On Wednesday (Jan 18th) I attended a dinner-debate in the parliament, sponsored by Eurofer, the European Steel Federation, and entitled “EU ETS Revision: Unlocking low-carbon investments in the steel industry”. It was a very well-attended event, with many MEPs as well as many from the industry, and we heard seven mini-presentations of various schemes designed to reduce CO2 emissions in steel production. The industry is acutely concerned about current revisions to the EU’s Emissions Trading Scheme (ETS), which provides a limited number of “free allowances” (of emissions permits) in an attempt to protect energy-intensive industries in the EU from international competition, and from the cost impact of EU energy policies.
Several MEPs contributed from the floor after the set presentations. My remarks (as near as I can remember – it was not recorded) went like this:
Thank you Chairman, and thanks to our hosts. Thank you also for these very interesting presentations. But one element was missing from all of them: costs. So many of the green projects we hear about sound fine to start with, until you look at the costs, and then they turn out to be hopelessly uncompetitive. That doesn’t save the planet – it just drives emissions abroad.
Several of the schemes claimed the benefit of creating work-in-progress that could be stored, so that the plant could maximise use of renewable energy by producing when the wind blows, and power is available. This is offered as an indirect method of energy storage, making the most of intermittent renewables. But we should recall that to use an intermittent energy supply you need to build more capacity than would be needed for continuous operation. And intermittent operation is bound to be less efficient. So you have really saved nothing – you have merely transferred the penalties of intermittent generation from the wind turbine to the steel plant.
But we have spent the evening looking at the small details of our ETS plans. We should stand back and look at the big picture. We have created the ETS explicitly in order to increase the cost of energy. Then we have realised that we are destroying energy-intensive businesses like the steel industry. So we have given them allowances – which have the incidental effect of transferring more of the burden to smaller enterprises less exposed to international competition.
But the allowances are never enough to maintain the global competitiveness of these industries We already see steel and fertilisers getting the lions’ share, with other industries like cement crying foul. You are trying to square the circle, and it just won’t square. Worse yet, you are planning to reduce the allowances rapidly over time. We are systematically strangling European industry.
And you are forgetting the global competition. We hear a lot about green initiatives in China, but they are still building coal-fired power plants at a rapid pace Meantime in the USA we have a President-elect determined to make energy, including coal and shale gas, the motor of the US economy. Both China and the USA will have highly competitive energy prices. Our current ETS plans mean that European steel producers, and other energy-intensive businesses, will never be able to compete.
Ladies and gentlemen, we are screwing ourselves. And it is time we stopped.
This speech was greeted with warm applause around the room, at least from the industry side, and I was congratulated by senior industry people afterwards. But will it achieve a change of policy? I doubt it. Another reason why we’ll be Better Off Out.