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Issues&Positions

Briefing – ecofys report

Updated ECOFYS report confirms high cost of Emissions Trading System for the steel industry

Main findings

  • Refines parameters of the ECOFYS model and adds a sensitivity analysis to respond to third party analyses.

  • Confirms main findings and robustness of November 2015 ECOFYS study: Over the next trading period in 2021-2030, costs of €34 billion and impact per tonne of crude steel by 2030 of €28.

  • Adds an assessment of cumulative impact over the second and third trading periods: By 2020 around 350 Mt CO2 not be covered by financial compensation or free allocation.

Background

The report – the first of its kind for industries affected by the EU ETS and undertaken specifically for the steel industry – was conducted by ECOFYS, a leading environment and energy consultancy, was revealed yesterday in view of next week’s debates on EU ETS at the Environment Council and European Parliament Environment Committee. The study, which transparently examines the steel industry’s EU ETS impact, updates some parameters of the previous publication, such as production growth rates, the list of installations under its scope and the number of countries granting financial compensation for indirect costs.

Axel Eggert, Director General of the European Steel Association (EUROFER) said, “The report demonstrates once more our commitment to a fact-based debate, to ensure sound policy decision-making. Since the previous publication, the ECOFYS study has been widely distributed and discussed with relevant policy makers and stakeholders. This update takes into account the comments received during this process”.

“The findings show that major changes are needed to limit the impact on the competitiveness of the steel sector, such as realistic benchmarks based on actual data, removing artificial cuts of free allocation due to the benchmark reduction flat rates and the Cross Sectoral Correction Factor, increasing the amount of free allocation for carbon leakage protection, compensation of indirect costs in all member states”, added Mr Eggert.

The updated base case scenario confirms the key findings of last November’s publication. With the Commission proposal, around half of direct and indirect carbon costs borne by the steel sector would not be covered by free allocation or financial compensation in 2030. Over the next trading period 2021-2030 such costs remain at €34 billion and the impact per tonne of crude steel by 2030 is still €28.

A new sensitivity analysis added to the report (Annex I) shows that the findings of the base scenario are very robust if compared with variations of the steel benchmarks flat rate (0.5% instead of 1%/year) and production growth rate (0.64%/year instead of 1.15%/year). By definition, variations of the carbon price projections have no impact on the level of shortage but only on the absolute value of the costs.

The new publication also includes a second Annex presenting the cumulative impact of the EU ETS on the steel industry over the period 2008-2020. Considering uncompensated direct and indirect carbon costs (expressed in CO2 equivalent), around 350 Mt CO2 will not be covered by financial compensation or free allocation by 2020. If one compares only direct emissions and free allocation, the findings show that the historical overallocation of the second trading period is being used in the current period and that the sector will face a shortage in free allocation from the start of the fourth trading period currently under discussion.

With this study the steel industry demonstrates its transparency as a sector and looks forward to comparing this analysis with those from other sectors. EUROFER hopes other sectors will publish similar impact assessments and data so that it becomes possible to develop policy that is based on full sectoral impact and data transparency.

ECOFYS report

The ECOFYS report can be downloaded here.

EUROFER - The European Steel Association

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