The emission allowance price flies upwards, the ceiling is out of sight

8. 10. 2018 | News

The emission allowance price flies upwards, the ceiling is out of sight

The rising price of emission allowances further increases the costs of industrial enterprises and thus makes them less competitive against non-EU countries, where producers do not often pay anything for emissions. At the same time, the EU produces less than ten percent of the world’s carbon dioxide emissions.

The European Union’s Emissions Trading System (EU ETS) covers more than 11,000 emission sources, including mainly power stations and industrial facilities, and as such, it controls approximately 45 percent of the greenhouse gas emissions in the whole EU. It sets limits on the total amount of greenhouse gases that can be emitted by sources within its competences. The sectors at risk of loss of competitiveness are allocated emission allowances largely free of charge, but the rest must be bought by them at auctions. The companies can then trade in emission allowances with each other as needed.


The emission allowance price approaches EUR 25 per tonne of CO2 emitted into the atmosphere, which is a ten-year maximum. According to some analysts, it can reach more than double in a few years.


As per its mid-range calculation option, the Steel Union assumes the price to reach approximately EUR 40 per tonne and over EUR 50 per tonne in 2025 and 2030 respectively. The emission allowance costs of two companies, Třinecké železárny (Třinec Ironworks) and ArcelorMittal Ostrava, will thus most likely exceed CZK three billion per year after 2025. This means that Czech (and European) steel will be more expensive than steel from America or China, and therefore uncompetitive. There is a risk that the production moves elsewhere. In China, for example, the steelmakers produce up to half of CO2 per tonne of produced steel more than in the EU. What sense would all this then make in terms of global emissions reduction?” Daniel Urban, the Steel Union Statutory Director, comments on the outlook for the future.


The allowance price has a double impact on steelmakers: on the one hand, it directly makes the steel production more expensive because steelmakers are already now receiving fewer allowances a year than they actually need, and on the other hand, the expensive allowances raise the price of externally purchased electricity without which the steelmakers cannot produce. At the same time, carbon emissions are inherent to the process of primary steelmaking in blast furnaces such that in the steel industry, it is not possible even at the best effort to decarbonize simply from day to day.


In the ongoing process of setting the rules of the 4th EU ETS trading period (2021–2030), it is essential for the Czech steel industry to push through at the national level the introduction of compensations for indirect costs projected in the prices of electricity delivered to energy-intensive industries or the introduction of free allocation of emission allowances to electricity production provided in exchange for the implementation of low-carbon investments. The Steel Union is currently negotiating this issue with the Ministries of the Environment and Industry.

In 2017, the European CO2 emissions increased by 1.8 percent.


“The EU ETS may not be the ideal tool for reducing the emissions, but at least so much political capital has already been invested in this system such that  change is unimaginable,” says Urban, adding: “Of course, the EU ETS problem consists in the fact that it does not cover all emission sources, and mainly in the fact that Europe is responsible for less than ten percent of the world’s CO2 emissions, and therefore, whatever we do will unfortunately have no major impact on the global warming mitigation or climate change. For some sectors, including steel industry, it is not possible to further reduce the CO2 emissions without radically changing technologies, which will still keep us waiting for some time.”


The Steel Union can see a solution in a more global approach; for example, in the future, a carbon custom duty could be imposed on products imported to the EU from countries that do not regulate or charge CO2 emissions in any way, and a global approach could be set to products already produced. For example, this may include a more modest use of disposable products, reworking or at least recycling of products that allow it, or stopping of deforestation outside the EU, taking place due to biofuels. “We need to take more into account the emissions produced over the lifetime of products and to promote materials that are simply reusable. Why do we, for example, measure car exhaust emissions, but we do not at all take into account emissions produced during the manufacture of materials and parts? For example, Audi already thinks like this,” adds Urban.