Posts Tagged ‘Carbon credit’

European mills see differing profits from carbon credit sales

In the current period of the European Emissions Trading System, steelmakers have been left with a surplus of carbon credits. This surplus may be reversed as restrictions on emissions become more stringent from next year onwards but for now these credits are a tempting way to bolster ailing balance sheets. However, the key to getting the most out of these credits is a proper strategy and some steelmakers are achieving almost double the return per credit as others, as this story from Platts Steel Business Briefing’s Daily Briefing shows.

SBB 19 March – SSAB sells surplus carbon credits as emissions fall

Sweden-based steel producer SSAB saw greenhouse gas emissions at its European plants decline in line with production last year to 5.5m tonnes of carbon dioxide. The company also took the opportunity to bolster its balance sheet by selling 4.1m surplus carbon credits.

SSAB earned SEK 275m ($40.47m) from the sale of carbon credits last year. This would suggest it earned just $9.87 for each of the credits.

The company sold most of the credits towards the end of the year when SSAB’s blast furnaces were running at low utilisation levels, a SSAB spokesperson says. Carbon credit prices fell sharply in Q4, Platts SBB notes.

ArcelorMittal earned an average of $18.6 per credit last year, indicating a more sustained sale of credits through the year, analysts suggest.

As part of the European Emissions Trading System (ETS), steelworks must report their greenhouse gas emissions and hand over one carbon credit for each tonne of carbon dioxide equivalent emitted. In the current trading period (2008-2012) steelmakers have been given sufficient carbon credits to cover their emissions. In fact they have received more than they have so far used as the allocation was calculated before the 2008 financial crisis and so actual emissions have been lower than previously expected.

SSAB was granted 36.7m credits for 2008-2012 and now has 7.5m remaining to cover emissions this year. SSAB could therefore have more credits to sell unless it increases its European steel production by around 36%. Platts SBB calculates.

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.

Steel industry may support carbon prices in medium term

SBB 14 October Demand for carbon credits from the European steel industry will help to support prices in phase III (2013-2020) of the European Emissions Trading System (ETS) says carbon trader and researcher, Marius Frunza. This source of demand has not been properly factored in by many carbon market analysts, Frunza claims.

As steel production was cut in the aftermath of the financial crisis, the industry was left with an over-allocation of European Union Allowances (EUAs). But from 2013 the industry will need to buy in EUAs, especially if production levels are high. This will result in an entirely new source of demand for EUAs, Frunza points out.

On the other hand, the surplus EUAs built up over 2008-2012 could take some time to be exhausted and so the effect on EUA prices may not be large, counters Barclays Capital’s Trevor Sikorski. The electricity sector will continue to be the main source of demand for EUAs in 2013-2020 and so should have a far more significant effect on prices, he adds.

In the short term, with the eurozone debt crises unresolved, EUA prices are unlikely to move from their current levels, Frunza believes.

Aperam’s Timóteo completes coke-to-charcoal switch

Measures to reduce the carbon footprint of steelmaking can also help to reduce steelmaking costs, if the situation is right.The use of charcoal has its limitations, it can only be used in small blast furnaces for example. However, for Aperam in Brazil, which uses small-scale blast furnaces and has a charcoal producing subsidiary operating nearby its plant, changing its raw materials can reduce costs, provide a stream of carbon credits and improve its environmental credentials.

SBB 27 July Stainless, electrical steels and special alloys maker Aperam’s Brazilian unit Timóteo has finalized the conversion of its No 2 blast furnace fuel from coke to charcoal, Steel Business Briefing learns from the company.

The mill said last year it would invest R$175m (US$114m) to replace imported coke and metallurgical coal with domestically sourced charcoal in a move that will result in “a total replacement of this power matrix.”

SBB estimates the cost of charcoal is around one-third that of coke, with the use of the former allowing Aperam to earn carbon credits.

JSW extends lead as main steel beneficiary of carbon trading

With the first commitment period of the Kyoto Protocol coming to an nd next year, investment in some key emissions reduction schemes has been reduced. The Clean Development Mechanism can continue in name beyond Kyoto, but in practice it relies on investment by private companies interested in selling carbon credits. The market for these credits is in turn dependent on demand created by national emissions reduction targets. Companies, such as Indian steelmaker, JSW, who have been able to attract significant investment through the clean development mechanism should be eager for the next round of climate negotiations in Durban later this year to introduce a temporary extension to Kyoto.

SBB 18 July Indian steelmaker, JSW Steel, has been awarded a further 549,409 Certified Emissions Reduction Credits (CERs), bringing its total to almost 7.9m CERs, with a market value of over $110m, Steel Business Briefing learns from United Nations data. This cements the company’s lead as the steel industry’s main beneficiary of the UN’s Clean Development Mechanism (CDM).

