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EU Climate Change, Subsidising China - Is it a Steal?

22/04/2016 11:06

Despite all the recent turmoil over the UK steel industry and meetings in Brussels today, the reality is that the European Union has actually been subsidising the Chinese steel industry for years, in payments hidden amongst its efforts to combat Climate Change.

Using complex methods of carbon credits and carbon offsets, the EU devised rules on climate change ended up paying Chinese steel manufacturers billions to upgrade their steel mills and other energy intensive industry.

According to the analysis company, European Insights, almost €1.5 billion was paid to over 90 steel plants in China with the purpose of modernising them to consume less energy, and making the plants more efficient. Taken with the downturn in Chinese trade and the need for them to reduce world market prices to sell their product, the output of these mills has flooded onto the European market making steel products artificially cheap and endangering thousands of jobs in the UK. One plant alone, Anshan Iron and Steel, received a payment of €150 million to help pay for the installation of up to date equipment and replace the old inefficient Communist era machinery.

The money came from the EU's self-claimed flagship Climate Directive, the Emission Trading System, and paid for by power and industrial companies in the EU. who are as part of their industry emitters of carbon dioxide. This system forces big carbon emitters in Europe to buy carbon offsets, known as Certified Emission Reductions. They can buy these on the "carbon market" but companies in China, for example, who could show they intended to reduce their own levels of carbon emissions, would qualify.

The system then allowed Chinese steel producers to exploit a loophole that allowed their modernisation to be financed by the sale of these credits, as they received upfront payments of billions of Euros.

European installations that involve high energy consumption also can participate in this carbon trading market, but at a much lesser scale. Effectively around 12,000 European installations, including power stations and steel mills, were forced by the EU into subsidising Chinese industrial growth and development in a trade worth up to a total of €45 billion.

The Think Tank, European Insights, said: "These Chinese upgrades have now, sadly, assisted in record levels of Chinese steel production and are contributing to the low steel price that is endangering jobs in the UK. The system of carbon credit trading is highly complex, and we uncovered 91 individual steel mills in China that received funding of this nature. We estimate that the total paid to them was €1.4 billion."

The EU approach to Climate Change is another example of the unintended consequences associated with policies made at an EU level. The initiative was well-meaning maybe, but failed totally to anticipate the consequences on world trade and impact on EU member states. Most damaging is that EU is also terribly slow to ameliorate the negative effects of its own policies.

The full report by European Insights can be found here:
http://europeaninsights.org/carbon-credits-and-steel/

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