The question of how EU steel makers have truly earned their revenue in recent years is more relevant than ever, especially against the backdrop of declining crude steel production in the EU and the sharp rise in CO2 certificate prices. Adding to this complexity, the third interest rate cut by the US Federal Reserve is expected to bring positive momentum to the global economy.
Experts predict that the US Federal Reserve will once again lower its key interest rate, potentially reducing it to a range of 4.25% to 4.50%. This would mark the third rate cut this year under the leadership of Jerome Powell, who has been steering the Fed on a course of economic support since September. Market participants and investors are closely watching how unified the monetary authorities are in their future outlook, with the regular “dot plot” forecasts providing valuable guidance.
It’s widely known that a prominent US car manufacturer owes much of its early success to the trade of surplus EU CO2 certificates. What’s less publicized, however, is how European steel makers have similarly profited from these certificates over the years. These profits stem from the surplus distribution of CO2 allowances under the EU Emissions Trading System (ETS), a mechanism originally designed to incentivize emissions reductions.
By examining the hidden subsidies provided to European steel makers through surplus EU CO2 certificates, a surprising trend emerges. Using data from the European Union Transaction Log (EUTL) and pig iron and crude steel production figures, we estimated the extent of these benefits. While some of these calculations involve assumptions, they are logically consistent and have been modeled across multiple scenarios.
56.4 Billion Euros in Hidden Subsidies Since 2005
Since the introduction of the EU ETS in 2005, European steel makers have received free emission allowances worth approximately €56.4 billion. Out of this total, €41.3 billion was used to offset real emissions, leaving €15.1 billion as direct financial gains for steel manufacturers.
Over €3 Billion in Excess CO2 Certificate Profits in 2023
With the rise in CO2 prices and surplus allowances since 2021, these subsidies have significantly increased. In 2022 and 2023, as crude steel production declined sharply, steel makers earned billions from selling surplus emission allowances—sometimes earning more from these sales than from their core steel production.
The current structure of the EU ETS and the proposed Carbon Border Adjustment Mechanism (CBAM) has drawn heavy criticism from steel manufacturers. Their dissatisfaction stems from the gradual phase-out of free CO2 certificate allocations and the introduction of CBAM. However, it’s crucial to remember the original purpose of these mechanisms.
The stark contrast between the income generated from actual steel production and profits from surplus CO2 allowances reveals a troubling reality. In recent years, EU steel makers have benefited more from emissions trading than from their primary business. While these profits might seem like a windfall, they undermine the original intent of the ETS, which was to encourage genuine emissions reductions and foster a greener future.
The EU must ensure that the ETS and CBAM function as intended—tools for reducing emissions and driving environmental accountability—not as profit-generating mechanisms for the steel industry. The debate surrounding these policies highlights the need for transparency and fairness in balancing environmental goals with economic realities.
If you believe there are inaccuracies in this analysis or would like further clarification, feel free to reach out. While some of our calculations are speculative, they are supported by publicly accessible data and robust methodologies.
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