbnettEditing by Mark Potter)