EC Rules Out Double Carbon Compensation for EU Steelmakers
Carbon CompensationCarbon Brief

EC Rules Out Double Carbon Compensation for EU Steelmakers

EURACTIV reported the European Commission has made it clear that industries covered by the EU’s upcoming carbon border levy will no longer receive free

EURACTIV reported the European Commission has made it clear that industries covered by the EU’s upcoming carbon border levy will no longer receive free CO2 allowances under the bloc’s carbon market, the emissions trading scheme EU ETS. Commission’s climate directorate senior official Ms Mette Koefoed Quinn spoke at a EURACTIV event “Several options are being considered” for the EU’s Carbon Border Adjustment Mechanism, which will impose a carbon price on imported goods coming into the European Union. But none of them include free CO2 allowances for industries covered by the new carbon border charge, which may include steelmaking alongside other industries like power generation, cement, aluminium or fertilisers. This has been clearly stated by the Commission: we do not see that the two instruments are compatible at the same time. It would be a double funding and it would not be WTO-compatible.”

Ms Koefoed Quinn added “The EU’s upcoming carbon border levy seeks to address the risk of carbon leakage whereby companies relocate manufacturing or investments outside of Europe where pollution costs are lower. And that risk is currently well addressed by free allocations under the ETS, ruling out additional compensation for steelmakers.”

Ms Koefoed Quinn also said “Free CO2 credits also blur the price signal that the carbon market would normally give to steelmakers, thereby removing incentives for industry to invest in low-carbon steel production. And by taking away free allocations, we would have a clearer price signal from the ETS.”

The policy, if confirmed, puts the EU executive on a collision course with the European Parliament. In a vote earlier this month, EU lawmakers voted to retain free CO2 quotas for heavy industries like cement, steel and chemicals, even as the bloc prepares to replace the scheme with a carbon levy at its border. The European Parliament has rejected proposals to phase out free CO2 pollution credits for industries covered by the EU’s Emissions Trading System, even as the bloc plans to gradually replace the scheme with a carbon levy at its border.

Steelmakers insist they must continue to receive free CO2 credits under the ETS at the same time as the carbon border levy is being introduced.

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