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E.U. steel groups to take carbon permit benchmark dispute to court

09/04/2011
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The European Confederation of Iron and Steel Industries said it will question in court the legality of the European Commission’s proposed benchmarks for assigning free carbon permits when it gets approved this month, saying it deviates from European Union’s rules at a high expense for the industry.

Gordon Moffat, director general of industry representative Eurofer, said the commission’s benchmarks for steelmaking was set too high, making it impossible even for the most efficient steel companies to secure free carbon permits in the third phase of the European Union’s emissions trading system.

In response, the commission said it is confident that the European courts will rule in its favor, its spokesman saying the benchmarks were approved by a majority of European Union member states.

‘Unachievable’

Under the third carbon trading period, running from 2013 to 2020, the commission will give free carbon credits to qualified companies in carbon intensive sectors such as steel to prevent them from relocating abroad, where they may operate under less stringent policies.

While a directive in 2009 stated that benchmarks for any industry “shall be the average performance of the 10 percent most efficient installations in the sector,” Mr. Moffat said the commission’s decision is not based on this rule.

The industry group said facilities that recycle waste gases as an additional source of energy should be given credit in the benchmarking process since it substitutes the use of fossil fuels and saves tons of carbon dioxide emissions.

The commission also reportedly did not use data supplied by the industry, another rule in the directive. It reportedly based its decision on information about technologies that do not reflect industry practice, Mr. Moffat added.

Eurofer, which represents steel majors like ArcelorMittal, ThyssenKrupp and Tata Steel said the benchmarks would cost the industry about 5 billion euros over the third trading period.

“That’s the rule, but since it is not being applied for the steel industry, resulting in billions of additional costs, we now have no other choice than to go to court,” adds Mr. Moffat.

The European Commission is expected formally to adopt the draft benchmarking rules this month, and Eurofer has instructed its lawyers to seek an annulment at the bloc’s General Court soon after that.

Too much leeway

Meanwhile, climate change campaign group Sandbag complains that the budget of carbon permits is far higher than actual carbon emissions covered by the bloc’s trading scheme.

Surplus built up from 2008 to 2010 now stands at 170 million tons, equivalent to the annual emission of 40 million cars.

The group said the main reason behind the oversupply was over-allocation to industrial sectors. They say the iron and steel sector, for instance, has 70 million tons of excess carbon permits in 2010, making its total surplus 212 million tons to date.

The steel industry alone had banked 212 million carbon permits for the past three years worth 3.4 billion euros, or equal to the financial support Europe currently gives to the renewable energy sector.

The group claimed that steel giant ArcelorMittal was holding 44.6 percent of this surplus, “the single biggest beneficiary under the scheme to date,” it added.

“If politicians have the courage to tighten the cap then the E.T.S. could help pave a way for a low-carbon Europe,” Damien Morris, senior policy advisor for Sandbag, said.

“It is profoundly ironic that the industries which have profited most from the scheme to date are most vocally resisting tougher E.T.S. caps, especially when they already receive excessive protections in the form of benchmarked free allocations and the unearned surplus they continue to amass.”

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