MAC: Mines and Communities

"Epic" covert subsidies alleged, as EU caves in to iron and steel

Published by MAC on 2008-01-23

"Epic" covert subsidies alleged, as EU caves in to iron and steel

23rd January 2008

Don't let the Financial Times headline (below) fool you. As foreshadowed on this website last week, it now seems highly unlikely that the European Union will withdraw free carbon permits for steel, aluminium and cement companies for at least another five years.

The EU has in, effect, accepted the claim by iron and steel confederation, Eurofer, that its members would be forced to relocate overseas - to China, India, or Russia - should they have to cough up for excessive global greenhouse gas emissions.

Meanwhile, a London "think tank", EuropeEconomics, has issued a report highly critical of the EU's carbon emissions trading scheme.

It claims that allocation of free permits has become "a vehicle for delivering covert industrial subsidies to politically favoured industries on a truly epic scale".

EU outlines ambitious emissions goals

By Andrew Bounds and Tony Barber in Brussels

Financial Times

23rd January 2008

The European Union proclaimed a new era in the fight against climate change on Wednesday as it announced sweeping measures to cut greenhouse gases and boost renewable energy use, and called on the world to join forces in "the great project of our generation".

José Manuel Barroso, the European Commission president, said the EU was supporting its words with actions that laid foundations for an international deal to cut greenhouse gas emissions. "If we want a global agreement it is absolutely indispensable that Europe . . .leads the way to get others to follow," he said.

Acknowledging that the 27-member EU would face costs - about 60bn euros ($87bn, £45bn) a year, or 0.45 per cent of gross domestic product - from the policy, he stressed the gains. The costs of inaction were 10 times greater, he said, according to the Stern Report from the UK government.

The plan delivers on a decision by national governments last March that the EU should by 2020 reduce greenhouse gas emissions by 20 per cent from their 1990 levels, or 30 per cent if other countries match it, and ensure that 20 per cent of energy use comes from renewable sources, such as wind and solar power.

By 2005 the bloc had cut greenhouse gas emissions by 6 per cent from 1990 levels and was relying on renewable sources for 8.5 per cent of its energy.

Mr Barroso said the proposals would give Europe more energy security and make it less dependent for oil and gas supplies "on regimes that are not our friends".

He promised special treatment for heavy industries, which say higher costs would drive them out of Europe to areas with laxer controls. "We want to create jobs, not destroy jobs," the former Portuguese premier said.

The Commission would begin assessing which sectors would suffer most if there was no global deal on curbing emissions, expected to include iron, steel, aluminium, paper and chemicals. By 2011 it would decide whether they could then continue to receive all permits free after 2013.

Importers could also be required to buy the same carbon emission allowances for non-European goods that EU manufacturers will themselves have to purchase, Mr Barroso said. The effect of power price rises - put at 10-15 per cent - would also be taken into account.

Eurofer, a lobby group for the iron and steel industry, welcomed the safeguards but said the plan was "unacceptable". "We still have a lot of uncertainty," said a spokesman, since there were no immediate concrete guarantees, a fact that that would limit investment.

Mr Barroso said the climate change plan was a good example of how the EU can sometimes act more effectively at supra-national level than can its individual members.

The Commission's proposals, hotly contested by business groups and environmentalists alike, must be approved by the European parliament and a qualified majority of the 27 member states to take effect.

Andris Piebalgs, energy commissioner, said several governments were unhappy with their renewable energy targets. Mr Barroso said there was broad support for the plan, although there were bound to be debates.

Another point of friction is a target that biofuels should make up 10 per cent of vehicle fuels by 2020, a fivefold increase. Only fuels that meet environmental criteria can count towards the goal. Accordingly, plant-based fuels must emit 35 per cent less carbon in their production than fossil fuels.

Green groups and some governments consider this too lax.

The parliament has previously called for a 50 per cent emissions saving, but this would have ruled out many European-grown crops such as rape seed and sugar beet.

The EU would like to finalise agreement by the end of the year, ahead of a 2009 UN conference in Copenhagen.Copyright The Financial Times Limited 2008

EU Steel Industry Warns Brussels on Climate Plan

PlanetArk: BELGIUM

23rd January 2008

BRUSSELS - Europe's steelmakers warned the European Commission on Tuesday that production and jobs would move abroad to less environmentally demanding locations if Brussels did not amend radical plans to fight climate change.

Philippe Varin, president of the European Confederation of Iron and Steel Industries (Eurofer), said proposals to curb greenhouse gas emissions due out on Wednesday would put his industry at a big competitive disadvantage compared to Chinese, Russian and US rivals.

"We have very strong concerns that if the proposal is not properly drafted, it could have a very damaging impact on our industry," he told reporters on a teleconference.

