The European steel industry will continue receiving free CO2 pollution permits as part of the reformed EU carbon market, according to the European Parliament’s chief negotiator who said the deal was “good for jobs and investments in Europe”.
“We agreed to continue to support the steel industry by free allowances,” Peter Liese, a German lawmaker and the Parliament’s lead negotiator on the Emissions Trading Scheme (ETS), said in a statement after talks with EU member states and the European Commission held on Monday (10 October).
According to the German lawmaker, the Commission’s proposal would have entailed “a much bigger step for the steel industry than for other industries” as it would have tightened the benchmark against which free allowances for the steel industry are calculated.
With Monday’s agreement, the benchmark will remain unchanged, and the steel industry will continue receiving free allowances “at least until 2032”, Liese said.
“In these times when jobs are under pressure, we think it’s a good message that this proposal is off the table,” said the Christian Democrat lawmaker, who hails from the centre-right European People’s Party (EPP).
But despite these concessions, the steelmakers will not be off the hook, Liese stressed, explaining that the industry will still be obliged to cut their emissions on an annual basis, with the annual cap on CO2 getting tighter and tighter every year.
The European Commission tabled the reform in July 2021, proposing to phase out free pollution permits for the steel sector and other carbon-intensive industries, which currently receive the majority of their emission allowances for free.
The ETS puts a limit on the emissions of around 10,000 large industrial plants in Europe, which have to buy pollution permits on the market for every tonne of CO2 they produce. The scheme is meant to encourage the take-up of clean technologies until the EU eventually reaches its target of reducing emissions to net zero by 2050.
But with the energy crisis biting, EU negotiators decided to ease the pressure on steelmakers and other industrial emitters.
The aluminium industry was also in line for some concessions following Monday’s talks. Under the deal, industries like aluminium, which are impacted by high electricity bills and are highly exposed to foreign competition, will continue to receive indirect cost compensation, Liese said.
“The compensation was never 100% so that efficiency and decarbonisation will always pay off,” Liese said. “But it is important for this sector and other related sectors suffering from the high electricity prices to get predictability that they will continue to be compensated,” he added.
Eurofer, the European steel industry association, welcomed the outcome of the talks, saying it is “an important element for a sector where more than €30bn capital investments are required by 2030 to reduce emissions in line with EU emission reduction targets”.
Still, it said the sector was coming under tremendous pressure to decarbonise, saying “free allowances for the sector will still be reduced significantly due to the phase out trajectory” applying to sectors covered by the EU’s upcoming Carbon Border Adjustment Mechanism (CBAM).
“At this stage, it is too early to say what the cumulative impact on the steel sector will be, as the legislation is currently under discussion,” Eurofer told in an e-mailed statement.
Apart from these two points, there was scant progress in other aspects of the ETS reform, in particular when it comes to controversial plans to extend carbon trading to the transport and heating sectors.
The Czech EU Council presidency, which speaks on behalf of the EU’s 27 member states in talks with the European Commission and Parliament, failed to win a mandate from all EU countries to move the negotiation forward.
This means the social policy aspect of the carbon market reform is currently stuck, with EU countries refusing to budge on a proposed Social Climate Fund intended to compensate households for rising energy costs expected to result from the reformed ETS.
“The mandate of the Council for the Social Climate Fund is just a no-go,” said Liese, who fumed at EU countries for “completely ignoring the position of the Parliament” on the subject.
Michael Bloss, a German lawmaker who represents the Greens in negotiations with EU member states and the Commission, said the four-hour negotiation round “has turned into a coffee date with a nice exchange” but no concrete results.
“This is a bad sign for the UN climate conference” taking place in Sharm el-Sheikh next month, Bloss said. “Going to the climate conference in Egypt with this result is extremely embarrassing,” he added in a statement, urging EU countries to “prepare better” for the UN climate summit.
The European Commission is still officially pushing to finalise the ETS reform before the UN meeting but that objective now seems out of reach, with some even suggesting that negotiations could drag on until next year.
“Unfortunately, it’s not possible to finish the ETS file before Sharm el-Sheikh,” Liese admitted, saying “more than 90%” of the issues are still on the table and aren’t expected to be resolved until the last round of trilogue talks in December.
“I don’t expect that the big issues like ambition or ETS2 will be off the table before the last trilogue. So there will be a lot of work bilaterally, at the technical level and informally, to get it ready before Christmas,” he said.
The next ‘trilogue’ negotiation round is scheduled for 10 November, with another expected to be scheduled later that month.