The European steel industry is committed to contribute to the EU’s objective to reduce greenhouse gas emissions (GHG) by 20% in 2020 compared with 1990 and by 30% provided that other countries commit to comparable efforts in the framework of a global agreement.
The steel industry’s situation with regard to Climate Change policies is characterised by (i) a history of significant CO2 reductions both expressed per tonne of products and absolute emissions, (ii) major contribution to improved energy efficiency in construction, automotive, energy and other industrial end-uses (iii) operating at the technological limits of the currently available production processes, (iv) the commitment to research into breakthrough technologies, and (v) the exposure to fierce international competition.
In response to the EU’s Climate Change commitments and in view of the above conditions, EUROFER calls for a Climate Change policy which has the ultimate goal of implementing a global CO2 price which provides for equal conditions for competing industries. Meanwhile, by promoting best performance, this policy should maximise industrial CO2 mitigation effects within the EU whilst avoiding carbon leakage, and it should strengthen research and development.
The steel industry’s activities continue to develop steel applications, which offer further CO2 mitigation potential, for example, for energy efficient housing, higher efficiency for electricity generation, sea-borne wind power stations, submerged hydro-electricity, lightweight vehicles or more energy efficient electricity transformation. This often saves more CO2 than has been emitted during steel production.
One of the research projects of the steel industry in terms of reducing carbon use in steelmaking is for example the ULCOS-project. It attempts to achieve clarity on the technical feasibility of certain breakthrough-technologies and their combination with capture and storage (CCS) between 2015 and 2020, though the general applicability of the technology will not be before 2020 at the earliest.
EUROFER welcomes that the European Parliament Environment Committee has adopted several improvements to the Commission proposal on the revision of the EU-ETS. But these improvements unfortunately do not solve the problem of carbon leakage.
Without serious corrections, the EU-ETS proposal could give rise to possibly 50% auctioning for steelmaking already in 2013, the threat of a full auctioning regime, the possible requirement to reduce CO2 emissions by about 45 to 55 % in 2020 compared to 1990, full penetration of the home market by non-EU competitors and complete exclusion from export markets, disincentives for steel recycling due to the increase in electricity prices, a total impossibility of production growth resulting in correlated carbon leakage, and a disincentive for early action.
This threat has a substantial impact on the investment strategies of the EU steel industry.EUROFER therefore calls upon Council, Parliament and Commission to enhance the introduction of adequate provisions in order to
- ensure a sustainable development by a fair balance between climate change measures and the competitiveness of EU industry,
- allow the steel sector to remain internationally competitive through the continued allocation of free allowances as long as no international or global sectoral agreement, which provides for an equal footing of industrial competitors, is in place,
- secure sustainable investment and high quality jobs in the European steel industry to maintain the European Union as a region with a strong industrial backbone in which the steel industry remains a driver of technological innovation and added value.
The general guideline for improving the proposal should be a balanced recognition of social, economic and environmental aspects to secure sustainable progress towards the climate stabilisation whilst attaining a high level of employment, high social standards and the well-being of European citizens.
Main suggestions for strengthening the Commission proposal for the revision of the EU Emissions Trading System (EU-ETS)
- Until an acceptable, verifiable international agreement sets the rules globally, industries subject to carbon leakage must receive 100% free allocation of allowances on the basis of stringent but achievable benchmarks. An immediate integration of a list of sectors at risk of carbon leakage in the text of the directive will give certainty for planning and investment decisions. A carbon equalization system (CES) should be complementary to free allocation and not an alternative.
- The allocation method should use fair sector-specific benchmarks which “take into account the potential, including the technical potential, to reduce emissions”, as was adopted in ENVI (Article 10a1, first sup-para.). Benchmarks must be generally applicable. They must not lead to an under-allocation or ban of growth of the best performers. In this respect, Article 10a4 and 5 need to be revised.
- The sustainable use of waste gases from the production process of primary steelmaking must not be subjected to auctioning for electricity production. Otherwise some 50% of steel industry CO2 emissions would be auctioned as of 2013 causing costs of 25 to 50 billion Euros in the years from 2013 to 2020. Installations generating waste gases therefore must receive the allocations for these consistent with the allocation methodology for that industrial installation; the text proposed in the Council by Finland and Slovakia and supported by the text adopted in ENVI and ITRE should be endorsed into Article 10a1 and 10a6: Thus, the sentence following “No free allocation shall be made for any electricity production” should either read “…, with the exception of electricity produced from waste gases from industrial production processes. Where a waste gas from a production process is used as a fuel, allowances shall be allocated to the operator of the installation generating the waste gas with the same allocation principles as applied for this installation.", or as adopted in ENVI and ITRE: “However, where a waste gas from a production process is used as a fuel all allowances shall be allocated to the operator of the installation generating the waste gas with the same allocation principles as applied to that industrial activity as mentioned in Annex I.”
- Electricity-intensive industries must be compensated for rises in electricity prices deriving from the cap and auctioning on the power industry. To avoid state aid discussions this must be included in the directive. This is vital, especially for the electricity-based recycling of steel.
- The phasing-in of auctioning for manufacturing industries not at risk of carbon leakage must be made with utmost caution by limiting its extent, providing for long-term transition and a thorough evaluation of economic effects. Otherwise the elimination of the financial backbone of the industry could lead to extreme negative effects as occurred in the current financial market crisis. Therefore, in 2020 the allocation of free allowances to these sectors must not be below 80%.
- An International Agreement must be designed to allow the integration of any emerging Global Sectoral Agreements. For both, the directive must contain criteria, which guarantee a level playing field for industrial competitors, including a binding dispute settlement regime.
- The ETS reduction target of 21% must be based on 1990 not 2005 levels. Theburden sharingbetween the ETS-sector and the non-ETS-sector should be readjusted, based on the evaluation of economic, social and environmental impacts. Automatically to increase the ETS target from 21% to 31% is too risky. Such a decision must be made by politics after a thorough evaluation.
- CDM projects need a wider recognition, because CDM is a functional instrument for technology transfer, which contributes substantially to the global mitigation efforts and which, in addition, balances the impact of the EU-ETS cap on the EU industry. Any reference to the trading period II should be avoided since this leads to unequal treatment of installations and to market distortions.
- The exclusion provision for small emitters should not be confined to combustion installations and the increase of the threshold to 25 000 t CO2 instead of 10 000 t CO2, as proposed by ENVI (Article 27.1), is a positive development. From a technical point of view it does not make sense to set a threshold on MW.
- The ‘new entrants’ definition should allow for sustainable growth. The text adopted by ENVI (Article 3 point h) which includes into 'new entrants' an extension of the “installation's capacity or a significant change in its nature and functioning” should be endorsed but not limited to a capacity increase of more than 20%, since already a 5% increase of steel capacity is an extraordinary project.
- More pronounced support for research, development and demonstration in the ETS sectors is imperative. The support of the European Technology Platforms, as adopted by ENVI in Article 10.3a(a), would contribute to this.
- The development and deployment of Carbon Capture and Storage (CCS) should be supported as suggested by ENVI in Article 10.3a(d) and 24.1a. GHG emissions which are captured and stored shall be considered as “not emitted”. No surrender of allowances shall be required for these emissions.