ArcelorMittal says carbon border levy is just the start to greener steel

LONDON (Reuters) - ArcelorMittal, the world’s biggest steelmaker, says a proposed EU carbon border tax is a vital first step to enable the industry to introduce low carbon technology and help reach the Paris agreement of curbing climate-warming emissions.

Steel rolls are lined up at the ArcelorMittal steel plant in Sestao, Spain, November 12, 2018. REUTERS/Vincent West/File Photo

Previous calls for a border tax to offset what industry says is the competitive disadvantage of producing steel in Europe to higher environmental standards have gone unheard.

ArcelorMittal sees a chance of success now the new European Commission, in office from November, has accepted the idea and appointed three separate departments to work on it.

“The ideological principle has been accepted,” Alan Knight, a general manager in charge of corporate responsibility, said in an interview on the sidelines of LME Week, an industry event in London.

“The carbon border adjustment is about making progress to implement the Paris Agreement.”

Around two tonnes of carbon dioxide are emitted for every tonne of steel made. With around 1.7 billion tonnes produced annually, the sector accounts for around 7% of global emissions, ArcelorMittal’s website says.

In Europe steelmakers must comply with the bloc’s Emissions Trading System (ETS), where pollution permits are trading around 25 euros a tonne.

Until now, the Commission has handed out free ETS permits to tackle industry’s complaints it is subject to “carbon leakage,” the term used to refer to the possibility high EU compliance costs will drive manufacturing to cheaper parts of the world.

From 2021 companies will receive fewer free permits.

ArcelorMittal had no comment on whether it would be willing to completely forego the free permits if a levy is agreed.

Environmental campaigners have said this is an essential condition of any border tax as double compensation would be unfair on producers outside Europe.

So far there is no hard evidence industry has moved from Europe because of carbon costs, but Knight said that will happen without a border adjustment.

“We are trying to solve a problem before it’s happened - a higher carbon price could inevitably cause steel production to move to countries where emission standards are lax compared to Europe,” Knight said.

Analysts at consultancy CRU said a 20 euros a tonne EU carbon price adds 42 euros a tonne to the marginal cost for European steel manufacturers.

The EU ETS is the most developed system of charging polluters for emissions, although China, the world’s biggest polluter, expects the first trade on a national emissions scheme next year.

Other countries are introducing some form of carbon pricing, but progress is slow and U.S. President Donald Trump has repeated his intention to leave the Paris accord.

Even with a border tax, Arcelor said it would need further policy incentives to help roll out cleaner technology it is testing.

It says the technologies work. The issue is cost and Arcelor says green steel is likely to be more expensive in the long term.

Reporting by Barbara Lewis and Susanna Twidale; editing by David Evans