Shell threatens to pull out of Europe because of EU ETS auctioning

On 9 April 2008, the world's second largest oil company, Royal Dutch Shell announced that it may stop investing in the EU if it is forced to pay for its emissions allowances under Phase II of the EU Emissions Trading Scheme (EU ETS) running from 2008-2012 (see Royal Dutch Shell threatens to quit Europe over carbon-charging proposals, Times, 10 April 2008).

In January 2008, the European Commission proposed changes to the EU ETS. Under Phase I of the EU ETS (2005-2007), energy-intensive industries received free allowances. Under Phase II, the Commission proposes that participants would have to buy allowances to emit carbon dioxide at auction (see Legal update, European Commission publishes draft legislation on EU ETS, renewables, biofuels, CCS and emission reduction targets).

Shell considers that the auction process would destroy its profits and investments in the EU and is a revenue-raising exercise rather than a climate change measure.

Shell has highlighted a growing concern for the EU, that Phase II of the EU ETS may affect European businesses' competitiveness and lead to "carbon leakage", where energy-intensive industries quit the EU rather than comply with the EU ETS. It has already been suggested that the steel and cement industries may have to relocate out of the EU because of the EU ETS (see Legal update, Impact of EU ETS on steel and cement industries). The Commission has also considered taxing imported goods from countries that do not have binding measures to reduce their emissions, to create a level playing field for EU businesses (see Legal update, EU row over carbon tax on imports from polluting countries).