Repeat Carbon Market Delays Hinder Planning, Steelmakers Say

A series of delays in the European Union carbon market, the world’s largest by traded volume, is hampering business planning, according to a lobby group in Brussels representing steelmakers.

Factories and power stations in the 28-nation bloc will be able to exchange United Nations carbon offsets for EU permits from February next year, about 13 months later than indicated by the European Commission last year. The regulator is seeking information allowing it to determine the eligibility of some credits, it said in a Sept. 16 statement.

“We are not happy with this delay,” Axel Eggert, a spokesman for Eurofer, the steel industry group representing companies from ArcelorMittal (MT) SA to Tata Steel Ltd. (TATA), said yesterday by phone. “The commission is poorly implementing the directive,” he said, citing a six-month delay in a decision made Sept. 5 on the volume of free permits handed out.

Carbon permits have jumped 21 percent since Sept. 4 on speculation the less generous handout will curb any incentive to sell on traded markets such as ICE Futures Europe in London, the biggest emissions-trading exchange. Prices in the market, which has a surplus of allowances equivalent to a year’s supply, have more than doubled since reaching a record low in April.

‘Mechanical Application’

The delay in implementing the offset-exchange system will allow the commission to seek more data, the bloc’s regulator said in the statement. The late decision on free allowances was “a mechanical application” of law governing the process, Isaac Valero-Ladron, a spokesman for the commission, said yesterday in an e-mailed response to questions.

“The steel industry will get 1.5 billion allowances through to 2020, which is more than any other sector,” Valero-Ladron said. “This comes on top of the considerable Phase Two surplus in the hands of the sector,” which ran for the five years through last year.

Free allowances, usually handed out in February each year, have not yet been distributed for 2013, the first year of an eight-year phase.

“These unforeseeable and unpredictable regulatory processes are in fact further eroding the level of confidence that investors have in the market,” Daniel Rossetto, managing director of Climate Mundial Ltd. in London, said today by phone. “This is a shame because these markets really do work.”

Steelmaker Shortage

Carbon permits for December fell 2.6 percent to close at 5.53 euros ($7.38) a metric ton on ICE Futures Europe in London. They dropped as low as a record 2.46 euros on April 17 and benchmark prices have fallen 26 percent in the past year.

The commission in Brussels proposed to temporarily remove 900 million tons of supply from the market to help deal with a glut of about 2 billion tons. That plan is known as backloading and was approved by Parliament in July.

One unspecified steelmaker has a shortfall of 3 million tons next year, Eggert said, declining to be specific. That would cost 16.6 million euros to meet, based on today’s price. The industry may have a deficit of about 20 percent in the eight years through 2020 after the decision on the free permits known as a correction factor, Eggert said.

“Backloading would have been rejected by the Parliament had it known about the correction factor,” he said. “This is failing to give the certainty our industry needs to do business.”

He called on the commission to reconsider law which will see cuts in free allowances of 75 percent by 2021, compared with benchmark emission levels, given that other regions of the world will probably not adopt carbon markets by then.

Steel industry regulatory costs from the carbon market alone may completely wipe out the sector’s profits in Europe after 2020, he said, citing a June report by the Centre for European Policy Studies in Brussels.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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