EU steel reaps $1.5 bln benefit from carbon trade

EU steel reaps $1.5 bln benefit from carbon trade. European steelmakers received over $1 billion worth of unneeded carbon permits last year under the European Union's Emissions Trading Scheme, EU data show, a benefit attributed to aggressive lobbying. One Belgian steel plant owned by ArcelorMittal received nearly 100 million euros ($132.8 million) worth of carbon emissions permits which it didn't need, under the EU's flagship weapon in its fight against climate change. These permits can either be sold by steelmakers for profit or saved to allow them to pump out more climate-warming carbon dioxide in future years. The profits are ultimately paid for by European electricity consumers including businesses and households. "Steelmakers received a third more permits than they emitted," said New Carbon Finance analyst Olivier Lejeune. Under the European scheme, governments give heavy industry a quota of free carbon permits, each equivalent to one tonne of the greenhouse gas carbon dioxide (CO2). Power plants are the main buyers and pass the cost to consumers, accounting for about a fifth of power prices, making any windfall profits an income transfer from electricity users. The steel sector has especially benefited, accounting for nine out of the top ten permit surpluses among some 12,000 affected factories and power companies. But they are also some of Europe's largest producers of greenhouse gases, with 286 facilities pumping out CO2 equivalent to the whole of the Czech Republic last year. Steelmakers got a surplus worth $1.2 billion based on average 2008 carbon prices, or on average 4.3 million euros per plant. Steelmakers argue that was a consequence of lower production last year due to the economic downturn, but EU data show the sector's emissions were near unchanged from 2007. EU steel production was down 5.3 percent in 2008, according to the World Steel Association. New Carbon Finance estimates production will fall further this year, meaning 2009 surpluses will likely be bigger, said Lejeune. LOBBYISTS AND WINDFALLS Strong steel lobbies had tilted the balance of permit allocations, persuading governments to award more to steel companies and less to utilities, said an EU official who declined to be named. Germany's ThyssenKrupp AG (TKAG.DE) said that any profits would be offset by higher energy costs as a result of the scheme. "The cost of emissions passed through to us via power prices costs us more than any income from selling permits," said Markus Weber, manager of emissions trading at ThyssenKrupp. The company also said it is forced by law to transfer for free much of its surplus to cover permit shortfalls at the installations that power its steel production. "I'd be surprised if the full amount of any excess was transferred, particularly when we know the drop in production in 2008," the EU official countered. The EU's executive Commission has cracked down on power plant windfalls, despite vocal opposition from some utilities, forcing most to buy all permits from 2013. But steel plants will likely continue to get theirs for free, after arguing that they otherwise face bigger costs than rivals outside Europe. "Production will migrate to ... countries whose environmental regimes are less strict," said Bob Jones, spokesman for Corus Group, owned by India's Tata Steel. The United States is mulling an emissions trading scheme of its own. President Barack Obama said in his campaign that participants should have to pay for all permits from the beginning, eliminating any opportunity for windfall profits. Some industry groups and politicians have resisted that. On Wednesday, the White House said it was "flexible".