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The European Union’s plan to reduce the bloc’s carbon emissions by 80% – 95% by 2050 compared to 1990 levels – known as the 2050 roadmap – was met with the usual vigour from European Confederation of Iron and Steel Industries (Eurofer). In a statement they warn of climate policy being pushed “through the back door” and again cautioned of DG Climate’s plans for the deindustrialisation of Europe. Eurofer seem to be particularly keen on the deindustrialisation of Europe, or at least they are the only ones talking about it.

Here at Sandbag we are more interested in the reindustrialisation of Europe. You don’t need to be a clairvoyant to see that the next Kondratiev wave is going to be high tech and low carbon and we hope that Europe is riding on the crest of this wave. Much of the rest of the world sees it this way, including China, who’s 12th Five-Year-Plan is out this month and is tipped to be the greenest yet. With China’s energy saving and environmental protection sector alone estimated to be worth €520 billion by 2015, Europe has a strong interest to move quickly and minimise the competitive threat of China’s green industrial policy. This means embracing green growth, reinvesting and reindustrialising towards a low carbon future.

To do this industry needs a price incentive, yet, these price incentives have yet to materialise in a meaningful way via the EU emissions trading system (ETS). Lobbying by industry, recession, political uncertainty and over allocation have all contributed to a slack in the system that has left the price of carbon low and the incentive to reinvest even lower.

Eurofer is particularly up in arms because of the suggestion in the 2050 roadmap of setting aside 500-800 million emissions permits to deal with this slack. While Sandbag welcomes the reopening of this debate to set aside permits we believe that it does not go far enough. Coincidentally, as our research has shown, setting aside 1.4 billion emissions permits is a much more accurate reflection of the effects of Phase 2 overallocation on Phase 3. AsDeutsche Bank has confirmed, a correction of the Phase 3 budget, be it 500 million, 800 million or 1.4 billion is possible, and could be achieved simply by withholding permits from auction.

The statement by Eurofer Director, George Moffat, reads “the confiscation of allowances from the emissions trading system, as proposed by the roadmap, will have exactly the same effect as a unilateral move to 30%, This is unacceptable. We hope member states will not fall into this trap”. Which trap would this be, the trap of a low carbon economy, energy security, greater global competitiveness and green jobs?

Actually, Mr Moffat is once again exaggerating the impact of this set aside which is a fraction of the 1.4 billion permits that would need to be removed to genuinely put the ETS on a trajectory commensurate with a 30% target.

The Iron and Steel sector need not worry too much: only 16% of installations are short of emissions permits as things currently stand. The graph below charts the Iron and Steel emissions versus allocation – and it depicts rather starkly the comfortable position of the sector. With a surplus to date of 72 million permits worth an estimated €1.1 billion Sandbag is not so convinced of the bleak and bombastic picture painted by Mr Moffat. Enough rhetoric about deindustrialisation: let’s get talking about the low carbon reindustrialisation of Europe.

Steel position