On May 4th, 2016, my guest article was released on euractiv.com.
Tens of thousands of steel workers are demonstrating for the future of their jobs. And rightly so. The steel industry has come under pressure due to a massive global oversupply. Steel companies, along with the German Minister for Economic Affairs Sigmar Gabriel, were quick to find a culprit for the crisis: the European emissions trading system.
The European steel industry has suffered from surplus capacities for years. The situation has recently become increasingly dire for the sector, as the faltering economies in Russia and China have started to flood the global market with their subsidised steel at prices that are far below the manufacturing costs and impossible to compete with for European industries.
The European Commission hoped to counteract this state-led distortion of competition with its recent reform of European anti-dumping instruments, but has been blocked in this area by the EU member states – including Germany – for far too long.
Nevertheless, Gabriel, presumably in the hope of at least scoring a few cheap points from the steel industry, was quick to place the blame once again at the feet of the European climate protection movement. In particular, his target is emissions trading, even though the minister is well aware that this is not a viable scapegoat.
After all, as an energy-intensive industry exposed to international competition, steel receives free allowances under emissions trading. For the German steel industry in particular, trading CO2 emissions allowances is a real goldmine. Between 2008 and 2012, ThyssenKrupp, ArcelorMittal and co. earned an additional €2.7 billion from oversupply and free allocations in Germany alone.
According to Carbon Market Watch, European industries pocketed a windfall of at least €24 billion over 2008-2014 under the emissions trading system, with steel firms and others getting the lion’s share. Anyone now trying to sell these shady profits as a burden is playing a dishonest game, as was proved once more today when the European Court of Justice dismissed a complaint by companies claiming to be losing out from the EU ETS, when in fact the court found they are receiving too many subsidies via the ETS.
The claim that this will change in future is simply false. Thanks to the oversupply of emissions allowances, there is no need for companies to make additional purchases until 2020 at the earliest. Reforms to emissions trading for the fourth trade period, starting in 2020, that are currently under discussion , which Gabriel viewed as too slow when he wasn’t busy making clumsy election campaign moves , will not change the preferential treatment received by the steel industry to a great extent.
The Commission’s plans include the continuation of free allocations to industries exposed to international competition. The amount, however, is to be guided by benchmarks which take into account technological development.
The argument that the threat of increased electricity prices leads to additional costs for the steel industry in Germany does not hold water. Thanks to the Energiewende, the market price of electricity for energy-intensive industry has been plummeting for years and is currently around €20 per megawatt hour. Moreover, in Germany the sector receives millions in assistance each year in the form of electricity price compensation. In 2013 these payments were around €77 million.
Steel workers are rightly upset about the current situation – but the root cause lies much closer than they may know. Companies such as ThyssenKrupp have primarily suffered billions in losses due to poor investment decisions – not in Germany or Europe, but in Brazil and the US. So, before shifting the blame to an easy and incorrect target, honesty towards their employees would be a first step to set things straight.
Instead of engaging in a sham battle, the German economics minister and Europe’s leaders should focus on the meaning and purpose of industrial policy. This means equipping European industry for the future by promoting innovation and efficiency. The steps needed in this respect towards ultra-low carbon dioxide steelworks require benchmarks, as currently discussed in the context of emissions trading reform, just as much as a price signal that communicates how efficient management also has financial rewards.
Without incentive systems such as emissions trading, innovations such as the new cyclone converter furnace, which enables significant reductions in CO2 in steel manufacturing, cannot become competitive. An end to the free allocations would thus certainly be appropriate, particularly in light of the fact that China is also introducing emissions trading. Those calling for a level playing field for competition should start looking into interlinking these systems.
And please do not forget, along with every other country in the world, Europe has committed itself to keeping global warming well below two degrees Celsius. This commitment must also be recognised by the steel lobby. Last week, the EU officially signed the Paris Climate Agreement in New York. Now, at the very latest, climate policy can no longer be demonised as a programme for de-industrialisation, but needs to be viewed as a permanent fixture of our society.
An example of how competitive industries are that fail to recognise this and channel their energy primarily into fighting against and thwarting climate policy goals can be found in the German car industry. Customers now camp outside Tesla showrooms when the American manufacturer’s vehicles go on sale. But they are not waiting outside VW showrooms – the manufacturer who celebrates the introduction of smartphone apps in the car radio as a great innovation, and yet whose motors only meet the statutory CO2 limits in laboratory tests, instead of on the roads.