The EU Emissions Trading System (ETS) is just one of the challenges facing our industry but a wholly unnecessary one. Its carbon leakage measures are meant to protect sectors like steel that are both very energy intensive and highly exposed to competition from less regulated sites overseas. But problems with the rules mean even the most efficient plants, which should receive all the ETS allowances they need for free, are short of allowances compared to emissions and will be increasingly so as we approach 2020.
At the same time, a cap on the compensation government can provide for the indirect costs of the EU ETS passed through in prices by electricity generators means steel plants are also paying for 20% of the ETS costs associated with any electricity they buy.
This is damaging their competitiveness and ability to invest in new low-carbon technologies.
The European Commission’s proposal for reform of the ETS, released on 15 July, was a chance to fix the system. It could have ensured that from 2021 industrial sectors genuinely at risk of being driven out of the EU by increasing ETS costs received the level of protection promised by politicians. Instead, the proposal appears to leave steelmakers in a similarly vulnerable position.