EU emission curbs stoke up steel firms

EU emission curbs stoke up steel firms. Industry says carbon-dioxide trading market, caps on factories and power plants threaten high-paying jobs. By Alex MacDonald The European Union is facing mounting pressure from European-based steel companies to reshape the world's largest carbon-trading system or face a massive loss of jobs. The conflict pits the EU's environmental goals against its desire to keep high-paying jobs on the Continent. Europe's steel industry generates €140 billion ($178 billion) in sales annually, employs about 370,000 people directly and about one million people indirectly, with suppliers and downstream industries -- such as car manufacturers and other companies that use steel in a major fashion -- accounting for a total of 22 million jobs, according to the European Confederation of Iron and Steel Industries, or Eurofer. Almost 500 million people live in the EU. But steelmakers say those jobs are threatened by the European Commission's latest proposal on trading allowances to emit carbon dioxide, which will apply more stringent emissions caps on factories and power plants that buy and sell CO2 allowances in order to meet their annual emissions quotas. Steelmakers are concerned that the existing proposal would put them at a competitive disadvantage to competitors that operate in countries with more relaxed environmental rules. The EU wants to cut total CO2 emissions within the economic zone to 20% below 1990 levels by 2020. The target would rise to 30% if the EU strikes an international agreement to reduce CO2 emissions. Because the EU is taking a more lenient stance toward businesses that are outside the scope of the program -- such as agriculture and transport, among others -- deeper cuts will be required for the bloc's industrial sector. Eurofer, for example, predicts that steelmakers will have to have to cut their CO2 output by up to 45% below 1990 levels by 2020, and up to 55% if the EU achieves an international agreement. The EU says it doesn't keep targets for specific sectors, but Eurofer says it calculated the target by putting together all of the measures in the current EU proposal. The commission hasn't outlined its plans for the steel sector in detail yet. But steelmakers are concerned the industry will face similar rules to those expected to be applied to the electricity business. Electricity producers will be forced to buy all the CO2 credits they need between 2013 and 2020 through auctions, rather than receiving a large portion of them free. Most allowances have been allocated free of charge since the program began in 2005. "Full auctioning of CO2 allowances is a real threat" to our industry, said Wolfgang Eder, chief executive of Austrian speciality steel maker Voestalpine. Even partial auctioning poses a problem, he added. Eurofer estimates the EU's proposal would cost the steel industry between €50 billion and €100 billion if the commission decides to force the industry to buy all its permit requirements. "Why are we [European steel producers] the only ones to be subjected to stringent CO2 limits while there are other producers in the world who do not have stringent requirements for CO2 emissions?" said Lakshmi Mittal, chief executive of ArcelorMittal, the world's largest steelmaker. "If we continue to follow those stringent requirements, there could be a displacement of jobs in the future because European industry wouldn't be as competitive," he added. ArcelorMittal came close to permanently shutting down a blast furnace in Belgium this year after failing to secure enough emissions allowances to make the plant economically viable. The blast furnace's future was salvaged by a deal under which ArcelorMittal, the regional Walloon government and the Belgian government agreed to share the burden of the extra CO2 costs. The EU has said that all industries, regardless of their exposure to foreign competition, would receive up to 80% of their allowances free in 2013, with the amount falling to zero in 2020. But the commission has already acknowledged that certain energy-intensive industries may need different treatment to ensure fairness with companies operating outside the bloc. The commission has so far failed to define which sectors would be designated as "energy-intensive," and failed to say explicitly how such users would be shielded, however. Steelmakers say that uncertainty is driving investment away. Voestalpine said it is considering cutting all production capacity at its most environmentally efficient plant in Europe and shifting that capacity to a new €5 billion mill it plans to build in either Ukraine or Turkey. The company is also considering building the plant in Bulgaria or Romania, but prefers the other locations because they have less stringent environmental rules than EU member states. Voestalpine employs 10,000 people at its steel facitilities in Linz, Austria. The "proposal as it stands now will inevitably stop growth and it could put the renaissance of the European steel industry ... at risk," said Gordon Moffat, general director of Eurofer. He said the current proposal would lead to a 10% to 20% increase in the cost of each ton of steel. The commission wants to wait until an international meeting on climate change in 2009 to clarify which energy-intensive industries are most vulnerable to foreign competition and then list companies by the end of 2010 that would be eligible for special treatment under the third phase of the cap-and-trade emissions reduction system, which will last from 2013 through 2020. But Mr. Moffat said that "to wait two years to find out ... is extremely damaging in terms of investment" plans.