Early MSR must come with early allocation revamp -steelmaker

Published 21:39 on March 10, 2015  /  Last updated at 14:55 on May 11, 2016  /  EMEA, EU ETS  /  No Comments

The introduction of the MSR must come alongside changes to rules governing free carbon permit handouts to ensure European industry remains competitive, Austrian steelmaker Voestalpine said on Tuesday.

The introduction of the MSR must come alongside changes to rules governing free carbon permit handouts to ensure European industry remains competitive, Austrian steelmaker Voestalpine said on Tuesday.

“The burden imposed by higher CO2 prices will occur earlier than measures for the protection of energy-intensive industries can be taken,” the company said in a position paper.

The paper was published following media reports that the company supported an unconditional early start to the MSR in 2017 – far earlier than the 2021 date originally proposed by the European Commission. It takes a similar line on demanding free allocation guarantees as several industry associations including BusinessEurope.

The European Parliament’s environment committee has voted for the MSR to launch at the end of 2018 but the EU Council of member states is yet to reach a view as a blocking minority of eastern states reject a start before 2021.

Voestalpine said it had sent its views to Austrian government officials, who were yet to take a position on the MSR as of Tuesday.

ALLOCATION DEMAND

The current MSR proposal contains no elements to restructure ETS rules governing free EUA allocations, which the European Commission has pledged to tackle in a separate proposal on post-2020 market reforms.

“For Voestalpine, this asymmetry is of particular importance because the company anticipates a shortage of 28 million certificates just for the period from 2013 to 2020,” the company said.

It added that the Parliament’s proposed early start would result in an “additional burden” in the current trading period (2013-2020).

“The surplus in certificates must be reduced, but at the same time, the allocation of certificates to the manufacturing industries must be completely overhauled,” Voestalpine said.

It added that the current allocation rules created a “blatantly skewed situation” where “some companies are generating windfall profits from their significant surplus of allocated certificates as a result of declining production due to the economic crisis, while plants, such as those belonging to Voestalpine, where production is growing, have significant cost disadvantages, although they are CO2 benchmarks in Europe.”

Current EU ETS rules expiring in 2020 are intended to grant 100% of EUAs for free to factories deemed at risk of carbon leakage that achieve the best emissions performance benchmarks in their sector.

By Ben Garside – ben@carbon-pulse.com