European Recycling Industries’ Confederation EuRIC, a strong proponent of the circular economy, has urged ahead of a European “trilogue” (three-way) meeting Nov. 22 that free allocation of emission allowances under the European Union’s Emissions Trading Scheme should be phased out as soon as possible so as not to “subsidize” pollution.
“The allocation system of emission allowances, based on benchmarks, grants more permits to polluting production processes than to less polluting ones, thereby subsidising pollution,” EuRic said in a Nov. 18 open letter addressed to European Commission executive vice-president Frans Timmermans, Commissioner Paolo Gentiloni, members of the European Parliament and ambassadors.
Steps should be taken to incentivize the use of scrap or recycled steel and metals instead of extracted ores in steel and metals production, it said.
A proposed extension of free allocations for some industry sectors, including steel, “was thought to be protective of industry generally…. [but] it only protects some industry players”, EuRic argued in the letter, co-signed by non-profit climate change think tank Sandbag.
EuRic groups together more than 5,500 recycling companies – generating an aggregated annual turnover of about Eur95 billion ($98 billion) – which treat household or industrial and commercial waste including ferrous and non-ferrous metals, end-of-life vehicles (ELVs), electronic waste (WEEE), packaging (paper and plastics), end-of-life tyres or textiles. Ferrous scrap is a principal input in electric arc furnace (EAF) steelmaking, which emits substantially less carbon than steel production by the integrated route.
Sandbag focuses on EU policies, including in the area of climate governance.
European steelmakers, particularly integrated companies which use iron ore and coking coal to make steel in blast furnaces, have pressed for an extension of the free ETS allowance system because this should free up more financial resources for them to invest in costly decarbonization schemes in coming years.
Plans to revise the ETS benchmarks from 2026 are set to be discussed at the Nov. 22 meeting between representatives of the European Commission, European Parliament and European Council. Arrangements for the Commission’s introduction of a Carbon Border Adjustment Mechanism (CBAM), which will tax carbon contained in products entering the EU, will also be discussed.
European industry associations, including steel producers’ association Eurofer and non-ferrous metals producers’ associations European Aluminium and Eurometaux, have recently lobbied for a “smooth phase out” of free allowances under the ETS and compensation of related indirect costs until such time as the CBAM becomes fully effective.
Currently, CBAM is expected to be implemented between 2027 and 2032.
EuRic claims that any extension of the free ETS allowances beyond 2026 could create distortions between sectors of industry that are interlinked, and deter the use of recycled materials including steel and metals scrap, which do not benefit from free allowances under the ETS scheme.
“The Commission, Council, and Parliament have proposed to extend the regime of free allocation until well into the next phase of the EU ETS, in the 2030s,” EuRic said in its letter. “We believe that the proposals perpetuate competitive distortions which are damaging to the EU’s competitiveness, its self-sufficiency, its resilience to inflation and its ability to adapt to a lower-carbon world.”
An amendment proposed by the European Council “even exempts the ‘hot metal’ steel benchmark until 2030 from any change in annual reduction rate [in free allocations] despite the forthcoming benchmark reform,” EuRic noted.
Only large industrial plants can realistically join the ETS system and have access to free allocations due to bureaucracy costs, EuRic said. Many recycling plants are unable to benefit from the system as they tend to be small-scale operations, the confederation indicated.
The proposed EU ETS reforms – expected to be completed by the end of the year – are a key part of the EU’s “Fit-for-55” legislative package, which aims to align all parts of the EU economy with an upgraded target to cut emissions by at least 55% below 1990 levels by 2030.
Primary raw materials ‘favored’
The 4th phase of the EU ETS planned for 2021-2030 has gaps that puts recycled materials usage at a disadvantage compared to primary raw materials such as ores and coals, the EuRic letter said.
“The disadvantage arises because ecological burdens from steel production from ores are not fully taken into account, as hard coal, iron ore and other non-ferrous metal ore mining are not subject to the EU ETS as they are not listed under Annex I of the Directive,” it said. These products, along with production of pellets including direct reduced iron pellets should now be included in the ETS scheme due to their levels of greenhouse gas emissions, it argued.
The recyclers’ association claims that inputs for and production by the blast furnace and electric arc furnace steelmaking routes risk not being treated equally under CBAM rules.
“While the emissions from upstream products of the blast furnace route (coking coal and sintered ore) will likely be exempted of CBAM charges, this is not the case for a key upstream product of the EAF route: direct reduced iron will be covered by the CBAM under all proposals,” the letter said.
— Diana Kinch