"If we were to relocate our industries outside Europe, we would then have to transport steel to Europe, adding emissions. We would have taken industry outside Europe and we would be emitting more (carbon dioxide) than before," he said.

Varin, chief executive of Anglo-Dutch steelmaker Corus, owned by India's Tata Steel, was travelling to Brussels for a last-ditch effort to lobby European Environment Commissioner Stavros Dimas before Wednesday's decisive meeting of the EU executive.

He said the Commission should promise free permits to emit CO2, the main gas blamed for global warming, until such time as an international agreement was in place to either curb global emissions or cover all major steel-producing nations.

EU sources involved in final drafting of the proposals told Reuters late on Monday that steel was one of three energy-intensive industries, along with cement and aluminium, which would receive permits for free initially, but be phased into a system for partial auctioning of emission rights.

Eurofer also wants the industry's emissions measured in terms of CO2 per tonne, taking into account the performance of European plants, rather than a planned absolute cap of 20 percent less than the sector's 2008-2012 emissions.

Varin said steel makers faced a threat to profitability if they had to buy permits at auction, while non-European rivals did not, and also incurred higher electricity prices as the power sector passed on its own CO2 auction costs to consumers.

Eurofer says the EU steel industry represents 200 million tonnes of annual output and 140 billion euros in turnover, with 370,000 staff and up to 1 million including indirect employees.

Varin said European steel was already among world leaders in CO2 per tonne, having reduced emission by 60 percent since 1975 and 21 percent since 1990, the reference year in the Kyoto protocol on climate change.

Eurofer Director-General Gordon Moffat said the latest draft of the Commission directive did not contain a clear definition of energy-intensive industries or give any commitment on what measures would be taken to protect them if there was no international agreement on climate change.

Phasing in auctioning for the steel industry could remove any incentive for steelmakers in China, India, Russia and the United States to reach an international sector-wide agreement on curbing emissions, since the others would know their European competitors would be handicapped anyway, he said. (editing by James Jukwey)

Story by Paul Taylor


Fight climate change with tax, EU told

By Tony Barber in Brussels

Financial Times

20th January 2008

The European Union should fight climate change with a broad-based carbon tax rather than by setting precise targets for the use of biofuels and renewable energy, according to a team of British economists.

Europe Economics, a London-based consultancy, says biofuels targets amount to "a form of state support for an environmentally and economically harmful activity designed to consolidate existing price support mechanisms for vested interest groups, most notably farmers".

The European Commission on Wednesday will present a plan for tackling climate change that aims to cut greenhouse gas emissions in the EU by 20 per cent of their 1990 levels by 2020.

The Commission's proposal that biofuels should account for 10 per cent of road transport fuels has been questioned in many quarters, including by the Joint Research Centre, the Commission's in-house science institute.

According to Europe Economics, the target would lead to annual subsidies to the biofuels industry of at least 11bn euros ($16bn, £8bn) and possibly as much as 23bn euros by 2020. This compares with the 40bn euros that the EU now spends each year on its Common Agricultural Policy.

"It is clear that a European biofuel industry cannot be viable without political support by means of tariffs and very high levels of subsidy," the economists say.

The study was commissioned by Open Europe, a UK think-tank campaigning for a loosely structured, economically liberal EU.

The economists recommend that governments introduce tax breaks for energy-efficient products, a step already under consideration in the UK and France. The EU could play its part by reducing import duties.

The EU imposes a 66 per cent tariff on low-energy light bulbs from China, Pakistan, the Philippines and Vietnam, partly - the report suggests - because of protectionist lobbying from Osram, the German manufacturer owned by Siemens.

Without the import duty and value-added-tax, the cost of an imported energy-efficient 60 watt bulb in the UK would be 66p ($1.29, ?0.88) instead of £4, the report estimates.

Cycling to work could be encouraged by removing tariffs and VAT from standard high-quality imported bicycles, slashing their cost to £80 from £250.

"Other green products which should be subject to similar tax and tariff incentives include insulation, condensing boilers, water management systems and heat exchangers," the economists say.

They are highly critical of the EU's carbon emissions trading scheme, saying the allocation of free permits has become "a vehicle for delivering covert industrial subsidies to politically favoured industries on a truly epic scale".

They calculate that power generators in the EU have netted ?6bn-?8bn in windfall profits since the launch of the ETS in 2005.

"We consider that the most cost-effective way of reducing carbon emissions is to introduce an economy-wide carbon price, and that the best way of doing this would be to abandon the ETS and to tax the consumption of primary fuels in proportion to their carbon content," the economists say.

Copyright The Financial Times Limited 2008


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