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EU Carbon Draft May 'Kill' Steel Industry, Lobby Says (Update1)
2010-09-23 15:22:59.722 GMT
(Adds Eurofer comments from the ninth paragraph.)
By Ewa Krukowska
Sept. 23 (Bloomberg) -- The European steel industry may
get only 60 percent of the carbon allowances it needs for free
under a regulatory draft that may "kill" producers, the lobby
group Eurofer said.
The European Commission, the EU regulator, is devising
benchmarks to reward the most-efficient manufacturers as it
prepares to allocate almost 100 billion euros ($133 billion) of
emission permits after 2012. The regulation drafted by the
climate division for distributing a dwindling supply of free
permits in the world's biggest cap-and-trade program is "far
too ambitious," said Eurofer spokesman Axel Eggert.
The EU agreed last year to give a larger share of a free
permits to 164 manufacturing industries, including most steel-
related assembly. The "carbon leakage" protections included in
phase three of the cap-and-trade program, which runs from 2013
to 2020, are designed to prevent EU manufacturers from fleeing
to less-regulated regions.
"The benchmarks proposed by the commission's climate
department are not in line with the EU emissions legislation and
promises made by politicians to protect the industry from carbon
leakage," Eggert said today in an interview in Brussels. "The
main steel benchmark that is proposed is 25 to 30 percent below
even the best performer, so even the best would have to bear
significant additional costs."
Fighting Climate Change
The EU plans to auction about 60 percent of all emission
allowances in 2013, according to the commission estimates, and
that proportion will increase in coming years as part of the
strategy to fight climate change.
The bloc started its European trading system in 2005,
capping emissions for more than 12,000 factories and power
stations and allowing them to buy and sell credits. The EU said
it will reduce the supply of CO2 permits by 21 percent in 2020
compared with 2005.
The commission said earlier this month it has identified
about 50 carbon efficiency benchmarks to determine allocation of
about 6 billion free allowances in the next phase.
The amount of free permits for the steel industry under the
draft is too low to allow EU companies to stay competitive and
invest in cleaner technologies, Eggert said. While the EU is
still working on its benchmarking proposal before presenting it
to the 27 member states, Eggert said information available to
Eurofer suggests steel firms will get less than two-thirds of
what they need.
'Fair Benchmark'
"The whole steel sector has already reduced emissions by
20 percent since 1990s, and with a fair benchmark it would be
short about 15 percent in the next phase of the emissions
trading system," Eggert said. "Some other sectors will be
more, some less, but the commission is trying to push down all
the benchmarks much below the needs of the best performers."
Benchmarks will be set for products rather than for inputs,
the commission has said. The EU agreed last year that benchmarks
will consider the most efficient techniques, substitutes,
alternative production processes, use of biomass and capture and
storage of CO2.
"We have five benchmarks for our products," Eggert said.
"Companies that won't reach the benchmark will have to either
stop production, invest in other technology or buy certificates
on the market."
The preliminary cap for EU emissions was set at 1.927
billion metric tons for 2013. It will be adjusted later this
month, including limits for airlines that are due to join the
program in 2012 and chemicals and aluminum companies to be
included from 2013.
Oversupplied
The European trading system will be oversupplied by 664
million tons of carbon equivalent in the current trading period
ending in 2012 as the recession cuts economic output under the
scenario deemed most likely by Bloomberg New Energy Finance.
The steel industry may have been allocated as many as 385
million tons more than its forecast emissions in the five years
through 2012, according to New Energy Finance.
While environmental groups including E3G say the
overallocation of allowances amounts to "subsidizing" steel
makers, Eggert said producers need the unused permits to invest
in technologies that will protect the climate.
"We cannot reduce emissions more by simply adjusting, doing
more recycling or using better raw materials," he said. "And
as long as there's no equal treatment of industries that trade
globally, as long as our competitors in third countries don't
have to make the effort and the EU is not giving us the means to
invest, there will be no breakthrough technologies."
Eliminating Jobs
The EU's draft benchmark regulation could lead to freezing
steel production at economic-crisis levels, preventing its
recovery and eliminating jobs, Eggert said.
EU industries that are prone to carbon leakage will receive
100 percent of benchmarked allowances for free in phase three,
according to its legislation.
Manufacturers that aren't on the list will receive 80
percent of their allowances for free in 2013 and face an annual
decline in that share to 30 percent by 2020. Most utilities will
face 100 percent auctioning as of 2013.
"The risk of carbon leakage is real," Eggert said. "It
is not a development that happens from today to tomorrow. It
takes years or decades. But once you start, it won't be easy to
reverse it. It's similar to climate change: Once you reach the
turning point, it's too late."
For Related News and Information:
Emission market news NI ECREDITS <GO>
Today's top energy stories ETOP <GO>
European power-markets home page EPWR <GO>
Sustainability, environmental indexes SEI <GO>
--With assistance from Aoife White in Brussels. Editors: Mike
Anderson, Randall Hackley.
To contact the reporter on this story:
Ewa Krukowska in Brussels at +32-2-237-4331 or
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
