Steel Being Hammered by New Climate Rules

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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland) - Europe's steel industry is facing a hike in operating costs due to lower free greenhouse gas emission allowances laid out by the European Commission (E.C.) for its third Emissions Trading Scheme (ETS) period.

The changes, which apply to the 'cross-sectoral correction factor' will see a reduction in benchmark-based free allocation for industrial installations by 5.73% in 2013, increasing to 17.56% in 2020. According to the European Confederation of Iron and Steel Industries (EUROFER) (Brussels, Belgium) the average reduction of free allocation will be 11.58% over the period 2013 to 2020 which will force steel companies to purchase more allowances on the market. It said that the new allocations will increase the shortage in allowances for the most efficient European steel installations by up to 30%.

The changes come at a time when the European steel sector is on its knees, with many of the largest companies cutting jobs and closing furnaces and mills. The global economic recession has caused a long-term decline in demand from key markets, like construction and the auto sector.

EUROFER claimed that the steel sector already receives free allowances at levels 'far below the needs of even its best performers' due to technically unachievable benchmarks and the sector is practically not allowed to grow beyond historic production levels. The new decision, it said, worsens the situation significantly as the sector needs to buy more allowances on the market. The steel sector has been highlighted by the European Union as a sector at risk of 'carbon leakage'. EUROFER said that the most efficient installations should have received 100% of their requirements for free.

"This development makes a mockery of all promises of protection against carbon leakage," stated Gordon Moffat, EUROFER Director General. "We therefore request urgent action from the Commission to reopen the file and remove the correction factor for sectors which are competing internationally. Without action, the good intentions expressed in the new European industrial policy and E.U. Steel Action Plan would just be empty words and the efforts made by E.U. Commissioner, Antonio Tajani, would be in vain."

Last month's figures from EUROFER showed that the crippled European steel sector will have to wait until the end of the year before the decline in production begins to level out. This was attributed to a weaker than expected Q1 for this year. For additional information, see August 5, 2013, article - European Steel Sector Faces Slow Recovery.

In June, the E.C. launched its first rescue plan for the steel industry in more than 30 years, hoping to revive the struggling sector and prevent more job losses and plant closures. Steel demand in Europe is currently 27% below the pre-crisis level in 2007. Between 2007 and 2010, employment in the sector fell by 10% due to plant closures or reduced operations. For additional information, see June 17, 2013, article - Europe's 'Rescue Plan' for Steel Industry.

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