LONDON A steel plant in northeast England due to close in January will likely get its 2010 quota of free European carbon permits, worth around 100 million euros ($147 million), the UK government said on Friday.
The Department of Energy and Climate Change (DECC) had said on Wednesday the 7 million European Union carbon permits, equal to one percent of Britain's annual greenhouse gas emissions, could be auctioned with proceeds going to government coffers.
But DECC on Friday said the plant in Teesside is likely to get the permits next February, despite the fact that owner Corus, Europe's second largest steelmaker, announced last Friday that it would be mothballed with 1,700 jobs cut.
"We have to follow the legally binding rules under the EU Emissions Trading System (ETS). In this instance, it is not clear that all the ETS activities at the Corus Teesside plant have closed," a DECC spokeswoman said in an email to Reuters.
"Whilst ETS activities continue at the site, it is likely that Corus will retain its free allocation and no allowances will return to the Government."
Under the EU's $92 billion ETS market, the 27-nation bloc's flagship weapon in its fight against climate change, heavy polluters get carbon permits mostly for free from government but can sell them if they cut their greenhouse gas emissions.
Corus, owned by India's Tata Steel, said several Teesside operations, including a blast furnace, steelmaking facilities and coke ovens, would be mothballed.
"The Teesside Cast Products plant is to be partially mothballed, which is not the same thing as permanent closure. The question of what is to happen to TCP's 2010 allowances is therefore undecided," a Corus spokesman told Reuters.
Analysts say it's unlikely any crude steel will be produced at the plant next year.
The permits could be sold by Corus to other firms to raise cash, meaning the 7 million metric tons of climate-warming carbon dioxide may eventually find their way into the atmosphere.
The Teesside plant is due to receive a further 14 million for 2011 and 2012 if the site's ETS activities continue.
British Prime Minister Gordon Brown will next week travel to a United Nations summit in Copenhagen to push rich and poor nations to accept deep emissions cuts under a new climate deal.
Critics say the UK government should cancel Teesside's permits, locking in the cuts toward its goal of reducing emissions by 80 percent by 2050, as a sign of its commitment to fighting climate change.
A Reuters story published on Wednesday quoted a DECC spokeswoman saying there was "a lot of paperwork" around cancelling the permits.
"The suggestion that we are unwilling to cancel these allowances because of the paperwork involved is absolutely not true," DECC said.
Environmental groups were outraged by the notion that bureaucratic processes would prevent the UK from retiring them.
"The legally-binding rules say we will auction allowances that return to us from installations that have fully closed," DECC said.
"This is a higher environmental standard than similar rules in most other member states, where such allowances are generally given out again to industry for free."
DECC said a new "partial closure rule" would be enacted in the scheme's third phase (2013-2020) whereby free allocations will be reduced if an installation is partially closed.
(Editing by Anthony Barker)