The CDM is designed to encourage investment in reducing greenhouse gas emissions. Carbon credits are awarded to projects which reduce emissions. These can be sold to facilities which need carbon credits to meet their emissions requirements, for example under the European Emissions Trading System (ETS). This guarantees a certain level of income from the investment, allowing for cheaper financing.

JSW has earned by far the largest number of credits in the Indian steel industry: 7.9m out of a total 10.2m CERs. India and China together dominate the steel segment of the CDM, accounting for almost 96.5% of CERs awarded to the steel industry, SBB calculates.

Although JSW has earned the most CERs, it is the only non-Chinese steelmaker to earn over 1m CERs and Chinese companies have been gaining ground.

EC could manipulate carbon prices

The cap-and-trade system of pricing greenhouse gas emissions is intended to provide the financial incentives that could come from a system of taxes in a more efficient way by using a market mechanism to determine prices. However, this contains a contradiction that has not been fully resolved. When the market sets a price that no longer adequately incentivises investment in reducing emissions, should policy makers stick to their free-market principles or act to ensure that industry will face costs if it does not invest in green technology?

At the end of June the European Commission stated for the first time that it might restrict the supply of carbon credits to support prices. This would, in effect, place the commission in a position similar to a central bank, controlling the supply of credit to maintain the value of its currency. While DG Climate Action views this as a legitimate means to ensure its emissions reduction targets are achieved, many energy intensive industries complain that this violates the market principles of the cap-and-trade scheme.

SBB 27 June The European Commission (EC) has said for the first time that it may increase carbon credit prices by setting aside credits from the Emissions Trading System (ETS). Maintaining high prices is necessary to avoid any one sector from getting a “free-ride,” DG Climate Action spokesperson, Isaac Valero-Ladron tells Steel Business briefing.

The EC energy directorate’s energy efficiency programme could reduce demand for European Union Allowances (EUAs) from power companies. If this causes EUAs to fall, sectors which have not reduced their emissions will face lower costs and have less motivation to reduce their own emissions, Valero-Ladron points out.

However, artificially increasing the price is not in line with the directive which covers the ETS, Eurofer complains. This was intended to create a system which reduced greenhouse gas emissions at the lowest possible cost. As long as the shrinking cap on emissions in the ETS is met, the price should remain low, it argues.

The energy efficiency programme has been seen as a shift in focus away from the ETS. The December 2011 EUA contract fell more than 9% on 23 June to €13.37/t ($19/t) after the programme was launched.

But the EC will ensure that the ETS continues to function, says Carine Hemery of French carbon and energy analysts, Orbeo. This is likely to mean setting aside EUAs to reduce supply. But this could add an element of political risk to the carbon markets. If traders are put off by this, the liquidity of the market could suffer, she warns.

UK Steel condemns ‘crazy’ carbon floor price

The coalition government in the UK promised to be the ‘greenest ever’. After facing much criticism for not living up to this claim, it has recently pushed a number of policies to improve its green credentials. However, according to some, the measures have been rushed, are poorly planned and may not succeed in greening the economy. On top of this, of course, they may add significantly to the costs of steelmakers in the UK.

SBB 10 May The UK government’s planned carbon floor price (CFP) would cost more than necessary to achieve its goal, Ian Rodgers, policy director at UK Steel, tells Steel Business Briefing. Furthermore, it could fail in its goal of providing certainty in carbon credit prices, he adds.

The CFP is intended to guarantee the carbon credit costs of electricity producers in the UK from 2013. These are expected to be passed to consumers, including steelmakers.

The goal is to encourage investment in renewable and nuclear power; investors want to know their future costs in order to estimate when investments will see a return. However, new nuclear capacity will not appear for many years. It is “crazy” that energy intensive industries must pay in 2013 to secure a price in 2020, Rodgers says. It would mean UK steelmakers facing additional costs compared to Europe, he warns.

The scheme may not provide certainty in carbon prices, analysts say. The amount electricity producers pay will be set two years in advance based on exchange-traded futures contracts. The futures contracts price reflects current spot prices plus carry and inflation, not the future spot price, says Emmanuel Fages, head of carbon and energy market analysis at Orbeo. Fluctuation on the spot or futures markets could cause much higher or lower carbon credit costs.

Also, unlike a contract, a tax could be scrapped by a future government. A contract-based approach between government and electricity producers would provide greater certainty, Rodgers says.

The CFP is a signal to investors that it is serious about encouraging investment in low-carbon electricity generation, the treasury insists to SBB.