Some EU carbon credit registries could be closed ‘for weeks’

The European Emissions Trading System has often been at the centre of controversy. However, in spite of the uncertainty surrounding the market, prices have remained stable and even risen. This may suggest the market is more resilient than many assume.

SBB 27 January Europe’s carbon credit spot markets remained closed for business yesterday as national carbon registries remained unable to transfer credits. Furthermore, the most troubled registries could remain closed for far longer than expected. OTE, the company responsible for the Czech registry, has told Steel business Briefing that re-opening could be ‘a matter of weeks’ rather than days.

The theft of 450,000 European Union Allowance (EUA) carbon credits from the Czech registry and a hacking attack on the Austrian registry led the European Commission to block transfers of carbon credits until at least 26 January, as previously reported.

The registries hold the carbon credit accounts of participants in the Emissions Trading System (ETS). EUAs can be used to account for greenhouse gas emissions equivalent to one tonne of carbon dioxide each by European industrials in the ETS. It does not appear that steelmakers’ EUAs have been taken.

Registries will now remain closed until an independent assessment of security has been carried out on a country-by-country basis and this has been verified, the European Commission says. However, registries which have been affected by theft must also prepare a full report, which will delay re-opening even further.

The carbon market is unlikely to be strongly affected, analysts tell SBB. Spot trade can be as little as 5% of an exchange’s trading volumes, says Trevor Sikorsky, head carbon analyst at Barclays Capital. “It is a big blow to the image of the market…but it does not change the fundamentals,” Emmanuel Fages of carbon market analysts Orbeo adds. March 2011 EUA futures were settled at €14.69/t ($20.13/t) on 26 January on the London-based European Climate Exchange, up some €0.50 from a week earlier.

EU steel industry emitted 250-275m t of CO2 in 2010

Carbon dioxide emissions from the iron and steel industry are closely link to levels of production. As output increases alongside economic recovery, emissions too have grown from last year.

SBB 26 January The European Union’s iron and steel industry emitted approximately 250-275m tonnes of carbon dioxide in 2010, a year-on-year increase of some 20%, according to first estimates by Steel Business Briefing. The figure includes emissions from sintering and coking as well as ironmaking, steelmaking and scrap melting.

This means around 1.16-1.45 tonnes of CO2 were produced on average for every tonne of crude steel produced. 172.9m t of crude steel were produced by EU steelmakers in 2010, Worldsteel figures show.

However, the average figure hides the differences between the relatively low-emission scrap-EAF production and carbon intensive integrated production. Furthermore the average masks a division within integrated producers between those with relatively clean modern facilities and those with more polluting plants.

Under the European Emissions Trading System (ETS) European steelmakers must use carbon credits to account for their emissions. Currently the industry is allocated sufficient free credits to account for their emissions. However, from 2013 they will be allocated credits up to the level of set benchmarks.

EU member states have agreed benchmarks which, according to Eurofer, are unachievable by even the cleanest plants in the industry. It has proposed its own benchmarks, based on the 10% of plants in each sector which emit the least CO2.

Russian steelmakers could earn another 13.7m carbon credits

Russia is expected to become a significant new source of offset credits in the coming years. After several years of delays it began approving projects to earn ERUs last year.

SBB 21 January Four Russian steel producers are among the 18 projects recently approved by the Russian Ministry for Economic Development to earn carbon credits from the Joint Implementation (JI) programme, Steel Business Briefing learns.

Once approved, the projects are now eligible to receive Emissions Reduction Units (ERUs) which can be sold or traded on an exchange. For a reduction in greenhouse gas emissions equivalent to one tonne of carbon dioxide the project would receive one ERU with a current market value of €11.1/t ($14.93/t) on London’s European Climate Exchange. ERUs can be bought by European industrial facilities and used to meet their obligations under the Emissions trading System.

The four steel projects are all in the five biggest projects on the list and together could earn up to 13.7m ERUs. By far the largest was MMK’s 2004-2006 project to replace its open hearth furnaces with EAFs, which the company expects to save 7m t of CO2 emissions and therefore earn 7m ERUs.

NLMK, TMK and Asha Iron & Steel have also had projects approved and could earn 2-2.5m credits each.

This is the second group of Russian JI projects to be approved so far. JI is a mechanism under the UN Framework Convention on Climate Change by which investors in Annex I countries, including Russia and Ukraine, can earn carbon credits by investing in reducing greenhouse gas emissions.

Amurmetal, Chelpipe Kosaya-Gora Steelworks and Air Liquide-Severstal had also entered projects, but these did not receive approval this time around.