Emissions trading should cost steelmakers less than expected


The changing state of the European carbon markets has led analysts to regularly alter their price forecasts for phase two of the Emissions trading System (2012-2020). New forecasts suggest the cost of carbon trading to Europe’s steel industry could be some €8bn less than Eurofer’s first estimates. To see how environmental regulations will affect your business and how you can make your company competetive in a greener economy, come to Steel Business Briefing‘s third annual Green Steel Strategies Conference in Berlin on 19-20 April. For more information, click here.

SBB 2 December The cost to steelmakers of the European Emissions Trading System (ETS) is likely to be far below initial Eurofer estimates because of a collapse in carbon credit prices, Steel Business Briefing estimates. According to the latest price forecast by Barclays Capital, the true cost of the ETS in 2013-2020 could be around two thirds of its earlier estimate.

However, the effect on producer margins could still be disastrous, Eurofer says. Any additional cost is expected to reduce profits, not increase prices, it notes.

According to a Barclays Capital’s forecast of €22 per EUA on average over 20113-2020, the total cost to the steel industry in that period would be around €15.9bn, compared with Eurofer’s first estimate of €24bn. €8.2bn of the costs would be faced by integrated producers, €400m as direct costs for EAF producers and €7.3bn as indirect costs because of higher energy prices for EAF producers, Eurofer calculates.

Eurofer confirms SBB’s calculation that an average price of €22/t would mean an increase of approximately €5/t on average in 2013-2020 in theoretical production costs for EU integrated steelmakers with the lowest emission, more for those which are more polluting. Meanwhile, EAF steelmakers could see added costs of €7.6/t.

This does not account for any offsetting with even cheaper UN carbon credits or using up credits saved during 2008-2012. During this period, steelmakers received far more free carbon credits than they needed. The true cost is therefore likely to be less than €5/t for the low-emission steelmakers.

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