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Sandbag recently acquired a leaked copy of a letter sent by the Gordon Moffat, Director General of Eurofer to Antonio Tajani, Vice-President of the European Commission. Eurofer lobbies to protect the interests of the European Iron and Steel Industries, while Tajani’s specific portfolio is Industry and Entrepreneurship.

The letter was of particular interest to Sandbag as it calls into question evidence that the European iron and steel industry is currently hoarding large volumes of free carbon permits to protect it from future caps or to sell for windfall profits. As the NGO campaigning most vocally on this issue, and given that Commissioner Hedegaard specifically cited some of our figures on steel surpluses in an [interview with the Dutch press](http://www.fd.nl/artikel/20445969/brussel-haalt-keihard-staalsector “”), we could not help but feel the letter was partly directed at us.

While we’re flattered that our work has been brought to Mr Moffat’s attention, we’re a little disappointed he didn’t look at our reports more closely. Moffat accuses the unnamed NGOs from failing to take into account the transfer of waste gas permits from iron and steel installations to combustion plants, stating that some 15% of iron and steel allocations are forwarded on in these transactions.

Ironically, Sandbag has taken considerable trouble to estimate and include waste gas adjustments in our calculations despite a poverty of publicly available information on this. Almost half of the Methodology section of our [Cap or Trap](http://www.sandbag.org.uk/site_media/pdfs/reports/caportrap.pdf “”) report is devoted to explaining how we arrived at our waste gas figures and greater transparency on waste gas transfers is one of our clear recommendations.

Our generous estimates find that waste gas adjustments roughly halve the scale of the surplus accruing to the sector, but despite this still leave it currently holding a hefty 72 million free permits worth €1.1 billion at today’s prices. This surplus is hardly surprising when, as Eurofer acknowledges, steel production dropped 35% during the recession. Moffat seems to suggest that recovery between now and 2012 will swallow this remaining surplus, but our analysis finds that even under optimistic growth conditions this surplus is likely to grow to around 127 million (€1.9 billion) by the end of the phase.

Moffat is also deliberately vague about the proportion of iron and steel installations which are currently in surplus saying “some” are overallocated (read nearly all) and “some” underallocated (read hardly any).

Strangest of all, Moffat concludes by implying that we and DG Climate Action are engaged in a covert campaign to “undermine the viability” of the European iron and steel industry and “de-industrialise Europe”. Huh?! Come off it, Moffat! We have no interest in iron and steel production leaving Europe. What we do want is for European iron and steel to be the cleanest in the world and to start pulling its considerable weight in the broader European effort to reduce emissions.

The steel sector has waylaid European reductions for too long by lobbying against ambitious climate targets and lobbying for overly generous allocations. If it’s not willing to reduce its emissions using the flexibility of the EU ETS, it should get out of the scheme altogether and submit to direct regulation. At least this would stop the hidden windfalls that we as electricity consumers are paying for and end the ludicrous lobbying that is continually undermining the efficiency of the ETS.

Moffat’s letter to the Commission and our letter of response are appended in full below:

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