* Steel body Eurofer challenges ETS at EU Court of Justice
* Eurofer says EU Commission wrongly set ETS benchmarks
(Adds background, analyst)
By Pete Harrison and Nina Chestney
BRUSSELS/LONDON, July 21 European steelmakers
said they started legal action on Thursday to overturn the way
the sector has been included in the European Union's carbon
Industry body Eurofer says the rules for the Emissions
Trading Scheme (ETS) do not set a fair benchmark for allowing
the industry's most efficient 10 percent of factories to get all
their pollution permits for free after 2013.
"Nowhere in the world is a steelworks that could operate its
plants at the level of this benchmark," Eurofer Director General
Gordon Moffat said in a statement.
The European Commission, which oversees the ETS, could not
be reached to comment on the challenge, launched at the European
Court of Justice. But it has repeatedly stood firm on its
The European Union aims to cut carbon dioxide emissions to
20 percent below 1990 levels over the next decade. Its main tool
for doing that is the ETS, which forces companies to acquire
permits for each tonne of carbon they emit.
Some industries, including steel, have been given permits
for free to prevent their costs rising above those of overseas
That has often translated into windfall profits worth tens
of millions of euros for the companies involved, such as steel
giant ArcelorMittal .
From 2013, the EU aims to tighten up the ETS to eliminate
such windfall profits, and only the 10 percent most efficient
plants, which meet an efficiency benchmark, will receive all
their permits for free.
It is these benchmarks that have caused the dispute.
The steel industry says its installations recycle waste
gases as an additional source of energy and has criticised the
decision not to give credit for that in the benchmarking
"This is a clear infringement of the ETS directive, as the
best performers will be short of free allowances," Moffat said.
LITTLE MARKET IMPACT
Eurofer says the problems it sees with the benchmarks will
cost the industry about 5 billion euros ($7.1 billion) in the
The move follows a court challenge to the ETS this month by
U.S. airlines, arguing that their inclusion in the scheme
breached U.S. sovereignty.
"It doesn't seem to be a very strong case, especially
compared to the U.S. airline case, which seems a lot stronger,"
said Trevor Sikorski, head of carbon research at Barclays
"I think (Eurofer) will have to try and prove the EU
Commission has over-stepped its remit as a regulator," he added.
If Eurofer succeeds, it would probably not have much of an
impact on the price of ETS permits or on the overall ETS cap on
emissions, said analyst Bjorn Inge Vik at Point Carbon, a
Thomson Reuters company focused on energy and environmental
"If (Eurofer) is successful, I don't think it would affect
the overall cap," he said. "It would increase the benchmark, and
the steel industry would get more free allowances but the
overall cap would remain fixed."
(Writing by Pete Harrison, editing by Rex Merrifield and
($1 = 0.704 Euros)