EU recyclers voice concern over free ETS allocations

European recyclers have voiced in an open letter their concerns regarding the proposed review of the free allocation regulation (FAR) for the European Emissions Trading System (ETS) published last week. The letter was signed by a number of climate action organisations and by German recyclers association BDSV.

The letter criticises the proposal to give free ETS allocations to carbon-intensive feedstocks used in iron ore processing. As a consequence, the signatories of the letter believe that the review would make it “economically disadvantageous to include more ferrous scrap in the steelmaking processes”.

The draft of the FAR addresses free allocations for the period 2026-2030, when the new Carbon Border Adjustment Mechanism (CBAM) will be fully operational. The way the FAR review is designed, primary steelmakers, producing from iron ore, will receive more free allocations in absolute terms than secondary producers – scrap-based EAFs.

“To align the FAR review with EU climate and circularity goals and to maintain consistency with the ETS Directive text, the EC must adopt a methodology for free allocation that is independent of feedstocks and that shifts from a process-based to a product-based approach (treating the emissions of all steel producers equally). This would help establish a level playing field and promote fair competition across the different steel manufacturing routes, while also encouraging the substitution of transformed ore with ferrous scrap in existing steel plants,” the letter explains.

The FAR review was published last week and it is now open for public consultation until the beginning of January. The European Commission aims to adopt the new regulation by April 2024, Kallanish understands.

Emanuele Norsa Italy