December 04, 2008

UK steelmakers for opting out of tougher emission limits

It is reported that Britain's steelmakers are lobbying the government and the European commission for the industry to be given special treatment within the European Union's emissions trading scheme. British steelmakers are concerned that an increase in the cost of carbon permits within the scheme could raise the marginal cost of production, undermining competitiveness and triggering carbon leakage as buyers switch to countries where environmental controls are not as tough.

Under the emissions trading scheme, companies in industries with high levels of carbon dioxide emissions are given an allocation of how much they can emit through national allocation plans. Companies that pump out less carbon dioxide than their permitted level are allowed to sell the excess capacity to other companies. Conversely, over polluters have to buy permits to cover the excess or face hefty financial penalties. The system is designed to encourage companies to cut carbon emissions but has been criticized for setting permitted levels too high.

However, the second phase of the scheme, which comes into effect at the beginning of next year, has set tougher limits. The commission is now working on a third phase that would come into operation after 2012 and is expected to put much more emphasis on auctioning carbon permits to companies, rather than them being given away.

Mr Ian Rodgers director of UK Steel, a division of the EEF manufacturers' organization, which represents about 95% of UK steel producers and further processors, warned that aggressive carbon pricing would have a serious impact for the steel industry, potentially adding up to EUR 50 a tonne to prices. He warned that the system of allowances under the ETS had to reflect available technology and the realities of the international steel market. Mr Rodgers said that “Aggressive carbon pricing is not going to curb emissions. It will just move the emissions elsewhere. It's not going to save the planet. Steel industry is not the only one to be concerned about the European commission's plans on carbon emissions. The automotive sector is also facing statutory limits on carbon dioxide emissions from cars in place of the current voluntary system.”