Would ‘carbon duties’ on steel imports be a good way to go?


SBB’s 4 March article on carbon duties made me think. Putting carbon duties on steel imports would encourage both exporters to the European Union as well as importers to face the reality of moving to a low carbon economy. The article is below.

It might well provide extra protection for steel producers, which may not be so good, if they themselves are already responding positively to the situation, for example by being more efficient in their production processes or using more scrap. In the same vein, it might help discourage carbon leakage, which does not seem to do anyone any good.
But perhaps most importantly, it would signal to steel producers and traders elsewhere in the world that something needs to be done to reduce carbon. Steel as one of the orginal industries of the industrial revolution needs to show the way. Its technology has hardly changed since the 1700s.

SBB 4 March:  In the medium term, Europe’s steel importers may have to pay carbon duties on their imports, suggests a UK Carbon Trust report due out today. In the interim, Europe’s integrated steel producers should benefit from free CO2 allocations. The recommendations relate to the possibility of carbon leakage in phase 3 of the EU’s Emission’s Trading Scheme, starting in 2013.

Border levelling, as proposed in the report, involves adjusting prices at the border to compensate for carbon costs, allowing EU imports and exports to trade competitively. However certain types of adjustments, such as import duties, may not be WTO compatible.

Thus the report suggests that EU steel importers could be required to “buy and surrender allowances or credits.” This could be done on a flat rate of carbon per tonne of steel, thus equalizing costs/prices approximately with those of domestic producers. This would be WTO compatible, Steel Business Briefing understands from the report. Another possible adjustment would be to require exporters to the EU to buy carbon credits to raise their carbon costs to EU levels.

On exports, the report says reimbursement of the higher costs would raise legal issues. It suggests that these can be largely resolved by bilateral negotiations.

Eurofer did not comment directly on the report. It has noted previously that if there is no international agreement on emissions it would accept free allowances “based on achievable benchmarks that provide 100% of the needs of the best performing European steel installations.” It also says border adjustments need to be may be applied in addition.

 Roger Manser

   
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One response to this post.

  1. Industrial producers in the EU’s ETS – especially the steel industry – have long been complaining about how they will lose their competitive advantage because of the imposed cap and trade scheme. They shouldn’t.
    Roger is correct in stating that improvements in efficiency should be made, however there is another simpler approach to this impeding cost of the ETS: The banking of carbon credits.
    Almost all industrial producers in phase II of the ETS have a surplus of EUAs. These can be sold on the carbon market for a tidy profit. Indeed power producers would very much like this to happen as they have a deficit of credits and will happily buy them off any company which is looking to sell.
    However, with the prospect of EUAs only ever increasing in price in phase III, when industry as whole will be short, this is not the cleverest thing to do. Instead Brussels has (foolishly) approved the banking of credits from one phase to the next. In other words, the installations can just hold on the FREE credits that have received in 2008-2012, and then use them for compliance at a later stage – when it really could cost something.

    Reply

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