Argus reported that trade lobby group UK Steel has hit back at suggestions by environmental non governmental organization Sandbag that the European Commission should set aside a number of EU emissions trading scheme allowances to achieve the emission reductions that the scheme initially set to achieve.

UK Steel said that "Setting aside surplus allowances from phase 2 as Sandbag proposes will merely lock recessionary output levels into the system, and bring forward the point at which steel companies run out of allowances."

According to the lobby group, UK Steel argues that steel companies could run out of allowances by 2018. This would result in either an increase in costs of up to 10% if they buy allowances or a halt in production, since emissions abatement opportunities are very limited in the steel sector.

The EU ETS cap across phase 2 and 3 of the scheme should be 1.9 billion tonnes CO2e tighter, if the EU is going to achieve the emission abatement that it initially set, Sandbag outlined in a report launched in the UK parliament in early July 2011. Sandbag derived the figure from adding around 672 million tonnes CO2 of allowances oversupply from industrial firms in phase 2, to roughly 1.2 billion tonnes CO2 of allowances arising from basing phase 3 caps on an oversupplied phase 2.

Sandbag said that "Europe is off track on intended abatement by the equivalent of a whole year's worth of emissions covered by the scheme."

The lobby group said that UK Steel has refuted Sandbag's claim that excess allowances resulting from the recession are damaging phase 3 of the EU ETS. Phase 2 surpluses do not weaken the system. The phase 3 cap has been calculated as being the traded sectors' contribution to the EU's emission reduction target of 20pc by 2020 from 1990 levels. That cap will be met. The total emissions in phases 2 and 3 taken together will not exceed the total caps for those two phases.

(Sourced from www.argusmedia.com)