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We had an interesting meeting with steel manufacturers Corus today. They are one of the biggest UK companies participating in the EU trading scheme and appear to have a very comfortable surplus of permits (in the UK at least*) compared to recent emissions levels, even after taking into account the rule changes between 2007 and 2008.

With regard to how to tackle climate change internationally we were actually in agreement – the approach has to be global and, in sectors exposed to international competition , companies need to be treated equitably.

But when it comes to the current phase of trading and the cancelling of permits, to tighten the cap and reduce pollution, views diverged.

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Hardly surprising you might think – if Corus’s emissions stay at 2007 levels for the next four years the total value of the spare permits this would create could raise some £170 million pounds. Not bad for something you were given for free. Of course production levels could increase during this period, reducing the surplus, but they could also do the opposite making it even bigger. And so far, as we appear to be entering a prolonged recession, my money is on the later rather than the former. Already Tata steel, Corus’ parent company in India**, have announced they plan to reduce output in the UK by 1/5 for the remainder of this year.

The crux of the issue appears to be the extent to which the sale of spare permits is justified to enable investment in new cleaner processes. Basically the environment may take a hit in the short term but over time this means caps can then be tightened as production is made cleaner (in theory at least). But there is a limit to how much a steel plant actually can reduce its emissions since they are inherent to the process of steel making. Converting iron ore to iron releases CO2 and there isn’t much that can be done about that right now. So Corus concede if they continue to return a surplus and they run out of projects to invest in then they would consider cancelling permits rather than selling them. Not exactly a cast iron guarantee and definitely not something that can be easily assessed now.

So the conclusion? Well I hope we will continue the dialogue. It is possible to both invest in cleaner technology for the longer term and cancel permits in the shorter term, since the investment will pay back anyway in terms of reduced fuel/energy costs and the reduced need for future permits. We will keep trying to convince them of this. And in the meantime, helpfully, they have offered to provide us with more accurate information for our map and we will update it accordingly.

*In Holland they received much less favourable treatment.

**This just serves to underline the Kyoto system of splitting countries into two simplistic camps – ‘developed’ and ‘non-developed’ – really doesn’t make sense in an industrial context.