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Steel sector banks allowances as carbon price remains low

20 Apr 2012 16:23:16 | edcm

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Current low carbon prices in the EU emissions trading system (EU ETS) are encouraging the vast majority of steel companies to bank their surpluses for use in phase III (2013−2020) rather than sell them now to boost their books, according to Eurofer environment director Danny Croon.

"If they don't need it, they just keep it; one day the carbon price will increase," Croon said on the sidelines of the SBB Green Steel Conference in Berlin on Thursday.

Steel mills have amassed a surplus of at least 269m EU allowances (EUAs) since phase II of the ETS began in 2008; units they could choose either to monetise, or to bank for sale or use for compliance at any point during phase III (see EDCM 13 April 2012).

The linear reduction factor in the EU emissions cap during phase III will see steel mills receive 37.5m fewer allowances each year during phase III, he said.

But he was unable to state at which point during phase III of the EUETS, the sector that holds the biggest surplus in the EU ETS, will become short of carbon allowances.

Sidenor, a major steel producer in southeast Europe, has used only 50% of its free allocation of allowances for phase II (2008-2012) and will likely only become short by 2018, almost the end of phase III, Panagiotis Kiadas, environment manager for Sidenor's parent company Viohalco, told ICIS.

Sidenor made the decision to bank all of its surplus to minimise its risk of exposure to higher carbon prices during phase III. The company, which operates two mills in Greece and one in Bulgaria, has slashed production to 50% of 2008 levels.

Greece's energy mix is the second most carbon intensive in Europe after Poland and this means Sidenor is highly exposed to the carbon costs passed on by utilities, which must purchase all of their carbon allowances at auction from January 1 2013 onwards.

Sidenor makes steel using highly energy intensive electric arc furnaces.

Carbon leakage

A set-aside of 600−800m carbon allowances to increase carbon prices would make European steel companies more likely to invest in facilities outside the EU, Croon said, although he would not be drawn on any specific example of such "carbon leakage" to date.

"Steelmaking is not a charity. They'll go [from Europe] to survive," he said.

Michael Van Hoey, a partner at consultancy McKinsey, told the conference that 6% of greenhouse gas emissions globally come from steel, while a further 2.5% come from power or mining for steel purposes, meaning the steel sector accounts for over 8% of total global emissions.

By way of comparison, this amounts to over twice the emissions emitted from aviation. VF

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