EU mills reap ETS profits

Europe's iron and steelmaking industry reaped as much as €16.1bn in additional profits from the EU emissions trading system (ETS) between 2008 and 2019, according to a study by consultancy CE Delft commissioned by Carbon Market Watch.

The report indicates that overall emitters under the EU ETS achieved total profits of €30bn-50bn in 2008-19 due to overallocation, charging end consumers for freely obtained carbon allowances, and using cheaper international credits.

The research concludes that free allocation may not be appropriate for climate policy, as it results in "additional profits at the expense of European consumers" while not shielding EU firms from losing market share on domestic and international markets.

The report notes a total overallocation of 37mn emissions allowances to industry — excluding aviation — in excess of the permits needed to cover their emissions in 2008-19.

The "most effective" means of reducing additional profits from the system is to drastically reduce the number of free allowances, the study said.

Experts see a lack of clarity as to how sectors initially covered by the commission's forthcoming proposal for a carbon border adjustment mechanism (CBAM) — such as fertilizers, metals, power and cement — will be able to benefit from continued free allocation of EU ETS allowances. A draft proposal merely indicates that the CBAM will constitute an "alternative" to free allowances.

European steel producers' association Eurofer suggested that a faster phase-out of free allowances, to no free allocation in 2030, exposes the industry to an "even higher risk of carbon leakage".

Eurofer also called for export rebates to prevent leakage of the 20mn t of European steel exported each year.

"An abrupt introduction of an untested CBAM replacing free allocation and compensation fully or to a large extent immediately... would have a disruptive impact on the EU steel industry and the related value chains, as it would expose EU steel producers and downstream sectors to the full carbon costs, undermining the financial ability of our companies to invest in low carbon technologies," the association said.

By Dafydd ab Iago and Colin Richardson