Will revising the EU ETS encourage low carbon investment?

Written by Axel Eggert on 12 October 2016 in Thought Leader
Thought Leader

Axel Eggert wonders whether the revision of the EU ETS will foster low carbon investment.

Axel Eggert | Photo credit: Eurofer


The revision of the European Union emissions trading system (EU ETS) for the period 2021-2030 is a unique chance to learn from experience and create the conditions to drive innovation and environmental performance, while boosting investment and competitiveness. 

The best way to reduce global emissions is by ensuring that industry can invest in new technologies in Europe. Keeping European steel competitive reduces the impact of higher carbon footprint steel imported from foreign competitors that are not subject to such ambitious climate provisions.

The European steel industry is at the forefront of R&D into breakthrough technologies, the fruit of which include a raft of new and ongoing projects.


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These, if they prove to be economically and technically viable, could change the face of the industry in the mid-to-long-term. Financial resources from EU ETS revenues, as well as those from other European and national instruments, should be mobilised to support this industrial innovation. 

Unfortunately, the projected costs of the proposed EU ETS reform risk undermining this innovative potential.

Energy and climate policy consultants Ecofys, estimate that by 2030 the current European Commission proposal could create a shortage of up to 50 per cent in 'free allocations'. Additionally, around 65 per cent of indirect carbon costs would not be covered by financial compensation.

The Ecofys study is the only publically available analysis commissioned by a sector into its own emissions impact for the EU ETS period 2008-2030. This fully transparent analysis demonstrates the steel industry's commitment to an open, fact-based debate.

Steel is a sector at very high risk of carbon leakage. Under the EU ETS, such sectors should not face additional direct or indirect costs, at least at the level of the 10 per cent most efficient plants.

This would reward companies that invest in low carbon technologies while avoiding the risk of over allocation.

Around 95 per cent of plants would still be exposed to carbon costs if they did not lower their emissions at the required 'benchmark' level.

There must be sufficient 'free allocation' to prevent carbon leakage, particularly in sectors at very high risk, such as steel.

Realistic benchmarks, based on real data from companies, are the best way to reflect actual technological progress.

Finally, compensation for indirect costs in all member states at the level of best performers is needed to ensure a global playing field.

With the cooperation of all policy makers and stakeholders, the EU ETS can set the right framework for Europe's steel industry and the 320,000 direct jobs it accounts for.

The European steel industry is committed to being at the centre of the debate, actively contributing to the building of the low carbon economy in Europe.

 

About the author

Axel Eggert is Director General of EUROFER the European Steel Association

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