EU industry calls for emergency border carbon tax as prices rise

European industry groups have stepped up calls for the EU to speed up the introduction of a carbon tax at the border, as record prices for CO2 allowances increase the cost of pollution in the bloc well in the past. above any other region.

Carbon prices in the EU’s flagship Emissions Trading System, a cornerstone of the Union’s ambitious new target to cut emissions by 55% by 2030, are at a distance of 50 € per tonne, more than double their level before the pandemic.

While the rally has been hailed by environmental groups and some companies as a potential boost to cleaning up electricity and manufacturing in Europe, it has left some industries with a thrill.

Tata Steel has already imposed a carbon surcharge of € 12 per tonne on metal produced in Europe, including the United Kingdom. Although she claims this is necessary to cover her costs, the move risks putting the region’s production and exports at a disadvantage.

Other industries, from cement to petrochemicals, have warned the rally could deprive them of funds to invest in decarbonization.

“In the past, we didn’t have a major problem with the price of carbon because it was so low,” said Axel Eggert, managing director of the European Steel Association.

“Now with the price increase we find ourselves in a real problem. First, our global competitors don’t have these carbon constraints. . . the second point is that it is much more difficult to invest in new technologies. “

One of the factors behind the rise in carbon prices in the EU is the anticipation among traders and commercial buyers that supplies will tighten.

Under the ETS, utilities and manufacturers who exceed their carbon quotas must pay more, while those who remain with excess allowances can sell them for profit.

But the EU ultimately controls the supply and the number of allowances available will decrease over time. Some traders predict that prices will have to rise further to make alternative energy sources such as hydrogen competitive, but this could put enormous pressure on carbon-intensive industries in the short term. Britain’s post-Brexit version of the EU ETS is expected to launch next month.

ArcelorMittal, one of Europe’s largest steel producers, said without a global carbon price the EU would have to implement a border carbon tax on imports from outside the bloc if the industry wanted to remain competitive.

The company said European producers were “at a disadvantage compared to their international competitors,” warning of a “carbon leak” if manufacturing were to move overseas to areas with less stringent environmental controls.

“This reinforces the urgent need for policies that help. . . to ensure that the competitiveness of European steel producers is maintained by applying carbon taxes to all producers who sell in the European market, ”the company said.

€ 3 billion

Estimate of the annual impact on the EU steel sector due to the purchase of carbon allowances on the market

Steel producers estimate that the price of carbon in the EU now costs them around $ 95 per tonne of steel produced (producing one tonne, on average, emits two tonnes of CO2). This represents almost 10 percent of the current price of steel, nearly 1,000 euros per tonne.

The European Steel Association said members’ free allowances were 20 percent lower on average each year, forcing them to buy carbon allowances in the market.

At current prices and with production last year of around 160 million tonnes, this would imply an annual impact on the sector of around 3 billion euros, assuming two tonnes of CO2 per tonne of steel.

Along with a carbon tax at the border, heavy industry trade associations are urging the EU not to reduce the allocation of allowances for energy-intensive sectors too quickly.

The EU is due to unveil carbon adjustment border tax proposals in June, but its implementation is not expected until 2023 at the earliest.

The proposed carbon border mechanism is initially set to target limited products including steel, cement, power generation and some chemicals, officials told the Financial Times, imported from non-EU countries. that do not have carbon pricing or equivalent emissions targets.

A senior official admitted that European steelmakers were “under enormous pressure”, but said the commission would not be dissuaded from pushing these industries to accelerate their green transition.

Some companies have said they recognize the tightrope that the EU must overcome in developing policies that can encourage industry to invest in green technologies, raise the price of pollution and keep its own industry on a firm footing. equality without breaking the rules of the World Trade Organization.

But chemical groups are also concerned that significantly higher carbon costs may have the intended reverse effect by limiting the capital available for innovation and developing low-carbon technologies.

“It’s a fine line between encouraging investment and stifling it,” said Ineos, the private petrochemical group.

Others, including Belgian chemicals company Solvay, say the steady rise in carbon prices in the EU is something the industry has anticipated. The company said it started managing its 2021-2030 exposure to carbon price increases as early as 2017.

This was the year the EU decided to tighten the supply of allowances, after the market languished under an oversupply in the years following the financial crisis, with prices too low to encourage move away from dirtier fuels like coal.

Cement companies have also said record carbon prices in the EU will accelerate investments in decarbonization initiatives such as the introduction of low-carbon products and the replacement of fossil fuels with municipal waste being developed. production.

European heavy industry groups said the high prices would be passed on to customers, but it would be difficult for commodities traded in global markets such as ammonia.

Marcel Cobuz, former European manager of LafargeHolcim, said cement factories would have to recalculate their pricing models, which would lead to “mechanical” price increases for buyers such as construction groups.

“Cement prices that are transmitted along the value chain must incorporate the additional cost of CO2 but also the cost of differentiating the offer of low-carbon products on the market,” he said.

Additional reporting by Mehreen Khan in Brussels

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