European steel firms protest EU emissions trading scheme

European steel firms protest EU emissions trading scheme.

EUROFER initiated action at the European Court of Justice (ECJ) for the annulment of the European Commission Decision of 27th April on the rules for free allocation of emission allowances for industries covered by the EU Emissions Trading Directive (ETS).
Article 10a of the ETS Directive aims to protect Europe from relocation of emissions, production and jobs to non-EU countries with lower levels of environmental performance (“carbon leakage”). It obliges the Commission to set benchmarks “at the average performance of 10% most efficient installations in a sector” (best performers). Sectors such as the steel industry determined to be at risk of carbon leakage are eligible for CO2 allowances free of charge at the level of the benchmarks. The best performers should get 100% of their allowances for free. But the Commission’s Decision sets the benchmark for hot metal at a technically unachievable level, despite all the required data for setting the correct benchmark having been delivered by the steel industry to the Commission. “This is a clear infringement of the ETS Directive, as the best performers will be short of free allowances. Nowhere in the world is a steelworks that could operate its plants at the level of this benchmark,” says Gordon Moffat, EUROFER’s director general.

When setting the benchmark for hot metal, the Commission refused to assign the full carbon content in the waste gases (process gases) stemming from the steel production process and which are recovered for the production of electricity. The Commission wrongly argued the Directive does not allow for free allowances for electricity production and artificially subtracted a part of the carbon in these gases, lowering the benchmark by about 10%.

However, the ETS Directive makes explicit provision for free allowances for electricity generated using recovered waste gases: “No free allocation shall be made in respect on any electricity production, except for […] electricity produced from waste gases” (Article 10a). Therefore there are no legal grounds for any artificial subtraction of CO2 from the steel benchmark for hot metal.

Resulting additional costs
The EU steel industry as a whole will from 2013 to 2020 receive 20 million fewer allowances per year than it would be eligible for if the Directive were implemented correctly. At a carbon price of EUR 30 (which is the level forecasters predict carbon prices will reach by then) this corresponds to additional costs of EUR 600 million per year if purchased on the market, or almost EUR 5 billion for the third trading period 2013/2020 alone. This is on top of the EUR 6.5 billion of additional costs the EU steel industry already faces under a correct implementation of the Directive based on best performance and the application of achievable benchmarks. Beyond 2020, these unlawful additional costs will further increase significantly.

Legal procedure and timing
The whole procedure until a final decision by the Court may take up to two and a half years, unless the Court decides to go for a fast-track decision within one year.

EUROFER has applied for
• the annulment of the Commission Decision,
• a fast-track decision within one year as the provisions of the third trading phase of the ETS Directive and the Commission Decision will come in to effect from 1st January 2013,
• suspension of the Commission Decision for the duration of the Court procedure.