Dairygold Food Ingredients, Castlefarm Mitchelstown, Co. Cork Fax

Transcription

1 Dairygold Food Ingredients, Castlefarm Mitchelstown, Co. Cork Fax NAP2 Second Public Consultation Emissions Trading, Environmental Protection Agency Regional Inspectorate McCumiskey House, Richview, Clonskeagh Road, Dublin th October Dear Madam, Dairygold Food Ingredients wishes to make the following submission on the recently published second public consultation document, under the following headings. Increase Rationalisation Ceiling to 30,000Allowances. New Entrant set aside based on verified increased milk processing quotas. Increased flexibility under CHP set aside. I attach the Irish Dairy Industries Association (IDIA), submission document which further details the above points raised. Yours Sincerely Karen Kennedy Group Environmental Manager

2 Introduction The Irish Dairy Industries Association (IDIA) represents Ireland s primary and secondary dairy processors. An affiliate of IBEC, the IDIA represents its members in the negotiation of policy at National and European level, ensuring that industry competitiveness is enhanced and not constrained by policy development. The food and drink sector is Ireland s largest indigenous sector accounting for 10% of Gross Domestic Product. The primary dairy industry processes 5.3 million tonnes of milk annually from a supply base of 23,000 farmers. It is an export oriented industry, exporting almost 90% of its output to over 160 countries world wide. Secondary milk processing comprises the infant nutrition sector which, from its four processing sites, manufacturers 15% of the worlds powdered infant formula. The manufacture of Irish cream liqueur and confectionary products are the other significant constituents of the secondary dairy processing sector. As an export oriented industry marketing itself on grass based natural production systems, stringent environmental standards are essential. All dairy manufacturing sites operate under a European hygiene certificate and site environmental compliance falls under IPPC licensing by EPA or operate under local authority control. Dairy processing is an energy intensive operation involving large scale dryers and heat processors. Processing sites are dispersed throughout the country however fuel usage is largely determined by local factors such as the availability of natural gas.

3 There are thirty three milk processing sites in Ireland, of which 18 are participating in NAP 1. The three year period of the first NAP highlighted a number of deficiencies and areas that require amendment in subsequent plans. As an export oriented industry, it is essential that the industry, in complying with the principles of this European scheme, are not disadvantaged relative to its European competitors through a differing and more restrictive interpretation of European requirements. IDIA are therefore grateful for the opportunity to make a submission on NAP 2 and trust that the concerns outlined can be addressed in a pragmatic manner. A changing dairy industry The Irish dairy industry processes a relatively consistent 5.3 million tonnes of milk annually. This is due to the application of milk quotas to European dairying in 1984, which capped production as part of the Common Agriculture Policy (CAP). The European Commission has announced that it does not see a future for milk quotas beyond 2015 and while discussions are not yet finalised, the majority of member states favour their abolition from that date. Negotiations are now underway across the community on the means to abolish quotas and there is general agreement that they must be phased out rather than by sudden withdrawal in The majority view is that the optimum way to phase out quotas is by an annual increase in national milk quotas by approximately 2 3% per annum, beginning in However recent developments could result in this increase being applied as early as Ireland has a natural production advantage in dairy production and consistently produces to its national milk quota with many years where production exceeded national quota. For this reason it is anticipated that any increase in national milk

4 quotas will result in production increasing in line with annual quota increases. A 3% increase in quota could result in an additional 160,000 tonnes of milk being produced in the first year with a compound increase in subsequent years. Significant production growth can be expected within the dairy industry over this period. As European dairy production increases, market forces will naturally bring prices back in response to increased supply. For many smaller dairy processors, lower prices coupled with the need for investment in increased processing capacity and market development will result in increased collaboration with larger processors. For many this will lead to rationalisation and closure. This will include the movement of production from non-ets to ETS sites with direct implications for all ETS participants. National Allocation Plan Rationalisation IDIA welcomes the accommodation of rationalisation and closures within the proposed plan as it will bring the treatment of rationalisation closer to that of other European member states. As outlined, EU policy changes and market dynamics will bring about an environment within which rationalisation of dairy processing will occur. Eligibility Ceiling While the rules and eligibility for rationalisation are broadly in line with the needs of the industry, the application of a 25,000 allowances limit could be a limiting factor in assessing site eligibility for rationalisation. A limit of 30,000 allowances

