EU ETS reform must “better balance industry competiveness and emissions reduction efforts”, says EUROFER

Posted on 14 June 2016

Brussels, 14 June 2016 – Ahead of next week’s European Parliament Environment Committee (ENVI) debate on the recent report by Ian Duncan MEP on the revision of the European Union Emissions Trading System (EU ETS), the European Steel Association (EUROFER) has highlighted its position.

“The draft report proposed recently by Dr Duncan MEP in the European Parliament Environment Committee introduces some flexibility in the distribution of allowances between auctioning and free allocation. However, it enlarges the volume of free allocation only to a minor extent and maintains the mechanism of cutting benchmarks through arbitrary linear flat rates,” said Axel Eggert, Director General of EUROFER.

“Although the changes in the draft report improve the Commission proposal to some extent, their combined effect would still expose the steel sector to a shortage in free allowances of up to 30%-40% by 2030 (depending on the flat rate applied to steel benchmarks and the subsequent Cross Sectoral Correction Factor). This impact would be even greater if the annual linear reduction factor applied to the total ETS cap is increased during the revision process foreseen by the proposal in 2023,” added Mr Eggert.

According to EUROFER, the following priorities need to be addressed to improve the EU ETS proposal:

  • Benchmarks should be reset once before the fourth trading period on the basis of actual data from the 10% most efficient installations, taking into account the entirety of CO2 from unavoidable waste gases emitted during steel production. A linear flat-rate reduction based on the average of the sector cannot reflect actual technological development by best performers and would expose them to a shortage of free allowances.
  • The overall quantity of free allocations should be sufficiently high to avoid undue shortages for best performers due to the Cross Sectoral Correction Factor or the benchmark flat rates. To this end, the industry share should be increased to around 50% or use unallocated allowances from the third trading period, and allowances from the Market Stability Reserve should be used for carbon leakage protection. If best performers still face a shortage, the distribution of the available free allocation should ensure that at least sectors at a “very high risk” of carbon leakage, such as steel, receive 100% free allocation at the level of 10% most efficient installations.
  • Indirect carbon costs passed through in electricity prices should be fully offset through harmonised and transparent rules in all member states, preferably through free allocation based on realistic benchmarks.

Mr Eggert concluded, “These solutions would contribute to an effective ETS that delivers both emissions reductions and a competitive industry.”

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