In a test vote, the EU tried to gauge how a Carbon Border Levy would be received by European parliamentarians. By 444 votes to 70 (181 abstentions), this vote was in favor of introducing CBAM (Carbon Border Adjustment Mechanism).
EUROFER, the lobby organization of European steel producers, has expressly welcomed this in a recent statement. Reason enough for us to take a closer look at the whole issue.
What is the EU CBAM (Carbon Border AdjustmentMechanism) anyway?
The EU Green Deal (or CBAM) is part of the European Union’s efforts to become climate-neutral by 2050. In doing so, the EU is aware of the risk that EU companies could move their production abroad to produce in countries that do not have as high emissions regulations as the EU.
EU wants products from “dirty” foreign countries to become more expensive
The Carbon Border AdjustmentMechanism (CBAM) is intended to ensure that products imported into Europe from “dirty” countries are subject to an additional levy at the EU’s external borders. The exact amount of the levy is not yet known, but we’re guessing it will be close to EU ETS prices and should be continuously adjusted.
“This new mechanism would counteract this risk by putting a carbon price on imports of certain goods from outside the EU,” writes the European Commission on its homepage (Source).
EU steel producers are already massively subsidized
The heavy industry, especially the European steel producers, are already massively subsidized by the EU. The problem behind this has already been pointed out by some EU bodies, environmental associations, and many others. If CBAM were to take place, the EU ETS certificates given away to European heavy industry would have to be reduced in return.
Otherwise, there will be what is known as double subsidization, which does not comply with WTO regulations. And this is likely to lead to significant international differences.
The current draft of the EU to CBAM has probably forgotten the part about the reduction of free CO2 certificates. This was known before, but the EU delegates voted for it anyway. Perhaps those who voted for it were not interested.
In any case, the European steel mills should be pleased.
EU ETS: Steel producers already get about 14 billion euros for free every year
Currently, steel producers receive about 14 billion euros per year as a gift from the EU. This is because they do not have to pay for EU ETS certificates. This reduces the cost per ton of steel by about €80 for domestic mills.
14 billion euros? Where does such a high figure come from?
At a CO2 price per ton of currently about €42.15 (as of March 19, 2021), that’s about €80.10 in additional costs per ton of steel that European steelmakers will incur (1,9 ton CO2 per ton steel). That would be a lot of money for steel producers in the EU to pay – but they don’t have to. They are largely exempted or receive the ETS certificates as a gift.
With an average of 170,000,000 tons of steel produced in Europe per year (Source EUROFER), this would amount to approx. 14 billion euros in subsidies for 2021. In other words, each of the 500 steel-producing locations (regarding to EUROFER data) receives approx. 28,000,000 euros per year as a not so green gift from the European Union.
Are the EU ETS certificates really free in allocation for the steel producers?
“The free allocation for the sector at the end of the third trading period will also roughly match the currently anticipated emissions so that in all probability, all surrender obligations can still be met with free emission allowances.” Source: Umwelt Bundesamt
The subsidies from the EU ETS certificates seem high. We could hardly believe it either. And with the amount of data available, we may be wrong. So here is the call to contact us if you have other data.
Why do EU mills get the allowances for free?
Because otherwise they would no longer be competitive. Producing steel in the EU is expensive. High costs in wages, old and less productive plants than abroad, high raw material and logistics costs. In addition, there is a very strong and well-funded lobby at the EU and member state levels. To put it bluntly, we are not talking about demands of 150% that are made in normal negotiations to achieve a goal, but rather 400% is demanded by EUROFER and 400% is granted by the EU with great regularity.
The position of EUROFER on CBAM and EU ETS
“The straight replacement of free CO2 certificates with a border mechanism and full exposure to the costs of the EU Emissions Trading Scheme would be bad policy. Primary steelmaking makes up three-fifths of European production, and such producers would face carbon costs at least twenty times higher than global competitors exporting to the EU,” added Mr Eggert. “This vote shows that the Parliament intends to defend manufacturing and jobs in Europe”. (Source Eurofer)
So Mr. Eggert is officially demanding here that the steel producers represented by EUROFER should be protected with double subsidies. At the same time, having already failed with an anti-subsidy case against Indonesian steel exports, his association has already initiated the next anti-subsidy case against Indonesia with the EU at the beginning of 2021.
CBAM and the free EU ETS allocation = double subsidization
The carbon border tax CBAM in combination would therefore mean a multiple subsidy for domestic steel producers. And trigger a corresponding resistance from WTO and export-oriented countries, e.g. China. We have already mentioned this above.
In a very simplified calculation, let’s assume that the CBAM levy is about the same as an EU ETS certificate. Then the EU producers would already be able to offer just 160 euros per ton cheaper than a company from the “dirty” foreign country.
That’s quite a lot of subsidy and taxpayer euros for a ton of steel. And if the respective national subsidies for the steel manufacturers are added to this…
Billions in subsidies for the German steel industry
The German Federal Ministry for Economic Affairs and Energy published the Steel Action Plan in mid-2020. In a few pages, it sets out the German government’s strategy for achieving “A strong, internationally competitive and climate-neutral steel industry in Germany in the long term” and its importance for Germany’s future. (Source BMWi)
The main aims of the German concept
- Making imports more expensive through additional tariffs (when imports from third countries increase or on “dirty” steel)
- free allocation of CO2 certificates
- government subsidization of prices for electricity, gas, and hydrogen
- government guarantees for a CO2 price, pro rata, or full assumption of the differential costs to the current CO2 price by the government
- government subsidies for research and development
- government subsidies for investments estimated at 30 billion euros for Germany only, “should the industry not be able to finance the investment requirements on its own”.
