The European Commission published, on 21 September 2020, its revision of the EU ETS State Aid guidelines for the compensation of indirect carbon costs for the period 2021-2030. These revised guidelines are designed to support sectors that, like steel, are most at risk of carbon leakage.

The publication follows the recent Commission’s proposal on increasing the 2030 climate targets. In the absence of comparable efforts by trading partners, it is important to develop a strengthened framework of measures to address the risk of carbon leakage, with benchmark-based free allocation and indirect costs compensation, as well as an effective carbon border adjustment mechanism

Compensation for indirect costs incurred by the steel industry is an essential measure to mitigate the risk of carbon leakage due to the carbon costs passed on to the steel sector from the energy sector.

EUROFER has the following overall perspective on the revision:

• The steel sector has been confirmed once again as being at very high risk of carbon leakage, due to its high exposure to international trade as well as high energy intensity. Yet, more effective measures are necessary for the whole steel value chain.
• Steel (NACE 2410) has been included in the limited list of sectors.
• However, important sectors contributing to the competitiveness of the steel value chain have been excluded (notably industrial gases like oxygen, iron ores and seamless tubes). The uncompensated indirect costs of these sectors will inevitably impact the steel industry. For instance, oxygen represents around 20-25ù of the total electricity consumption of an integrated steel site.
• The effectiveness of this revision will heavily depend on the implementation of the details by the member states (e.g. conditionality requirements, regional emission factors and benchmarks as well as the possibility to grant additional aid beyond the 75% level).
• EUROFER encourages all member states to implement fully the guidelines and alleviate, at least partially, indirect costs, which will increase as a result of the expected increase of the carbon price.
• Access to competitive low carbon energy (including electricity) is essential for the successful transformation of the steel sector since the low carbon technologies being tested by the companies require a large quantity of it.

The European steel sector is committed to emissions reduction, and compensation for indirect carbon costs forms an essential part of the policy framework necessary to ensure that the sector can continue to decarbonise whilst remaining globally competitive.