5 would be a more realistic limit to reflect commercial activity at sites up to the period The dismissal of an application for rationalisation resulting from an output slightly above the 25,000 allowances threshold would not be in the spirit of accommodation of rationalisation within the plan. Application of NACE Codes The application of NACE codes in classifying rationalisation is appropriate to the general sector grouping within the plan and will bring transparency to the process. However this may be a limiting factor for the export oriented dairy industry. The rapidly changing global dairy market requires the dairy industry to change its product mix on a regular basis. Accepting the wider product categorisation of the revised NACE code system, a change in product mix could result in a difficulty in applying the same NACE codes to product output thereby preventing the application of the rationalisation rule. For the dairy sector only, the opportunity exists to recognise dairy processing rationalisation through the EU dairy permit system. This simply recognises dairies as processors of milk and milk products rather than sites as butter or cheese manufacturers. As this categorisation reflects the official licensed activities of the site, transparency and verification of the transfer of milk production to a site can easily be achieved. Therefore IDIA would seek that the following wording be added to part 5, f or for dairy processing sites verification through the EU licensing system of a transfer of milk processing activities. Importance of a flexible approach

6 It is important that the rules as applied to judging the eligibility for rationalisation are interpreted in a manner that reflects NAP 1 verification and other legislative conditions under which the dairy industry operates. Where rationalisation rules require both closing and receiving installations to have the same EU ETS permit holder, there are examples of commercial groups within the industry whose operations are not similarly named. However the licensing and verification process of NAP 1 has clearly acknowledged and identified all such sites as belonging to a single commercial grouping. IDIA asks for a practical interpretation of the rationalisation rule in such circumstances. In relation to the time period for the transfer of production, IDIA agrees that this can be achieved within the stipulated 6 month period of time. However, there are occasions whereby production transfer from closed operations are delayed due to delays in legislative or customer approval of the new site. In such circumstances, it is not uncommon for production to be temporarily transferred or outsourced during the transition. For this reason it may be necessary to retain some flexibility in considering applications for rationalisation. New Entrant Set-Aside IDIA recognises that the availability of sufficient allocations within the NESA is difficult to balance against a background of granting adequate allocations to ETS participants. It also recognises the need to differentiate between annual variations in output and a genuine increase in output. As outlined earlier in this document, policy change within the dairy sector will bring about structural change to the dairy industry within the life of NAP 2. Processing rationalisation will occur resulting in production being transferred from both ETS and non ETS sites to ETS sites.

7 Ireland has a seasonal dairy production profile with peak to trough processing ratios of 1:14 not uncommon. Many processors will seek to accommodate the processing of smaller rationalised sites within their existing processing capacity though changes to existing work practices, amending seasonality and improved asset utilisation. The overall environmental impact of such an approach is preferable to the initiation of additional processing facilities with lower asset utilisation. The proposed NESA does not take this growth into account as planning permission for additional facilities or additional thermal capacity are the only mechanisms by which allocations can be granted under NESA. In the interests of enabling commercial growth in an environmentally preferable manner, the proposed mechanisms of the NESA should be amended to recognise such growth in companies. In differentiating between annual production surges and genuine increased output through the increased utilisation of existing assets, IDIA recognise that a mechanism to verify increased output will be required. For the dairy industry this can be easily facilitated through the milk quota system which will continue for the duration of NAP 2. This is fully verifiable through the Department of Agriculture, Fisheries and Food, who continue to manage and monitor national quota policy. IDIA propose that growth within the dairy sector is recognised through verifiable additional allocations of milk quota handled and processed by a site. This is a simple and transparent mechanism that will facilitate increased asset utilisation in an environmentally sustainable manner but most importantly enable such companies compete for the scarce allocations within the NESA. It is relevant to note that such growth is facilitated within other European NAP s. Ireland must do likewise on the basis of equitability.

8 CHP Set-Aside CHP utilisation has fallen short of its projected usage due to the unprecedented increase in gas prices in recent years. Current predictions suggest future price adjustment to a rate that should bring CHP operation back to previously forecasted levels. For many dairy companies, CHP utilisation will increase to maximise process efficiencies which could result in a need for allocation from the CHP set aside. The rules as they apply to the CHP set aside must reflect the growth potential of the dairy sector as outlined above. Additional quota and production arising from the transfer from rationalised, non ETS companies merits an allocation from the CHP set-aside. Similar rules as applied to the new entrant set aside are required. Finally, given that electricity prices for the forthcoming period contain a carbon element within the pricing structure, electricity generated from CHP should attract a carbon rebate for the equivalent amount of electricity not drawn from the grid. This would act as a genuine incentive to maintain increased CHP output in the event of subsequent increases in gas prices. Use of Kyoto Protocol Flexible Mechanisms IDIA notes with interest the reduced allocation of CER s and ERU s granted to the general sector under which the dairy industry operates. The allocation of 1% compares very poorly to the 12% allocated to the powergen sector. This decision must be questioned in the light of a globalized dairy industry.