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Steel sector plans to challenge limit of free EU allowances

28 Jun 2012 15:19:33 | edcm

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European Commission rules restricting the number of free carbon allowances the steel sector - the second biggest in the EU's emissions trading system (ETS) - can receive from 2013 will be challenged within months in a spate of court cases, industry leaders told ICIS.

Austrian steelmaker Voestalpine will mount a fresh court challenge to the carbon efficiency benchmark for steel, and steel majors in other EU states will do the same in their own national courts this year, said Voestalpine CEO Wolfgang Eder, who is president of the steel representative body Eurofer.

Under the current rules, Voestalpine will be short of allowances worth €200m during phase III (2013-2020) of the ETS, assuming an allowance price of €8.00 per tonne of CO2 equivalent, Eder said.

That would imply a total shortage of 25m allowances over the eight-year phase.

"We have been short over the past five years by roughly €10m-15m [a year] so we had to buy certificates in that amount, so we have been short and we will be even more short," Eder said.

Unlike some of its major competitors, such as ArcelorMittal and Tata Steel, Voestalpine is already short of allowances, because it has operated at almost full capacity since the economic downturn began in 2008. It spent €10m on carbon allowances last year (see EDCM 6 June 2012).

Multiple court cases

Two weeks ago, the European Court of Justice (ECJ) threw out two challenges, by Eurofer and by steelmakers including Voestalpine, to the terms of the benchmark by which steelmakers will be judged for their allocations of free allowances in phase III of the ETS. The ECJ said the cases were inadmissible because they had not gone to national courts first (see EDCM 8 June 2012 and 4 April 2011).

Eurofer director-general Gordon Moffat confirmed that some of the organisation's members are now preparing to launch such national cases as a preliminary to going back to the ECJ for another EU-wide challenge.

"I know that several steel companies in different countries will be challenging the benchmark decision in the national courts. That will take some months and if we win, which I believe we will, then there will be referral to the European Court of Justice," Moffat said.

EU carbon rules face a spate of legal challenges from major corporations this year. German utilities are challenging, in their country's courts, their allocations for phase II (2008-2012), while Europe's heavy emitting industries are likely to challenge any attempt to delay auctioning of allowances to boost carbon prices (see EDCM 25 June 2012 and 8 June 2012).

Pre-2020 CO2 reduction

No matter what rules the EU puts in place, there are "extreme limitations" to how much the EU steel sector can cut its emissions before 2020, Eder said. The likely average emissions reduction by EU steelmakers during phase III will be 0.5-1% per year, he said.

"We should be realistic. The steel industry has tried over the past 50 years to find new breakthrough technologies in order to avoid these emissions and despite the fact that we really have tried hard, we have not found any alternatives to the current routes of production," Eder said. VF

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