EU - Steel industry goes to EC on EU Emissions Trading Scheme

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EUROFER has initiated action at the European Court of Justice for the annulment of the European Commission decision of April 27th 2011 on the rules for free allocation of emission allowances for industries covered by the EU Emissions Trading Directive.

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. It obliges the Commission to set benchmarks at the average performance of 10% most efficient installations in a sector.

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.

Mr Gordon Moffat director general of EUROFER said that "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."

When setting the benchmark for hot metal, the Commission refused to assign the full carbon content in the waste 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.

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.

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.

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