This is the European Steel Association (EUROFER) contribution to the EU ETS revision public consultation.

Key messages

• Setting a fairer burden sharing between ETS and non-ETS sectors.
  • The distribution in the Commission’s Impact Assessment envisages a disproportionate target on ETS sectors (-65% emissions reduction vs. 2005 by 2030) compared to non ETS (only -39% vs. 2005).
• Ensuring cost efficiency within the ETS.
  • The climate ambition of the EU ETS is defined by the stricter 2030 cap; rebasing (i.e. one off cancellation of allowances) and strengthening of the Market Stability Reserve (i.e. putting more
    allowances in the reserve) are not needed as they artificially increase the costs for the same level of climate ambition.
• Increasing the free allocation share to avoid the cross sectoral correction factor.
  • Higher 2030 climate ambition reduces the ETS cap. Yet, the decarbonisation of the power sector (which is the reference of the auctioning share) leaves the room for increasing the free allocation
    share and avoiding the cross sectoral correction factor.
• Effective carbon leakage protection with benchmark based free allocation and indirect costs compensation complemented by an effective carbon border measure.
  • Higher climate ambition requires strengthened carbon leakage protection. Even with benchmark based free allocation and indirect costs compensation, EU producers bear unilateral carbon costs,
    which requires a complementary and effective carbon border measure to address such a gap.
• Avoiding undue impact of breakthrough technologies on current benchmarks.
  • The application of breakthrough technologies at industrial scale level should not reduce benchmarks to avoid undermining carbon leakage protection for the entire sector.
• Indirect cost compensation at benchmark level in all Member States.
  • All activities in the steel value chain (including iron ores and industrial gases) need indirect costs compensation in all member states due to the high carbon leakage exposure.
• Using the Market Stability Reserve to avoid the application of the cross-sectoral correction factor.
• Avoiding the integration of transport and buildings into the existing ETS.
  • Transport and buildings have much higher carbon abatement costs (up to 250€/t CO2) and are not exposed to international competition; hence, they require dedicated, separate policy instruments.
• Focusing ETS revenues on industrial decarbonisation technologies.
  • ETS revenues should fund the development and roll out of low carbon technologies in industry.
• Strengthening the Innovation Fund with more allowances from the auctioning share to support industry’s decarbonisation.
• Introducing a force majeure clause to avoid undue impact of external events, such as the COVID pandemic, on free allocation.
  • Production reductions related to the COVID-19 outbreak should not lead to undue reduction of post-2020 free allocation