Incidentally, large parts of the concept are based primarily on figures supplied by the steel industry itself. It is always difficult to rely solely on data supplied by those who want money from you.
What is Green Steel all about?
Green Steel is the European euphemism for a product that does not yet exist.
It should be well known that steel is not the most ecological product on the planet. According to the World Steel Association, the production of one ton of steel generates an average of 1.90 tons of CO2 (1.85 tons of CO2 according to KPMG).
How can steel become greener overall and perhaps even CO2 neutral?
The green factor in steel production can of course be influenced somewhat at present. The share in scrap could be increased, blast furnaces could be operated with green (and expensive) energy. The quality of the raw materials used could also be improved, for example. But it would also be possible to initiate a complete transformation of European steel production. And to invest massively in green technologies.
The ton of EU steel will become significantly more expensive
But what does that mean in the end? Exactly. The ton of steel will become more expensive. If we want to become more climate-neutral and cleaner, this currently also means that we must dig deeper into our pockets.
In its Low Carbon Roadmap (2019), EUROFER estimated that the cost per ton of green steel in Europe could increase by up to 100%. It would also increase the electricity needs of European steelmakers sevenfold.
Update March 26, 2021
ArcelorMittal on Green Steel: Only possible with subsidies, further market protection measures and price increases for the end consumer of 60%
In a recent Reuters interview with Geert Van Poelvoorde, Chief Executive of Arcelor Mittal Europe, it is confirmed once again that steel prices will rise significantly.
“Consumers would also have to be ready to accept higher steel costs, by around 60%, for the cleaner manufacturing process,” says Geert Van Poelvoorde there.
In addition to higher prices, he also calls for a subsidy rate of at least 60% from the German government and the European Union.
And the ArcelorMittal Europe boss adds: “The EU would need to put border protection tariffs on imported steel from countries with heavy carbon loads.
It should be noted that, according to Mr. Van Poelvoorde, the German projects of ArcelorMittal, for example, for a conversion to low-carbon production have not yet been planned at all. And plans, if any (without subsidies, steelmakers apparently do nothing), could be completed only next year – if money were to flow. And he adds that implementation is not expected before 2025 to 2030.
“The projected investment needs are very high, and both the capital and operating costs of using them will lead to significant increases in production outlays,” when quoted the report.
In its Low Carbon Roadmap, EUROFER calculates that the annual cost of pan-European steel making would be 80 to 120 billion euros if carbon emissions were reduced by 80-95%.
The total investment volume to achieve a 95% reduction is estimated by EUROFER at 50 to 60 billion euros (Source EUROFER). Of which the German government alone wants to take on 30 billion? There is something strange about these figures.
But of course, according to EUROFER and its member companies, the European steel industry cannot do it alone. Their competitiveness would suffer. Thousands of jobs would be lost. That’s the position of the steel manufacturers. (Source EUROFER)
What else is missing from this analysis?
The national subsidies of the other EU member states against their domestic steel producers. The demand for the extension of the EU Safeguard measures, the anti-dumping proceedings, the anti-subsidy proceedings – all, by the way, initiated by the EU steel producers and their lobby association EUROFER.
It seems like a mockery to look at the ever new market protection measures of the European Union, which are supposed to protect an industry that is probably already subsidized to the tune of at least a hundred billion euros a year. And does not manage to be competitive with this cornucopia of donated tax money. Most other industries would have long been abandoned.
How does this regulation affect developing countries?
We also have not yet looked at how such a scheme affects poorer countries or developing countries. And CBAM is likely to have a serious impact. Not only because exports to the EU will become more expensive for other countries, but because other Western countries, such as the U.S., are likely to follow suit. After all, what was sold to MEPS in the EU as an ecological measure to protect the climate has quickly degenerated into a mere market protection measure.
The EU demands fair competition – really?
You can’t see a fair and level-playing international steel market here when you put everything in perspective. And as ugly as it may sound, all that is being done here is to artificially keep alive, at taxpayers’ expense, an industry that died years ago. It is an impertinence to put forward the desire to save the global climate here when the sole aim is to protect a single industry in Europe.
Our CEO Thorsten Gerber concluded our research with the famous words attributed to Winston Churchill: “Trust only the statistics you yourself have falsified.”
Figures, data, facts on CBAM – talk to us
We have already written it above. We are astonished by these figures and the amounts that are called up here. 50 to 80 billion euros in investment costs in the European steel industry to become CO2 neutral. 30 billion euros of taxpayers’ money in subsidies to German steel manufacturers for this purpose alone. 14 billion euros in subsidies in the form of free EU ETS certificates – per year. Probably even more if the cost of certificates continues to rise.
Therefore: Do you have other figures or are we mistaken somewhere? Then please contact us. You want to talk to us in general about this article or the topic? Contact us. Send us an email at email@example.com or call us to make an appointment for a detailed discussion at: +49 7642 9282851.
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Disclaimer: Many things here represent our opinion. Others are information from the Internet. We can therefore never claim to be correct or complete. And never base a business decision solely on the news you receive from us.