Some €45 billion EU steel exports are still at risk despite a revision to the EU’s Emissions Trading System which sets stronger incentives for the uptake of clean technologies, European steel association Eurofer said Dec. 19.
EU institutions agreed Dec. 17 on the revision of the ETS following an earlier agreement on the Carbon Border Adjustment Mechanism.
The final agreement requires the ETS’ 10,000 covered installations to reduce their carbon emissions by 62% on 2005 levels by 2030, one percentage point more than what was proposed by the European Commission 18 months ago.
Negotiators also agreed that free carbon allowances to sectors exposed to carbon leakage would be phased out over a nine-year period from 2026-34, allowing for the gradual introduction of the Carbon Border Adjustment Mechanism. CBAM-relevant sectors, including iron and steel, will see their free allowances phased out at a slower rate at the beginning of the period, with decarbonization support on offer via the EU’s Innovation Fund.
The upcoming years until 2030 will therefore constitute a critical period for the uptake of low carbon technologies at industrial scale.
“While the ETS revision introduces some stronger incentives for carrying out technology upgrades to decarbonize industry, a free allocation phase-out trajectory risks wiping out a large part of EU steel exports worth €45 billion [$48 billion] if no concrete export solution is found before 2026,” Eurofer said in a statement.
“We welcome the revised measures on steel benchmarks providing stronger incentives for the uptake of low-carbon technologies such as direct iron reduction using green hydrogen, while preserving the need for effective carbon leakage protection in the transition from the current technologies,” Eurofer Director General Axel Eggert said.
While the revision of the ETS — the cornerstone of EU climate policy — provides the overall framework rules, much work remains on their implementation and interaction with the recently adopted carbon border adjustment mechanism to ensure the latter is well-functioning and watertight, the association said.
“We are highly concerned by the lack of a concrete solution to counter carbon leakage risk on export markets, while a pre-defined free allocation phase-out trajectory is set at this stage,” said Eggert.
If no concrete solution is found before 2026, this will put €45 billion of steel exports at existential threat, due to the exponentially increasing carbon price in the EU that has no equivalent in the domestic markets of the major EU trading partners, said Eggert.
Preserving the competitiveness of EU industry on both internal and export markets, and implementing urgent measures to boost cleantech investment and speed up low carbon energy carriers, electricity and hydrogen availability and affordability is crucial to avert de-industrialization of Europe, according to Eurofer.
The European steel sector had launched an unprecedented number of low carbon projects to reduce its emissions by 55% by 2030 and become carbon neutral by 2050, but capital investment in new technologies of this scale make sense if CO2-low electricity and hydrogen are being supplied in sufficient volumes and at affordable costs, Eggert said. As neither condition is currently in place, steel industry leaders see these investments as too risky, and the EU and its member states urgently need to secure the relevant energy infrastructure and supply to the steel industry to help those projects along, he added.
This is more urgent now that EU industry is challenged by the energy crisis and more supportive industrial policy measures taken by third countries such as the US Inflation Reduction Act, Eurofer said.
— Ekaterina Bouckley