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Huge 2011 increase in steel industry’s carbon EUA surplus

13 Apr 2012 18:53:26 | edcm

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The European steel industry has run up a surplus of more than 269m carbon allowances since phase II of the emissions trading system (ETS) began in 2011, EU data show.

The steel sector's length on carbon is a major reason for the chronic oversupply that has driven prices in the EU carbon market to near record lows since late last year.

A spokesman for European steel's representative body, Eurofer, said the sector will be short by around 21% of allowances in phase III, in a business-as-usual scenario.

In phase III, which will run from 2013-2020, free EU allowance (EUA) allocations will be far less generous than in the current ETS phase, which began in 2008. But, because of the surpluses built up by steelmakers in phase II, most will not become short until long after the new phase begins.

Emissions data for 88% of all steel mills in the EU show that, in 2011, those mills registered a surplus of 68.8m EUAs. But the data exclude some major steel sector emitters, including two ArcelorMittal mills in France that emitted 16.3m tonnes of CO2 equivalent (tCO2e) in 2010.

The European Commission has previously said it expects the steel sector's surplus to total 370m EUAs before the end of phase II this year (see EDCM 4 April 2011).

Technology switch

Steel sector emissions have varied widely from year to year since 2008 because of higher or lower production linked to the strength of the economy.

The sector's emissions could be drastically cut if producers introduce new production technology, a trend that's already under way.

Data from Eurofer show that, since the ETS began in 2005, European steelmakers have increased production using electricity from 38% to 42% by replacing higher-emitting coking-coal blast furnaces, which produce direct emissions averaging 2tCO2e per tonne of steel, more than four times the rate from electric-arc furnaces.

But, with the ETS having little if any coercive effect on the steel sector to date because of the excessive allocation of free allowances, other factors are almost certainly behind this trend - a conclusion confirmed by Eurofer.

"Rapidly changing and recently highly uncertain market conditions favour the [electric-arc furnace] based production route because of its greater operating flexibility," a second Eurofer spokesman said, adding that high iron-ore and coking-coal costs could also be a factor in the switch.

Similarly, many European energy companies have said that, because of its low prices, the ETS is failing to promote a switch from coal to lower-emitting natural gas, contrary to its stated aim (see EDCM 23 February 2012).

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