Steel industry united in opposing bloc’s carbon border levy

By Paul Messad | EURACTIV France | translated by Daniel Eck

23-12-2022

"If the steel industry complains, it either means that it does not want to decarbonise or that it has not read the text," conservative German MEP Peter Liese told a press conference on Monday (19 December). [Chongsiri Chaitongngam / Shutterstock]

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Steelmakers have warned against the EU's recently-agreed carbon border tariff, saying it won't protect them from foreign competition and threatens their survival.

Read the original French article here.

As of 2026, importers of raw materials like iron, steel, aluminium and electricity will be subject to the EU's recently agreed CO2 border tax – the Carbon Border Adjustment Mechanism (CBAM).

This was one of the main outcomes of the negotiation last weekend to reform the EU carbon market, the Emissions Trading Scheme (EU ETS).

The new tariff will reflect the carbon price paid by European manufacturers and progressively replace the free CO2 allowances that steelmakers currently enjoy under the ETS.

As part of the EU carbon market reform agreed last weekend, free CO2 allowances will be entirely phased out in 2034 and replaced by the EU's new carbon tariff, with the aim of protecting European industry against unfair competition.

European Union negotiators reached agreement early on Sunday morning (18 December) to reform the EU's Emissions Trading Scheme (ETS), the biggest carbon market in the world and the bloc's flagship climate policy instrument.

But according to industrialists, the new mechanism could have serious repercussions for metalworkers who transform these raw materials.

"As it stands, the carbon border tax is a death blow, because it will increase the price of metal consumed in Europe," said Cyrille Mounier, general delegate of the French aluminium industry union.

While the industry does not question the underlying rationale behind CBAM, it still warns of future distortions on the EU market, particularly in light of increased production costs caused by rising prices for energy and raw materials.

And the situation could become even worse for processed goods, like car doors, which will not be covered by the EU's carbon tariff and leave European manufacturers fully exposed to international competition.

Prices distortions will also be further exacerbated by the subsidies the US and China allocate back home.

"Europe must urgently combine its climate policy with a ‘carrot’ that competes with other regions," said Evangelos Mytilineos, president of Eurometaux and CEO of Mytilineos, a Greek aluminium conglomerate.

Eurometaux, an association representing non-ferrous metals producers, is calling for greater regulatory predictability over the next 15 years to make the financing of the industry's decarbonisation more affordable.

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The European steelmakers association Eurofer goes a step further, warning that the phase-out of free allowances under the ETS "risks wiping out a large part of EU steel exports worth €45 billion if no concrete export solution is found before 2026" about carbon leakage, when the new carbon tariff starts applying.

Even if it means reassessing the timetable to phase-out free CO2 allowances ?

(typing mistake)👇2026: 2,5% of CBAM quotas2027: 5%2028 : 10%2029 :22,5%2030 : 48,5%2031:61%2032 : 73,5%2033 :86%2034 : 100% CBAM (0% free quotas for CBAM sectors) https://t.co/LczJFGW4Un

— Anna Hubert 🇪🇺 (@AnnaHbrt) December 18, 2022

The lawmakers who negotiated the ETS reform, for their part, say they have introduced the necessary safeguards to protect the industry from unfair competition.

"If the steel industry complains, either they don't want to go for decarbonisation or they didn't read the text," said Peter Liese, a German MEP who was the chief negotiator on the ETS reform for the European Parliament.

The German MEP listed the measures adopted that would mitigate the effects described by the industry.

Firstly, a number of processed products, such as screws and bolts, will be directly affected by the mechanism, which, he says, reduces the risk of carbon leakage and a drop in the competitiveness of European industry.

In addition, indirect emissions – those caused by the production of the energy needed for the manufacturing process – will be included "under certain circumstances", he added.

Moreover, the market stability reserve (MSR) will be strengthened at least until 2030, with an annual intake rate of 24% of allowances to build sufficient reserves that can be released to prevent the carbon market from overheating.

And a review clause has also been set for 2025 – one year before CBAM enters into force.

The recent CBAM agreement also provides for additional funds to help the industry decarbonise, through an innovation fund and a modernisation fund.

Together, they are estimated to be worth €50 billion, said Pascal Canfin, a French centrist MEP and chairman of the Parliament's Environment Committee.

Still, industrialists are concerned. The expansion of the carbon market and the carbon border tax "could not have come at a more critical time for Europe's suffering aluminium industry," the European aluminium association said in a press release.

At the moment, 50% of the primary aluminium industry is at a standstill in Europe, meaning production has dropped by about 1.1 million tonnes, according to the association.

The industry is indeed struggling due to high electricity prices and the gradual decline in global aluminium prices.

"If costs increase, particularly due to the high cost of electricity and the abolition of free quotas in favour of a tax on the carbon emitted, and if the selling price of a tonne of carbon falls below $2,000, we will not survive very long," Mounier explained.

According to Mounier, CBAM should be accompanied by "competitive and long-term" electricity contracts, at €20 per megawatt-hour (MWh) and for 20 years – a far cry from current EU standards.

For the French industrialists, there would still be a market disadvantage, even if they benefit from a favourable electricity price at €42/MWh, which is below the market price.

The European Commission is due to present a major reform on the EU electricity market in the first quarter of 2023. "President [Ursula] von der Leyen's new plan for a ‘structural solution’ must now really deliver," Eurometaux said.

As energy prices soared, Europe's aluminium plants began to shut down while the bloc stepped up imports from Russia and China. However, French aluminium representatives are pointing to a problem closer to home – claiming the EU-backed Iberian gas price …

[Edited by Frédéric Simon]

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