A fair ETS benchmark system must allocate waste gas-related CO2 emissions fully to the waste gas producer
About 80 % of CO2 emissions related to steelmaking are originating from waste gases whose recovery massively contributes to the reduction of the use of primary energy sources, therefore waste gas based electricity generation has been explicitly exempted from auctioning in the directive.
The European steel industry is alarmed by recent proposals for the European Commission to take the CO2 resulting from efficient waste gas use only partially into account when setting the benchmarks for steelmaking under the EU Emissions Trading Directive. Contrary to the directive the Commission is considering refusing the granting of free allowances for waste gases subsequently used for power generation. This ignores the directive’s provisions for waste gas-based electricity generation and thereby artificially reduces the legitimate amount of free allowances for the sector.
The steel industry needs a 100 % free allocation to the steelmaker for waste gases under the benchmark rules in order to avoid carbon leakage, and it needs a manageable and legally robust benchmark system.
The complexity and increased data needs of the Commission proposal introduces risks for the legal robustness of the EU allocation process.
The European steel industry has developed a simple and comprehensive benchmark system which takes fully into account the CO2 resulting from waste gases at source to avoid the complications of differences in waste gases, mixtures and applications. The system is easy to implement and fosters carbon emissions control at the source and recovery and efficient use of waste gases, both for heat and electricity production. In order to comply with the Directive, however, the benchmarking system needs to set free allowances at the average of the 10 % most efficient installations. This requirement, in combination with the application of the decreasing cap and the correction factor, will result in a substantial shortage of free allowances for the steel industry during the third trading period.
If, following recent proposals, the CO2 content of waste gases would only be partially covered by the benchmarks, an additional shortage of 15 to 20 % on top of the shortage through the application of the benchmarks would be introduced. These two elements together would add unavoidable extra costs for purchases of allowances of at least 2 to 4 billion Euros per year. The allowances needs of even the best performers would not be covered and the provisions of the EU ETS Directive in favour of the recovery of waste gases via electricity generation would not be met. The European steel industry would certainly have to reduce production which will then be produced outside Europe with no guarantee or verification at all that global reductions in steel emissions are achieved. This is unacceptable not only from an economic and social point of view but also from an environmental point of view.
We therefore urge the European Institutions and the Member States to provide fair benchmarks for steelmaking, taking into account the most important aspects of any benchmark system: the technical feasibility and effective carbon leakage safeguards.